Use of capital account of foreign direct investment in Vietnam

Pursuant to Decree 70/2014/ND-CP dated 17 July 2014 of Vietnamese Government on foreign exchange control. By aforesaid Circular, SBV provides guidance on foreign exchange control on foreign direct investment (FDI) enterprises and parties in business cooperation contracts, which will go in force from 22th September 2014, to replace provisions of Decree 160/2006/ND-CP with key summarized contents as follows:

1. Opening a capital account of foreign direct investment in Vietnam:

a. Opening capital account for foreign direct investment at one authorized bank: The FDI enterprise or parties in business cooperation contract must open capital accounts at one authorized bank. The quantities of capital account are limited, only 01 capital account opened for each kind of foreign currency chosen and 01 capital account for VND. As per previous Decree 160, the quantities of capital accounts are not mentioned, and VND capital account is not allowed.

b.  Opening capital account for foreign direct investment at another authorized bank: The FDI enterprises or parties in business cooperation contract must open their capital accounts at one authorized bank. If they want to open capital account at another authorized bank, they must close their capital account at existing authorized bank. As per previous Decree 160, this was not mentioned.

2. Use of capital account of foreign direct investment in Vietnam:

2.1 Using a capital account in a foreign currency of foreign direct investment in Vietnam

A direct  investment  capital  account  in  a  foreign  currency  is  permitted  to  be  used  for  the  following  revenue [payments into] and disbursement [payments out of] transactions relevant to the FDI activity in Vietnam:

2.1.1. Revenue [payments into]:
(a) Receiving direct investment capital contributions in foreign currency from foreign  investors and from Vietnamese investors in the FDI enterprise;
(b) Receiving  drawdowns  in  foreign  currency  from  domestic  and  foreign  short-term,  medium and long-term loans [taken out by] the FDI enterprise (As per previous Decree 160, it was applied for the medium and long-term foreign loans only);
(c) Receiving  money  in  payment  of  the  value  of  an  assignment  of  investment  capital  and  of  an investment project;
(d) Receiving foreign  currency  from  the  foreign  currency  payment accounts opened  at authorized banks of the FDI enterprise and/or foreign investor/s;
(dd) Other lawful revenue in foreign currency relevant to the FDI activity in Vietnam.

2.1.2. Disbursements [payments out of]:
(a) Paying principal, interest  and  fees of  domestic  and  foreign  short-term,  medium and  long-term loans [taken out by] the FDI enterprise(As per previous Decree 160, it was applied for the medium and long-term foreign loans only);
(b) Transferring foreign  currency  to  the  foreign  currency  payment  accounts  opened  at  authorized banks of the FDI enterprise and/or foreign investor/s;
(c) Selling  foreign  currency  to  an  authorized  credit  institution  in  order  to  remit [the  proceeds] into the VND payment accounts of the FDI enterprise and/or foreign investor/s;
(d) Remitting money in  payment  of the  value  of  an  assignment  of  investment  capital  and  the investment project;
(dd) Remitting overseas  profit  and  lawful  income in  foreign  currency  from  the  FDI  activity  in Vietnam of the foreign investor;
(e) Remitting overseas the  direct investment  capital in  foreign  currency of a foreign  investor  in  the case of dissolution or termination of operation of the FDI enterprise, in a case of assignment of investment  capital  and  the investment  project,  in  a  case  of  reduction  of  investment  capital, or in  a  case  of    completion [expiration],  liquidation  or  termination  of  operation  of  the  investment project in accordance with the law on investment;
(f) Other lawful disbursements in foreign currency relevant to the FDI activity in Vietnam.

2.2 Use of capital account in Vietnam Dong of foreign direct investment in Vietnam
A  direct  investment  capital  account in  VND  is  permitted  to  be  used  for  the  following  revenue  and disbursement transactions relevant to the FDI activity in Vietnam:

2.2.1. Revenue [payments into]:
(a) Receiving  direct  investment  capital  contributions  in  VND  from  foreign  investors  and  from Vietnamese investors in the FDI enterprise;
(b) Receiving  after-tax  profit  distributed  in  VND  in  order  to  conduct  reinvestment  in  Vietnam  by foreign investors and Vietnamese investors in the FDI enterprise;
(c) Receiving  loan  drawdowns  from  domestic  short-term,  mediumand  long-term  loans  in  VND [taken out by] the FDI enterprise in order to conduct the investment activity in Vietnam ;
(d) Receiving  foreign  loan  drawdowns in  VND  [taken  out  by]  the  FDI  enterprise  when  it  is permitted  to  borrow  foreign  loans  in  VND  pursuant  to  the  current  law  on  non-Government guaranteed foreign loans and foreign loan repayment by enterprises;
(dd) Receiving  money  in  payment  of  the  value  of  an  assignment  of  investment  capital  and  of  an investment project;
(e) Receiving  VND  from  the  VND  payment  accounts  opened  at  authorized  banks  of  the  FDI enterprise and/or foreign investor/s.

2.2.2. Disbursements [payments out of]:
(a) Transferring VND  into  the  VND  payment  accounts  opened  at  authorized  banks  ofthe  FDI enterprise and/or foreign investor/s;
(b) Remitting profit in VND to the foreign and Vietnamese investors in the FDI enterprise;
(c) Paying principal, interest and fees of domestic short-term, medium and long-term loans in VND [taken out by] the FDI enterprise in order to implement its investment project;
(d) Remitting  moneyin  payment of  the  value  of  an  assignment  of  investment  capital  and  the investment project;
(e) Remitting  the  investment  capital  in  VND to foreign  investors  and  Vietnamese  investors  in  the FDI  enterprise  in  a  case  of  dissolution  or  termination  of  operation  of  the  FDI  enterprise,  in  a case of assignment of the investment capital and the investment project, in a case of reduction of  investment  capital,  or  in  a  case  of completion [expiration],  liquidation  or  termination  of operation of the investment project in accordance with the law on investment.

3. Transfer of capital for investment preparation before license issuance:

3.1 Transfer of investment capital into Vietnam prior to investment certificates issuance:

a) Prior to the issuance of investment certificates, foreign investors are allowed to transfer investment capital into Vietnam to meet the lawful expenses for the investment preparation phrase in Vietnam under a written agreement between related parties and through ordinary accounts opened by their foreign currency at authorized banks;
b) Foreign investors use capital were transferred to Vietnam as stipulated in aforesaid clause to meet the lawful expenses for the investment preparation in Vietnam on the basis of compliance provisions of existing laws.

3.2 Transfer overseas capital after the investment certificate:

a) After the investment certificate granted, foreign investors, Vietnamese investors in FDI enterprises must finalize their investment capital transferred into Vietnam prior to investment certificates issuance;
b) The transfer of the capital of foreign investors into Vietnam have done to meet the expenses for the preparation of investment in Vietnam may be converted as capital contribution or foreign loans on the basis of agreement of related parties in compliance with current regulations of the law on investment, the accounting and the relevant provisions of the law of Vietnam.
If that part of capital of foreign investors transferred into Vietnam to meet the  expenses of investment preparation is converted into foreign medium long-term loans, FDI enterprise must register such loan in accordance with current regulations of the State Bank;
c) If the foreign investors does not fully use all up of that part of capital transferred into Vietnam to meet the expenses of investment preparation, foreign investors are allowed to transfer overseas the remaining amount on  the  basis  of  presentation  of  the file  and  source  vouchers  proving the amount of investment  capital  transferred  into  Vietnam and the  amount of expenses arising for the  investment  project  in  Vietnam.

3.3 Transfer overseas of investment capital as result of not granting investment certificates, or as result of the failure to perform direct investment projects in Vietnam:
If foreign investors transferred investment capital into Vietnam to meet the lawful expenses of the investment preparation in Vietnam but was not granted investment certificates or not continue to make direct investment projects in Vietnam, foreign investors may transfer abroad of investment capital has remitted into Vietnam and on call interests incurred (if any) after deducting costs incurred in Vietnam on the basis of
on  the  basis  of presentation of valid source vouchers proving the amount of investment capital transferred into Vietnam  and  proving  the  lawful  expenses  arising  in  relation  to  preparation  of  the  investment project in Vietnam.

In summary, from effective date of Circular 19 (i.e. on 22th September, 2014), there are following key points to be implemented:
- All short, medium and long-term domestic loans (in both foreign currency and VND) of FDI enterprises with the bank shall be disbursed through capital account of client.
- All short, medium and long-term foreign loans of FDI enterprises shall be disbursed through capital account.
- All principle, interest and fees on short, medium or long-term loans of FDI enterprises with the bank shall be repaid and collected through capital account.
- Disbursement to outside of Vietnam of principle, interest and fees on a foreign short, medium or long-term loans of FDI enterprises shall be conduct via capital account of client.
- Payment of shares assignment of FDI enterprises (including receipt and disbursement) shall be conducted through capital account of client.

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