The difference between direct and indirect investment capital accounts in Vietnam: 19 frequently asked questions and answers

Direct and indirect investment capital accounts

With these 19 frequently asked questions and answers, BLawyers Vietnam would like to provide an overview of a Direct Investment Capital Account (“DICA”) and Indirect Investment Capital Account (“IICA”) pursuant to Vietnamese law. We describe below the conditions and procedures for registering DICA and IICA under the prevailing law of Vietnam.

1. What is DICA and IICA?
  1. A Direct Investment Capital Account (or DICA) is a payment account in foreign currency or Vietnamese dong opened by foreign direct investment enterprises (“FDI enterprises”) or foreign investors (“FIs”) at authorized banks to conduct transactions related to foreign direct investment activities in Vietnam.
  2. An indirect Investment Capital Account (or IICA) is a payment account in Vietnamese dong opened by FIs at authorized banks to carry out permitted revenue and expenditure transactions related to foreign indirect investment activities in Vietnam.
2. What are the ways in which foreign investors can directly invest in Vietnam?

Direct investment activities in Vietnam are activities in which FIs invest in Vietnam through the establishment of a business organizations and are granted an investment registration certificate (IRC); or in which FIs hold at least 51% or more of the charter capital. In such cases, the investor would be intimately involved in the management and administration of the investment project’s production and commercial activities.

According to Vietnamese law, forms of direct investment include:

  1. Investing in the establishment of a business organization;
  2. Implementing investment projects;
  3. Investing in the form of business cooperation contracts (BCC);
  4. Contributing capital or purchasing shares/stakes which leads to investors holding over 51% of the enterprise’s charter capital; and
  5. Other forms of direct investment as prescribed by the Government.
3. What is the principle of using DICA?
  1. FIs and Vietnamese investors are permitted to contribute investment capital in foreign currency or Vietnamese dong according to their capital contribution levels as per the following documents:
    • Investment Registration Certificate (“IRC”);
    • Establishment and an operation license in accordance with specialized law;
    • Notice of the foreign investor’s eligibility to contribute capital or purchase shares/stakes;
    • Public-private partnership contract (PPP contract);
    • Other documents proving the capital contribution of FIs in compliance with the law.
  2. Residents who are Vietnamese investors are allowed to contribute capital using their own foreign currency sources;
  3. The monetary capital contribution by foreign or Vietnamese investors must be transferred to a DICA;
  4. Transactions of capital withdrawal, principal payment, interest, fees; and foreign loan accounts, foreign debt repayment of enterprises with foreign direct investment are regulated by the law on foreign loans and debt repayment of enterprises;
  5. FIs using profits divided on Vietnamese territory must comply with regulations on foreign exchange management and other relevant legal regulations.
4. Who is required to open and use DICA?

The following three entities are required to open and use DICA:

  1. FDI enterprises;
  2. FIs participating in a BCC; and
  3. FIs directly implementing PPP projects in cases where a project enterprise is not established.
5. What is the procedure for opening DICA?

To open a DICA, the following procedure must be carried out:

  1. Step 1: Submit 01 set of documents directly or via post or electronic means to the authorized bank to open the account.
  2. Step 2: The bank conducts a check and cross-references the documents in the application and requests completion of the application (if any).
  3. Step 3: The bank and the foreign investor proceed to conclude an agreement to open and use the DICA.
  4. Step 4: The bank notifies the account number, account name, and start date of the account operation.
  5. Step 5: The bank collects the account holder’s or their legal representative’s stamp samples, signature samples, and digital certificates (if any).
6. Do foreign currency transactions have to be carried out by a DICA?

Yes, they do. There are several foreign currency transactions that must be conducted through a DICA, including the following:

6.1. Revenue transactions
  1. Revenue of direct investment capital in foreign currency transferred by FIs and Vietnamese investors;
  2. Revenue of transfer value of direct investment capital and investment projects;
  3. Revenue of foreign currency purchased from authorized credit institutions to transfer capital, profits, and legitimate revenues abroad;
  4. Revenue of transfers from foreign currency payment accounts of the same entities that open and use a DICA to transfer capital, profits, and legitimate revenues abroad to FIs;
  5. Revenue of foreign currency conversion to implement direct investment capital contribution if the currency of the contribution is different from the currency of the opened DICA;
  6. Revenue of surplus capital from issuing additional new shares to increase charter capital at FDI enterprises;
  7. Revenue of revenues from domestic petroleum product sales (if any);
  8. Revenue of transfers related to foreign loans of FDI enterprises;
  9. Other legitimate revenues in foreign currency related to foreign direct investment activities in Vietnam.
6.2. Expenditure transactions
  1. Transfer to payment accounts in foreign currency of the same entities that open and use a DICA, project operators in the petroleum sector to implement foreign direct investment activities in Vietnam;
  2. Purchase of foreign currency to authorized credit institutions for transfer into Vietnamese dong payment accounts of the same entities that open and use a DICA;
  3. Payment for transfer value of direct investment capital and investment projects to the transferor abroad or sale of foreign currency to pay for transfer value of direct investment capital and investment projects to the transferor in Vietnamese dong;
  4. Transfer of profits and other legitimate revenues in foreign currency from foreign direct investment activities in Vietnam by FIs abroad;
  5. Transfer of direct investment capital directly by FIs abroad in the case of capital reduction, finish, or termination of investment projects, a BCC, or PPP contracts in accordance with the law on investment;
  6. Conversion of foreign currency for transferring capital, profits, and legitimate revenues from direct investment activities abroad if the currency for transferring capital, profits, and legitimate revenues abroad is different from the currency of the opened DICA;
  7. Expenditure transfers related to foreign loans in foreign currency by FDI enterprises;
  8. Other legitimate expenditures in foreign currency related to direct foreign investment activities in Vietnam.
7. Do transactions in Vietnamese dong have to be done by a DICA?

Yes, they do. There are several transactions in Vietnamese dong that must be conducted through a DICA, including the following:

7.1. Revenue transactions
  1. Revenue of DICA in Vietnamese dong is transferred by FIs and Vietnamese investors who are the entities that open and use a DICA;
  2. Revenue of transfer value of direct investment capital and investment projects;
  3. Revenue of profit shares in Vietnamese dong from FIs and Vietnamese investors who are the entities that open and use a DICA to implement capital increase, and expand investment activities in Vietnam;
  4. Revenue of transfers from Vietnamese dong payment accounts of the same entities that open and use a DICA to transfer capital, profits, and legitimate revenues abroad to FIs;
  5. Revenue of surplus capital from issuing additional new shares to increase charter capital at FDI enterprises;
  6. Revenue of transfers related to foreign loans in Vietnamese dong from FDI enterprises that are allowed to borrow abroad in Vietnamese Dong;
  7. Other legitimate revenues in Vietnamese dong related to foreign direct investment activities in Vietnam.
7.2. Expenditure transactions
  1. Transfer to payment accounts in Vietnamese dong of the same entities that open and use a DICA, and project operators in the petroleum sector to implement foreign direct investment activities in Vietnam;
  2. Payment for transfer value of direct investment capital and investment projects to the transferor in Vietnam or sale of foreign currency to pay for transfer value of direct investment capital and investment projects to the transferor in Vietnamese dong;
  3. Purchase of foreign currency for transferring profits and other legitimate revenues in Vietnamese dong abroad for FIs;
  4. Transfer of direct investment capital directly in Vietnamese dong for Vietnamese investors or purchase of foreign currency to transfer direct investment capital directly for FIs abroad in the case of capital reduction, finish, or termination of investment projects, BCC, or PPP contracts in accordance with law on investment;
  5. Expenditure transfers related to foreign loans in Vietnamese dong by FDI enterprises that are allowed to borrow abroad in Vietnamese dong;
  6. Other legitimate expenditures in Vietnamese dong related to direct foreign investment activities in Vietnam.
8. Can foreign investors use a DICA to transfer investments to Vietnam?

Yes, they can. FIs can use a DICA to transfer investments into Vietnam in the following cases:

  1. Before being granted licenses for investment activities in Vietnam, FIs can use a DICA to transfer investments to pay for legitimate expenses during the pre-investment stage in Vietnam.
  2. After being granted the necessary licenses for investment activities in Vietnam, FIs can use a DICA to transfer investments to Vietnam for the following purposes:
  • Fully or partially converted into stakes;
  • Fully or partially converted into foreign loan capital of FDI enterprises;
  • Returned to FIs in foreign currency or Vietnamese dong excluding legal expenditures in such stage in Vietnam.
9. Can foreign investors use a DICA to transfer profits abroad?

Yes, they can. FIs can use a DICA to transfer abroad the following amounts:

  1. Principal, interest and expenses of foreign loans, profits and other legitimate revenues related to direct investment activities in Vietnam;
  2. A DICA that remains after capital reduction; project transfer; completion, termination of investment projects, BCCs, and PPP contracts in accordance with the law on investment.
10. What are the responsibilities of foreign investors when using a DICA?

When using a DICA, FIs must comply with the following obligations:

  1. Comply with the regulations of the law on foreign direct investment in Vietnam;
  2. Fully and truthfully declare transactions related to foreign direct investment in Vietnam;
  3. Provide documents related to foreign direct investment in Vietnam at the request of authorized credit institutions, and take responsibility for the authenticity of documents provided to the authorized credit institutions;
  4. The purchase of foreign currency at authorized credit institutions to transfer capital, profits, and legitimate income abroad for FIs must be in compliance with the law;
  5. Return the payment for the ownership transfer value of capital and investment projects to FIs, Vietnamese investors in the case of payment of transfer value of capital and investment projects;
  6. Report relevant issues as required by the State Bank.
11. In which case are foreign investors obliged to convert accounts from IICA to DICA?

FIs who use an IICA to contribute capital, and purchase shares/stakes at enterprises that lead to such investors holding at least 51% or more of charter capital are required to switch their account from an IICA to a DICA.

12. What are the ways in which foreign investors can indirectly invest in Vietnam?

FIs can indirectly invest in Vietnam through the following 07 forms, including:

  1. Capital contribution, purchase or sale of shares or contributed capital in Vietnamese enterprises that are not listed or registered for transactions yet on the securities market of Vietnam;
  2. Capital contribution, purchase or sale of shares or stakes of Vietnamese enterprises which have been listed or registered for transactions on the stock exchanges of Vietnam;
  3. Sales and purchase of bonds and other types of stocks on the securities market of Vietnam;
  4. Sale and purchase of other valuable papers in Vietnam dong which are permitted to be issued within the territory of Vietnam by organizational residents;
  5. Investment trust in Vietnam dong through fund management companies, securities companies and organizations are permitted to conduct the investment trust operation;
  6. Investment trust in Vietnam dong through credit institutions and branches of foreign banks are allowed to conduct the investment trust operation;
  7. Capital contribution, transfer of contributed capital of FIs in securities investment funds and fund management enterprises.
13. What is the principle of using an IICA?

When using an IICA, FIs must comply with the following principles:

  1. All indirect investment activities of FIs in Vietnam must be conducted in Vietnamese dong.
  2. Transactions related to foreign indirect investment activities in Vietnam of FIs must be carried out through 01 IICA opened at a licensed bank.
  3. The balance on an IICA of FIs is not permitted to be transferred to definite-term deposits and saving deposits at credit institutions and branches of foreign banks.
14. What is the procedure for opening an IICA?

The procedure for opening an IICA is like the procedure for opening a DICA, specifically:

  1. Step 1: FIs submit 01 set of documents directly or via post or electronic means to a licensed bank to open an account.
  2. Step 2: The bank conducts a check and cross-references the documents in the application and requests completion of the application (if any).
  3. Step 3: The bank and foreign investors proceed to conclude an agreement to open and use an IICA.
  4. Step 4: The bank notifies the account number, account name, and start date of the account operation.
  5. Step 5: The bank collects the account holder’s or their legal representative’s stamp samples, signature samples, and digital certificates (if any).
15. Which transactions are carried out by an IICA?

An IICA is used to conduct the following revenue and expenditure transactions:

15.1. Revenue transactions
  1. Revenue from selling foreign currency to authorized credit institutions;
  2. Revenue from transfer of contributed capital, shares, sale of securities and other valuable papers, revenue of dividends and interests from bonds and valuable papers in Vietnam dong from foreign indirect investment activities in Vietnam;
  3. Revenue of transfers from FIs’ Vietnamese dong current accounts opened at authorized banks;
  4. Revenue of accounts of fund management enterprises, securities companies, authorized credit institutions and branches of foreign banks permitted to conduct investment trust operations for FIs;
  5. Other legal revenue transactions in Vietnamese dong of FIs related to indirect foreign investment activities in Vietnam.
15.2. Expenditure transactions
  1. Payments for implementation of foreign indirect investment activities in Vietnam under 07 forms at item 12;
  2. Payments for buying foreign currency from authorized credit institutions to transfer capital, profits and other legal revenues abroad;
  3. Payments of legal expenses incurred in Vietnam;
  4. Payments of transfer to the FIs’ Vietnamese dong current account opened at authorized banks;
  5. Payments for transfer to accounts of fund management enterprises, securities companies, and organizations permitted to conduct investment trust operations for FIs;
  6. Other legal expenditure transactions related to indirect foreign investment activities in Vietnam.
16. Can foreign investors use an IICA to transfer investment capital abroad?

Yes, they can. To be able to transfer investment capital abroad through an IICA, FIs should do as follows:

  1. Use Vietnamese dong in an IICA to buy foreign currency at authorized credit institutions;
  2. Transfer the foreign currency purchased at authorized credit institutions abroad.
17. Can foreign investors convert the form of indirect investment in Vietnam into direct investment in Vietnam or vice versa?

Yes, they can. If FIs are indirectly investing in Vietnamese enterprises by acquiring stakes or contributing capital and wish to change to a direct investment form (participating in the management and administration of enterprises), FIs conduct the conversion as follows:

  1.  FIs no longer continue indirect investment in Vietnam:
    • After completing the procedure of converting the form of investment, FIs open a DICA in Vietnamese dong at a permitted bank;
    • Close the previously opened IICA and transfer the balance on the IICA to a DICA for direct investment in Vietnam.
  2. FIs continue indirect investment in Vietnam:
    • FIs are allowed to use the previously opened IICA to continue indirect investment in Vietnam.
    • At the same time, FIs carry out the opening and use of a DICA for direct investment in Vietnam.
  3. Non-resident FIs owning shares, and contributed capital in the following enterprises must conduct the conversion of investment form from direct to indirect;
  4. Any enterprise whose FIs hold less than 51% of charter capital;
  5. Any enterprise that does not need the IRC but has been granted one by the competent authority;
  6. FDI enterprises whose stocks are listed or registered for transactions on stock exchanges.

Note: In the cases of 03 types of enterprises mentioned above borrowing and repaying foreign debts through a DICA, they are allowed to continue maintaining this account.

18. What are the responsibilities of foreign investors when using an IICA?

When using an IICA, FIs must comply with the following obligations:

  1. FIs must comply with the provisions of the law when carrying out indirect investment activities in Vietnam;
  2. When conducting transactions on an IICA, FIs have responsibilities for:
  • Declaring transaction content related to foreign indirect investment activities in Vietnam as per requirements and instructions of licensed banks;
  • Submitting, and supplementing dossiers, documents or materials at the request of licensed banks.
19. In which cases are foreign investors obliged to convert accounts from a DICA to an IICA?

FIs are obliged to convert from a DICA to an IICA if they continue to carry out indirect investment activities in Vietnam, including the following cases:

  1. FIs have opened a DICA in Vietnamese dong;
  2. FIs have opened a DICA in Vietnamese dong while also holding Vietnamese dong balances on indefinite-term specialized deposit accounts in Vietnam dong opened by securities enterprises at licensed banks;
  3. FIs have not opened a DICA in Vietnamese dong and have Vietnamese dong balances on indefinite-term specialized deposit accounts in Vietnam dong opened by securities enterprises at licensed banks;
  4. FIs have opened a DICA in Vietnamese dong while also having foreign currency balances on indefinite-term specialized deposit accounts in foreign currencies opened by securities enterprises at licensed banks;
  5. FIs have not opened a DICA in Vietnamese dong while also having foreign currency balances on indefinite-term specialized deposit accounts in foreign currencies opened by securities enterprises at licensed banks.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. BLawyers Vietnam would love to hear from you.

Date: 22 November 2023

Writers: Tinh Nguyen and Chi Huynh

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