|Ha Hoang Loc|
On August 11 2014, the State Bank of Vietnam issued Circular 19/2014/TT-NHNN (Circular 19) which will take effect from September 22 2014. Accordingly, if an offshore buyer acquires existing shares or equity from Vietnamese shareholders and directly participates in management and operation of the target company post-completion, they may have to make payment through one of the following channels.
First, if the target company has an investment certificate, it must open a direct investment capital account. Any payment between the offshore investor (as the buyer) and Vietnamese shareholder (as the seller) will need to go through this direct investment capital account of the target company.
Second, if the target company does not have an investment certificate, the offshore buyer itself will need to open an indirect investment capital account in Vietnam dong in accordance with Circular 05/2014/TT-NHNN of March 12 2014. Payment should be made by the offshore buyer directly to the Vietnamese sellers through this indirect investment capital account. Involvement of the target company in this case is not required.
According to the Law on Investment, an investment certificate is required for all foreign investors who come and invest into Vietnam for the first time, as opposed to the business registration certificate for domestic companies. However, due to lack of further guidance, until now, both the investors and licensing authorities have been unclear in their interpretation of this legal requirement. In practice, offshore buyers normally protect themselves by requesting the target company to obtain the investment certificate as one of conditions to completion in order to reflect their investment into Vietnam.
Upon the coming effect of Circular 19, offshore investors may now have to get the target company (which is non-party to the share transfer agreement) involved in the payment flow. In other words, the parties will need to work together in order to find out a suitable mechanism to control the third party's direct investment account until the completion date.
Ha Hoang Loc