New Regulations On Foreign Exchange Control Of Foreign Direct Investment Activities In Vietnam
The State Bank of Vietnam has promulgated Circular 06/2019/TT-NHNN dated 26th June 2019 (“Circular 06”) providing guidance on foreign exchange control of foreign direct investment activities in Vietnam in order to replace Circular 19/2014/TT-NHNN (“Circular 19”) and amend a number of articles of Circular 05/2014/TT-NHNN.
Definition of “Foreign direct invested enterprise”
In comparison with Circular 19, the definition of “foreign direct invested enterprise” in Circular 06 has been broadened. Accordingly, the following enterprises are considered as foreign direct invested enterprises and are responsible for opening the direct investment capital account (“DICA”):
(i) Enterprises established by foreign investor(s) and such foreign investor(s) is(are) required to obtain the Investment Registration Certificate (“IRC”) in accordance with laws on investment;
(ii)Enterprises excluded from the above of which 51% or more of charter capital is held by foreign investor(s), including:
- An enterprise (operating in conditional business lines or without conditions applicable to foreign investors) of which at least 51% of charter capital is held by foreign investor(s) through capital contribution or purchase of shares/stakes;
- An enterprise derived from division, absorption, consolidation of which 51% of charter capital is owned by foreign investor(s) after such events;
- New enterprises established in accordance with specialized laws.
(iii) Project enterprises established by foreign investor(s) in order to implement investment projects under the form of public-private partnership (“PPP”) in accordance with laws on investment.
Requirements for opening DICA
According to Circular 19 and current guidance of Ministry of Planning and Investment, enterprises are requested to have IRC in order to open DICA. Circular 06 provides more flexible regulations when stating that, besides IRC, a DICA can be opened on the basis of the following documents:
(i) Establishment and operation certificate issued in accordance with specialized laws;
(ii) Approval of transaction of capital contribution or purchase of shares/stakes of foreign investor(s);
(iii) The PPP contracts signed with authorized State body;
(iv) Other documents evidencing that the investment by the foreign investor(s) are legally permitted.
Transfer of investment capital and investment projects
According to Circular 06, if a transaction of share/stake transfer in a foreign direct invested enterprise is between a non-resident and a resident, the transfer of funds must be made through DICA.
In respect of investment project transfer, funds between investors being non-residents or between a non-resident and a resident must be transferred through DICA.
Closing of DICA
A foreign direct invested enterprise, which does not fall under point a clause 2 Article 3 of Circular 06 (i.e. enterprise established by foreign investor(s) and such foreign investor(s) is(are) required to obtain the IRC) must close DICA in the following cases:
(i) After the transfer of shares/stakes or issuance of additional shares in order to raise the charter capital, the foreign investor(s) of such enterprise hold(s) less than 51% of its charter capital;
(ii) In case the enterprise is a public company, after its shares are listed or registered for trading on Securities Exchange.
The foreign investor(s) holding shares/stakes at such enterprise, who is(are) non-residents, shall open indirect investment capital account(s) for receipts and expenditures transactions in accordance with regulations on foreign exchange control of foreign indirect investment activities in Vietnam.
Conversion of accounts
Circular 06 will be effective from 06th September 2019. Within 12 months from the effective date of this Circular at the latest, the following enterprises must implement procedures for converting their bank accounts:
(i) In case of enterprises of which foreign investor(s) has(have) opened and used indirect investment capital account(s) to contribute capital, purchase shares/stakes that leads to such investor(s) hold(s) at least 51% of charter capital, such enterprises must open a DICA.
(ii)Enterprises which are not foreign direct invested enterprises in accordance with Circular 06, enterprises not subject to the issuance of IRC but having been granted with this certificate by request, and foreign direct invested enterprises of which shares are listed or registered for trading on Securities Exchange must close their DICA (if any) and foreign investor(s) of such enterprises, who is(are) non-residents, must open indirect investment capital account(s) instead.
Nevertheless, if the to-be-converted DICA is being currently used for borrowing and payment of foreign loans, it may be maintained for the aforementioned purposes in accordance with regulations on borrowing and payment of foreign loans of enterprises.
We do trust the above points are notable and sufficient, but should you have any question or need a deeper discussion on this issue, please do not hesitate to contact us.
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