Direct Investment Capital Accounts of Foreign Investors

Direct Investment Capital Accounts of Foreign Investors

“In order to conduct foreign direct investment activities in Vietnam, after being granted an Investment Registration Certificate or Enterprise Registration Certificate, a foreign-invested enterprise must open a direct investment capital account in order to contribute investment capital, transfer investment capital, or remit legal profits and revenues abroad. Being aware of the regulations on the use of direct investment capital accounts helps businesses avoid risks related to capital cash flow, facilitating the remittance of profits back home.”

1. Subjects allowed to open direct investment capital accounts

According to ‘Circular 06/2019/TT-NHNN’ guiding foreign exchange management for foreign direct investment activities in Vietnam, the following subjects are allowed to open direct investment capital accounts:

  • Foreign-invested enterprises, including:
  • Enterprises established in the form of an investment to establish economic organizations, in which there are foreign investors as members or shareholders and such enterprises shall carry out the procedures for issuance of Investment Registration Certificates in accordance with regulations of the law on investment.
  • Enterprises that do not fall into the above cases and have foreign investors owning 51% or more of the charter capital of the enterprise, including:
  • Enterprises with foreign investors contributing capital, buying shares or capital contributions in the enterprise (operating in a conditional business line or unconditional business line), resulting in foreign investors holding 51% or more of the charter capital of the enterprise.
  • Enterprises established after the split, merger or consolidation, resulting in foreign investors owning 51% or more of the charter capital of the enterprise.
  • Newly established enterprises in accordance with specialized law.
  • Project enterprises established by foreign investors to implement PPP projects in accordance with the investment law.
  • Foreign investors participating in a BCC contract, foreign investors directly implementing PPP projects without establishing project enterprises (hereinafter referred to as foreign investors directly implementing PPP projects).

Note that, the Investor must open a direct investment capital account in foreign currency at an authorized bank to conduct legal receipt and expenditure transactions in foreign currencies related to foreign direct investment activities in Vietnam. In addition, corresponding to the foreign currency that is contributed as investment capital, only one direct investment capital account in such foreign currency can be opened at an authorized bank. The investor shall open a separate direct investment capital account for each BCC contract or PPP project.

2. How to use direct investment capital account

To the extent described in this section, we would like to refer to the direct investment capital account in foreign currency. We realize that a common situation often arises when investors do not know what revenue and expenditure activities the investors are allowed to perform corresponding to each specific capital account. This has resulted in unnecessary errors in the use of the account and consequently, the application of sanctions is unavoidable. In addition, the use of existing funds in the investor’s account will also be interrupted. Therefore, each Investor needs to know which revenue and expenditure transactions are allowed to perform through direct investment account in foreign currency.

For receiving transactions, the Investor is allowed to:

  • Receive transfer of direct investment capital contribution in foreign currency from foreign investors, Vietnamese investors in FDI enterprises, foreign investors participating in BCC contracts, and foreign investors directly implementing PPP projects.
  • Collect payment amounts for the transfer of investment capital or investment projects according to the provisions of law.
  • Collect foreign currency transfer purchased from authorized credit institutions in order to remit capital, profits and lawful revenues abroad according to the provisions of this Circular.
  • Collect transfer from foreign currency payment accounts opened at authorized banks, of FDI enterprises, foreign investors participating in BCC contracts, and foreign investors directly implementing PPP projects to remit capital, profits and lawful revenues abroad.
  • Receive conversion of foreign currency to make capital contribution in case the capital contribution currency is different from the currency of the opened direct investment capital account.
  • Receive transfer of share premium from the issuance of new shares to increase charter capital in FDI enterprises.
  • Receive foreign currency transfer collected from the sale of domestic petroleum products (after fulfilling all financial obligations and minus expenses in VND) in accordance with the provisions of the oil and gas law and Government guarantee agreements and commitments (if any);
  • Receive transfers related to foreign loans of FDI enterprises in accordance with regulations of law on foreign borrowing and repayment of enterprises, except for the case specified in Clause 3, Article 5 of this Circular.
  • Other legal receipts in foreign currency related to foreign direct investment activities in Vietnam.

For spending transactions, the Investor is allowed to:

  • Transfer expenses to foreign currency payment accounts opened at authorized banks, of FDI enterprises, foreign investors participating in BCC contracts, and foreign investors directly implementing PPP projects, and the oil and gas project operator in accordance with the oil and gas law to carry out foreign direct investment activities in Vietnam.
  • Sell foreign currency to authorized credit institutions to transfer in Vietnamese dong to payment accounts of foreign direct-invested enterprises, foreign investors participating in BCC contracts, and foreign investors directly implementing PPP projects.
  • Pay for the transfer of the value of investment capital or investment project to the transferor overseas or the sale of foreign currency to pay for the transfer of value of investment capital or investment project to the transferor in Vietnam in Vietnamese Dong.
  • Pay expenses for remittance of profits and lawful revenues in foreign currency from foreign direct investment activities of foreign investors in Vietnam to their foreign countries.
  • Pay expenses for remittance of foreign investors’ direct investment capital in foreign currencies overseas in case of reduction of investment capital, termination, liquidation, or termination of operation of investment projects, BCC contracts, or PPP contracts according to the provisions of the law on investment.
  • Pay foreign currency conversion expenses for the transfer of capital, profits and legitimate income from direct investment abroad in case the currency of capital transfer, profits and legal income abroad are different from the currency of the direct investment capital account that has been opened.
  • Pay transfer expenses related to foreign loans in foreign currencies of FDI enterprises in accordance with the law on foreign borrowing and repayment of enterprises, except for the case specified in Clause 3, Article 5 of this Circular.
  • Pay other legal expenses in foreign currencies related to foreign direct investment activities in Vietnam.

Foreign exchange in general and the use of revenue and expenditure of foreign currencies are currently managed quite strictly so any use of the account not in accordance with the legal regulations will cause many difficulties for investors such as business interruption. Therefore, knowing the laws of Vietnam will help investors to carry out business activities in Vietnam more smoothly.

Source: plf.vn