This content is from: Local Insights

Updating Vietnam’s foreign exchange controls

Ordinance No 06/2013/UBTVQH13 on foreign exchange controls was passed on March 18 2013, amending and supplementing Ordinance No 28/2005/PL-UBTVQH dated December 13 2005. The new Ordinance, which takes effect from January 1 2014, focuses on issues critical to investors, including: foreign investment into Vietnam; Vietnamese investment overseas; usage of foreign currency in Vietnam; and, foreign loans for residents. The State Bank of Vietnam (SBV) has prepared many drafts of legal instruments to implement the new Ordinance.

Pursuant to the new Ordinance, and consistent with the Law on Investment, foreign investment into Vietnam is divided into direct investment and indirect investment.

Foreign direct investment in Vietnam, as defined in the new Ordinance, refers to a foreign investor investing capital and participating in the management of investment activities in Vietnam. Enterprises with foreign direct investment and foreign parties with business co-operation contracts must open a foreign direct investment capital account at an authorised credit institution for capital contributions, the transfer of the principal investment capital, profits and other lawful revenue. The lawful revenue of a foreign investor from such direct investment activities in Vietnam is permitted to be re-invested, remitted overseas or used to purchase foreign currency at an authorised credit institution if the revenue for overseas remittance is in Vietnamese dong. The same information is provided in Decree No 160/ND-CP date December 28 2006 (Decree 160) on implementing the Ordinance.

Foreign indirect investment in Vietnam refers to a foreign investor investing in Vietnam through the purchase and sale of securities and other valuable papers, through the contribution of capital, the purchase of shares, as well as through securities investment funds and other intermediary financial institutions, in accordance with the law but without direct participation in the management of investment activities. A non-resident being a foreign investor must open a bank account in Vietnamese dong, in order to conduct indirect investment in Vietnam; and all indirect investment capital being foreign currency must be converted into Vietnamese dong in order to conduct investment through this account. Such investors are entitled to use the legal revenue from this type of investment to re-invest or purchase foreign currency at an authorised credit institution for remittance overseas, provided that they satisfy all financial obligations of the State of Vietnam.

Vietnamese investment overseas

Residents are still entitled to invest overseas with legal foreign capital. Regardless of whether or not the investor is a credit institution, upon obtaining approval, by means of an offshore investment certificate, a resident must open a foreign currency account and register the remittance overseas in accordance with the regulations of the SBV.

The New Ordinance also supplements a new clause on offshore indirect investment. Accordingly, a credit institution may conduct offshore indirect investment in accordance with the Law on Investment and the SBV's regulations. Other types of companies allowed to conduct offshore indirect investment are permitted to open and use an account to conduct lawful investment activities.

Limitations on using foreign currency

Furthering the movement in Vietnam to de-dollarise the economy and combat inflation, in the new Ordinance the article relating to the use of foreign currency has been amended to be stricter. It now provides that all transactions, payments, listings, advertisements, quotations, fixing of prices, and recording of prices in contracts, agreements, and other similar forms by residents and non-residents must not be effected in foreign currency, except those cases which have been permitted by the SBV. These amendments are expected to elicit two key changes: (i) the increase of commercial activities in Vietnam which operate in Vietnamese dong, having previously operated in foreign currencies; and, (ii) the authority of the SBV to decide and make legislation in respect of the types of commercial activities in Vietnam which may use foreign currency, instead of having to wait for a direct order from the Prime Minister. Under this amended article 'other similar forms' permits a wide interpretation of the state authorities to impose this restriction. As a result, methods commonly used to avoid the previous provisions, such as lease contracts with rent-review clauses based on fluctuations in the exchange rate or agreements made in a foreign currency but being settled in Vietnamese dong, may be at risk of breaching this provision.

Under the new Ordinance, resident enterprises, co-operative institutions, credit institutions and foreign bank branches are permitted to borrow and repay foreign loans based upon the principle of self-borrowing and self-liability for repayment in accordance with the law. Individual residents are also entitled to enter into foreign loan agreements under the guidance of the government. However, whether this is possible in practice depends on issuance of the implementing legislation.

Among other things, the new Ordinance also states that credit institutions, foreign bank branches and other institutions are permitted to conduct business, and to provide foreign exchange services, in Vietnam and overseas, after obtaining the written consent of the SBV.

Mark Fraser

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