This content is from: Local Insights

Vietnam: Clarity on foreign investment

Vu Le Bang
Under the Ordinance on Foreign Exchange Control of Vietnam, foreign investors participating in business cooperation contacts (FIs) and foreign invested enterprises (FIEs) must open a direct investment capital account (DICA) at an authorised credit institution. Such institution must be one used for investment capital contribution, principal investment capital remittance, profits, and other legitimate receivables. In this regard, the State Bank of Vietnam (SBV) issued Circular 19/2014/TT-NHNN (Circular 19), effective from Sept 25 2014, to provide further guidelines. Notably, under Circular 19, FIs and FIEs are permitted to open a DICA in Vietnamese dong, which was not permitted previously. A DICA should be used to perform FIE receipt and expenditure loan transactions, regardless of the type (whether a domestic or a foreign loan) and term of the loan (whether short-, medium- or long-term). DICAs were originally used to deal with foreign loan transactions prior to Circular 19, in relation to FIE loan transactions. Further, payments of capital and project transactions in relation to FIEs should be performed through a DICA.

While welcoming Circular 19, many banks in Vietnam have so far raised concerns over its strict implementation, and over the increased obligations it imposes. Specifically, if domestic loans are strictly subject to a DICA, it will likely become more burdensome for all the relevant parties, including the borrower, lender, and bank controlling the DICA. More importantly, it has been argued that the wording regarding a DICA could be interpreted as either 'is allowed to use' (meaning optional), or 'has to be used for' (meaning compulsory), in relation to certain activities under Circular 19.

In an effort to facilitate the enforcement of Circular 19, and to eliminate obstacles in implementing the Circular, the SBV has recently issued several official letters (including official letter 8234/NHNN-QLNH of November 6 2014). These are intended to provide clarification regarding the contents of Circular 19 which relate to DICAs. Accordingly, there are a number of items pertaining to DICAs under Circular 19 which have now been made clearer. For instance, domestic loans will not be subject to a DICA; whereas payments of share transfers in FIEs between investors must be made through a DICA. However, the contents of a DICA still require further clarification from the SBV, including the number of DICAs in different foreign currencies that are allowed to be opened, and the timing of opening a DICA when foreign investors are to purchase capital contributions and shares in Vietnamese companies.

Vu Le Bang

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