Abandoning an Inactive Company Without Dissolving It — Will There Be Penalties?

Authors: Truong Trong Minh – Senior Associate, Vo Thi Anh Nhi – Paralegal.

In the course of our consulting work, we frequently encounter cases of enterprises that have ceased operations in practice but have not yet carried out the dissolution procedure in accordance with the law. Most business owners assume that if the company generates no revenue and owes no tax, there is nothing further that needs to be done. This is an inaccurate understanding that carries many legal and financial risks for both the enterprise and the individual legal representative. In this article, the team of experts at CDLAF will analyze the issue under four main headings: the legal basis requiring an enterprise to carry out the dissolution procedure, the answer to the question “will there be penalties,” the legal consequences that may arise, and how state management authorities handle this in practice.

1. An enterprise does not automatically cease to exist when it stops operating

An enterprise ceasing operations in practice does not cause it to automatically cease to exist as a legal matter; it only results in the enterprise being listed by the tax authority as a “enterprise not operating at its registered head office,” together with the locking of all of the enterprise’s invoice-issuing and tax-declaration functions. To resolve this, the enterprise must carry out the necessary procedures to remove this status, and then proceed to carry out the enterprise dissolution procedure in the proper sequence if it no longer wishes to conduct business.

In other words, there is no mechanism for “automatic dissolution” for an enterprise that ceases operations without carrying out the procedure. Throughout the period in which the enterprise has not yet completed the necessary procedures, its declaration and reporting obligations continue to arise under the law, regardless of whether the enterprise is still actually operating.

2. Abandoning an inactive company without dissolving it — will there be penalties?

Depending on the specific circumstances, an enterprise may face three main groups of risk:

First – Administrative penalties: an enterprise may be subject to administrative penalties for acts such as failing to notify its operating status, failing to properly carry out the procedure when ceasing business, or failing to terminate the operations of a branch/representative office before carrying out related procedures. The level of the penalty depends on the specific act, but in every case it is an unexpected additional cost. In addition, the obligation to file periodic tax returns and financial statements must still be fulfilled even if the enterprise has no revenue.

Second – Tax arrears being collected and late-payment penalties increasing over time: even without considering direct administrative penalties, the enterprise still has to bear late tax payment interest calculated daily on the outstanding amount — this is a consequential form of penalty, and because it accrues over time it is often much larger in value than an ordinary administrative penalty, especially for cases where the enterprise has been abandoned and left unresolved for many years.

Third – Enforcement, revocation of the license, compelled dissolution, and exit suspension of the legal representative: if an enterprise is not operating at its registered address without a valid notification, the business registration authority may place the enterprise on the list for revocation of the Enterprise Registration Certificate and compel it to dissolve pursuant to a decision of the state authority — at that point, the enterprise loses the ability to proactively choose the timing and manner of ceasing operations.

The tax authority also has its own authority over the individual who is the legal representative or beneficial owner of the enterprise: if this individual does not fully resolve the status of the tax code within the prescribed period, they may be subject to the exit suspension measure.

Thus, “abandoning the company” does not help an enterprise avoid legal liability; it in fact only delays the moment of having to face the consequences — and over time, those consequences are usually far more severe than proactively resolving the matter now.

3. Legal consequences that may arise

In practice, most enterprises only pay attention to the company dissolution procedure once a consequence has already arisen, such as: the representative being placed under exit suspension, or the tax authority sending a notice of tax debt. At that point, business owners or legal representatives are already in a passive position and try every way to resolve the consequences that have already occurred; in not a few cases, tax debts and late payment interest have grown significantly due to arrears accumulated over many years, creating an enormous financial burden on the business owner. In addition, a legal representative who is placed under exit suspension will be in an anxious state of mind wanting the matter resolved, which can lead to mistakes or unnecessary additional costs.

These are very real risks, but they only come to light when the tax authority conducts a review of the enterprise’s records, so it is not uncommon for a legal representative to suddenly discover they are banned from exiting the country while going through procedures at the airport — at that point, finding a way to resolve the matter will take considerably more time than if it had been dealt with proactively at an early stage.

4. The practical approach taken by state authorities

When the management authority determines that an enterprise is no longer operating at its registered address, the handling process usually goes through the following steps: verifying the operating status, issuing a notice that the enterprise is not operating at its head office, and requiring the enterprise to contact the tax authority to have the matter resolved. If the enterprise does not respond and does not complete its outstanding financial obligations, the competent authority will proceed to issue a notice of exit suspension against the legal representative until the financial obligations have been completed.

Therefore, CDLAF recommends that, for an enterprise that no longer wishes to continue operating, proactively carrying out the dissolution procedure as early as possible will help minimize additional risks that may arise over time. Where an enterprise is only temporarily ceasing operations and may resume in the future, it should properly carry out the procedure to notify a temporary suspension of business to ensure compliance with the regulations, rather than letting the inactive status continue indefinitely without taking any action.

Consultancy & implementation of enterprise dissolution procedures service at CDLAF

CDLAF Law Firm supports enterprises to carry out dissolution procedures in a legally safe manner and on schedule, including:

• Reviewing and assessing the legal status, tax obligations, debts and asset liquidation plan of the enterprise before dissolution; proposing appropriate plans and roadmaps for each enterprise.
• Drafting dossiers, representing the enterprise to work with competent state agencies during the dissolution process.
• Advising on legal situations arising during the dissolution process.

📩 BOOK A CONSULTATION WITH CDLAF’S LEGAL TEAM

Do not let procedural errors disrupt your business plans. Contact CDLAF today to receive a preliminary risk assessment from our team of Lawyers:

Hotline/Zalo: [+84 909 668 216]

Email: info@cdlaf.vn

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