To address some issues that come with Circular 19/2014/TT-NHNN, on June 26, 2019, the State Bank of Vietnam issued Circular 06/2019/TT-NHNN to give a clearer definition of a Foreign Invested Enterprise (FIE) and specify the requirement for a Direct Investment Capital Account while conducting transactions as a Foreign Invested Enterpise in Vietnam. This has led to some crucial changes that foreign investors need to be aware of including specifics regarding currencies that are allowed to be used for your FDI company.
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A broader definition of Foreign Invested Enterprises (FIE) in Vietnam
Due to the confusion caused by Circular 19, some amendments have been made to clarify what is considered a Foreign Invested Enterprise (FIE) which is stated below:
1. Any business organization founded via investment whose members or shareholders are foreign investors and who have been given an Investment Registration Certificate (IRC) in accordance to the law.
2. Other than those defined in point a) if foreign investors own at least 51% of charter capital the definitions are as follows:
(i) any businesses where foreign investors own at least 51% of the charter capital through contributions or purchases of shares or interests;
(ii) After contributions are finalized, as previously mentioned, businesses resulting from split, purchase, or consolidation in which foreign investors possess 51% of the charter capital
3. Public-private partnership (PPP) projects are carried out by project firms created by foreign investors in compliance with the investment regulations.
Purposes and requirements of a Direct Investment Capital Account (DICA)?
In accordance with the rules outlined in Articles 5, 6, and 7 of this Circular, “direct investment account” refers to accounts in foreign currency or Vietnamese dong created by FDI businesses and foreign investors at recognized banks.
Who needs to open a DICA?
Added under Circular 06, besides all companies that are considered as an Foriegn Invested Enterpresises, as defined above, foreign investors participating in Business Cooperation Contracts (BCCs) and foreign investors directly implementing PPP projects need to have a DICA.
When is a DICA used?
According to Circular 6, if a share transfer of an FDI company or a fund transfer for an investment project is between a Vietnamese and a non-resident foreigner, the activity is required to go through a DICA. Investors can use DICA to receive capital, make payments for loans, and transfer profits.
However, payments for capital transfer between two locals and two foreigners do not need to be done through a DICA. In addition, a foreign investor is allowed to transfer money from outside or from an account in foreign currency or Vietnamese dong. However, the account has to be opened at an authorized bank in Vietnam. The money transferred can be used to pay legal expenses in the stage of preparation for investment activities in Vietnam.
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Required documents to open a DICA?
Documents that can be used to open a DICA can be one of these documents below:
● An approval of M&A transaction (added under Circular 06)
● Investment Registration Certificate
● Establishment and Operation Certificate
● PPP agreement between an FDI company and a state authority
● Other foreign investment documents
When You Need an Indirect Investment Capital Account
A foreign-invested company that is on a stock exchange, or has no more than 51% ownership in an M&A transaction must close its DICA account unless that DICA account is only used for loan payments and open an Indirect Investment Account, also known as an IICA. Profits from indirect investment activities must be transferred through IICA as well.
For the full text on circular 6 click here.