FDI companies in Vietnam: Definition and Capital Account

The most recent update on FDI in Vietnam: a clearer definition of Foreign Invested Company and requirement for Direct Investment Capital Account.

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 doing transactions as a FIE in Vietnam. This has led to some crucial changes that foreign investors need to be aware of. 

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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 an FIE, which is stated below: 

●  Enterprises founded by foreigners that are required to have an Investment Registration Certificate (IRC). 

●  Enterprises in which foreign investors contribute capital, purchase shares or capital of the enterprise that results in foreign investors owning 51% or more of the enterprise’s charter capital. 

●  Enterprises where foreign investors own 51% or more of its charter capital after demerger, merger, or consolidation.

●  Enterprises newly established under specialized laws where foreign investors own 51% or more of their charter capital.

●  Project enterprises established by foreigners to carry out Public-Private Partnership (PPP) projects.

And in order to carry out FDI activities in Vietnam, an FDI company is compelled to have a Direct Investment Capital Account (DICA), a current account in either Vietnamese Dong or foreign currency. 

RELATED: A Comprehensive Analysis on FDI from 2016 to 2021

Purposes and requirements of a Direct Investment Capital Account (DICA)?

Who needs to open a DICA?

Added under Circular 06, besides all companies that are considered as an FIE as above, foreign investors participating in Business Cooperation Contracts (BCCs) and foreign investors directly implementing PPP projects also 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 or 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 transfered can be used to pay legal expenses in the stage of preparation for the 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

Indirect Investment Capital Account (IICA)

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. 

After the termination of a DICA account in Vietnam, a non-resident investor must open an Indirect Investment Capital Account (IICA) for all investment activities in the country. Investors can use IICA for indirect investment activities only. Profits from indirect investment activities must be transferred through IICA as well.

How Cekindo can assist 

Cekindo has assisted more than 12,000 Corporate Clients across the region. Whether you seek a clearer understanding of the latest FDI laws or new strategies to adapt to the ever-changing market in Vietnam, our professional team at Cekindo has all the solutions and expertise you need. 

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Tomas Svoboda - Cekindo - Vietnam Country Manager

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Ing. Tomas Svoboda

Tomas is an expansion manager responsible for Vietnam. His role is to define the key potential of the Vietnamese market and to ensure that Cekindo branch in Vietnam provides its clients with smooth and hassle-free market entry solutions.