You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

September 10, 2019

Vietnam Issues New Circular on Foreign Exchange Control of Foreign Direct Investment Activities

Subscribe to Updates

The State Bank of Vietnam on June 26, 2019, issued Circular No. 06/2019/TT-NHNN on foreign exchange control of foreign direct investment activities in Vietnam (Circular 06). On September 6, 2019, Circular 06 replaced Circular No. 19/2014/TT-NHNN on the same matter, while also amending Circular No. 05/2014/TT-NHNN on opening and using foreign indirect investment capital accounts and Circular 16/2014/TT-NHNN on the use of foreign currency and Vietnamese dong accounts for residents and non-residents. Below are some notable points of Circular 06.

Entities Subject to Requirements on Direct Investment Capital Accounts

Although the current Vietnamese investment law (the Law on Investment of 2014) abolished the term “foreign direct investment” (FDI), Circular 06 still uses this term for the purpose of opening direct investment capital accounts (DICA) in certain forms of foreign investment in Vietnam. In particular, Circular 06 requires the following FDI enterprises, as well as foreign investors (individuals and entities), to open and maintain a DICA:

FDI Enterprises

(i) Foreign-invested enterprises established in accordance with investment regulations and granted an Investment Registration Certificate;

(ii) Enterprises not falling into (i) but having foreign ownership of 51% or more of the charter capital, including:

  • Enterprises in which foreign investors have acquired shares or contributed capital;
  • Enterprises formed as a result of restructuring (i.e., merger, demerger, consolidation, or separation); and
  • Enterprises newly established in accordance with specialized legislation (e.g., credit institutions, insurance companies, law firms, etc.).

(iii) Enterprises established by foreign investors for the purpose of operating public-private partnership (PPP) projects in accordance with investment regulations.

Foreign Investors

(i) Foreign investors participating in business cooperation contracts (BCCs); and

(ii) Foreign investors engaging in PPP projects but not establishing project companies.

Under Circular 06, if a foreign investor owns 51% or more of the charter capital of a company (F1) by setting up F1 or acquiring shares in a local company, then F1 is required to open a DICA. However, even if F1 owns 51% or more of the charter capital of another company (F2), F2 is not required to open a DICA.

Clearer Guidance on Opening and Using DICAs

The FDI enterprises and foreign investors mentioned above are required to open a DICA in a foreign currency (and a DICA in VND if they wish to do so) at a licensed bank in Vietnam.

Foreign investors participating in more than one BCC or PPP project must open a DICA for each respective BCC or PPP project.

For foreign loans made in a foreign currency other than the currency of the DICA, FDI enterprises are allowed to open another “bank account for taking and paying foreign loans” in such foreign currency at the same bank at which the DICA was opened.

If changing the bank at which the DICA was opened, FDI enterprises and foreign investors must close the current DICA at the current bank after transferring the balance in the current DICA to the new DICA opened at the new bank.

Transactions Required to be Routed via DICA

The below transactions, among others, must be routed via DICA:

(a) Capital contributions in cash (i.e., bank transfers) made by foreign investors to the charter capital of the relevant FDI enterprise;

(b) Payments for capital transfer transactions between a local seller and a foreign purchaser;

(c) Payments for investment project transfer transactions in BCCs and PPP projects between a local seller and a foreign purchaser, and between a foreign seller and a foreign purchaser;

(d) Profit repatriation to foreign investors; and

(e) Transactions relating to foreign loans of FDI enterprises (i.e., loan drawdown and repayment).

It is important to note that under Circular 06, payments for capital transfer transactions in FDI enterprises between a foreign seller and a foreign purchaser, and between a local seller and a local purchaser, are not required to be routed via DICAs.

Transitional Provisions

Within 12 months from the effective date of Circular 06 (i.e., by September 6, 2020), FDI enterprises and foreign investors under the following circumstances must convert their bank accounts into the appropriate types:

(a) For FDI enterprises currently having foreign ownership of 51% or more but maintaining a foreign indirect investment capital account, they must open a DICA instead.

(b) Enterprises which currently maintain a DICA must close the DICA, and each foreign investor must open an indirect investment capital account in the following circumstances:

  • Local enterprises having foreign ownership of less than 51%;
  • [Local] enterprises not required to have an Investment Registration Certificate, but already holding one based on their discretionary request; and
  • FDI enterprises having shares listed or registered to be traded on a Vietnam stock exchange.

In case the above enterprises maintain their DICAs for transactions relating to foreign loans, they are allowed to continue maintaining the DICAs for this purpose.

For more details on Circular 06, please contact us at [email protected].

Related Professionals

Practices

Banking and Finance

Corporate/M&A

Location

RELATED INSIGHTS​ 

January 9, 2025
Thailand’s Fiscal Policy Office (FPO) has released a draft of its planned Financial Business Hub Act, which is in line with the government’s aim of positioning Thailand as a regional financial hub and a critical player in the global economy. The draft act, on which the FPO is accepting comments until January 9, 2025, details the framework for promoting and attracting international financial businesses and related services to operate in Thailand, proposes various incentives, and outlines supervisory guidelines. This article examines key elements of the draft Financial Business Hub Act relevant to financial business operators. Incentivized Financial Businesses The draft act identifies the financial businesses to be promoted and incentivized. These target businesses include: Commercial banking businesses, Payment service businesses, Securities businesses, Derivatives businesses, Digital assets businesses, Insurance and reinsurance brokerage businesses, and Other financial-related businesses as determined by the Committee for the Supervision and Promotion of Financial Centers. Thailand’s finance minister explained that initially, the draft law intends to target businesses using an “out-out” model, which describes the raising of capital abroad for investment abroad, before expanding to an “out-in” model, in which capital is raised abroad for investment domestically. Therefore, the draft law currently specifies that the target businesses must only provide services to nonresidents without soliciting residents of Thailand to use their services. Authorization Targeted financial business operators will need to receive authorization from the Committee for the Supervision and Promotion of Financial Centers. The main eligibility criteria for authorization are the incorporation an entity (e.g., a company registered in Thailand, a branch of a foreign juristic person) with an office in designated areas to be specified in a royal decree (currently expected to be Bangkok and adjacent provinces) and the possession of other qualifications as prescribed in the draft act. Target businesses in Thailand will
Read More
January 8, 2025
Thailand’s Board of Investment (BOI) has issued regulations revising its criteria for certain foreign companies that receive promotional privileges to own land under limited circumstances. The revised allowance is detailed in the Notification of the Board of Investment No. 16/2567 Re: Criteria for Permitting Foreign Juristic Persons Receiving Investment Promotion to Hold Land Ownership for Office and Residence, which was published in the Government Gazette on December 9, 2024, after having been officially issued on November 1, 2024. The notification was made in conjunction with the subordinate Notification of the Office of the Board of Investment No. Por. 8/2567 Re: Criteria and Conditions for Permitting Foreign Juristic Persons Receiving Investment Promotion to Own Land for Office and Residence for Operational-Level Workers to Operate Business Granted Investment Promotion, dated November 4, 2024. Under the new BOI notification and subordinate notification, foreign juristic persons that receive promotional privileges from the BOI, with paid-up registered capital of at least THB 50 million, are eligible to own land for office use or residential purposes, subject to certain criteria and conditions: Office use. Land used for this purpose must be for an office of the relevant BOI-promoted business, with an area limit of 5 rai (8,000 square meters). Residential use. Land used for this purpose must be for the residences of operational-level workers (i.e., unskilled laborers), with an area limit of 20 rai (32,000 square meters). In addition, there must be common facilities (e.g., parking, first-aid room, kitchen, and other amenities, as approved by the BOI). The land must be located within 10 kilometers of the place of business operation, and the number of rooms must be consistent with the number of workers. For more information on this notification, or on any aspect of property law in Thailand, please contact Chaiwat Keratisuthisathorn at  [email protected],
Read More
January 3, 2025
Thailand has adopted the OECD’s global minimum tax framework through the Emergency Decree on Top-Up Tax B.E. 2567 (2024). Published in the Government Gazette on December 26, 2024, this legislation implements a 15% global minimum effective tax rate for large multinational enterprise (MNE) groups. The emergency decree took effect on January 1, 2025. The emergency decree was enacted through expedited procedures to implement “pillar two” of the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 project’s Global Anti-Base Erosion (GloBE) Rules. This swift implementation ensures Thailand can collect relevant tax revenues and prevents potential revenue losses from MNEs that might otherwise shift profits to jurisdictions with lower tax rates or to countries that have already implemented similar top-up tax legislation. Key aspects of Thailand’s implementation of the global minimum tax through the emergency decree are described below. Top-Up Tax The emergency decree introduces a dual mechanism for collecting additional top-up tax from MNEs whose effective tax rate falls below 15%. The first mechanism is a domestic top-up tax that targets MNEs operating within Thailand when their local effective tax rate is lower than 15%. The second mechanism is the income inclusion rule, which determines when a company’s foreign income should be included in the parent (main) company’s taxable income. This rule applies to Thai-based entities—including ultimate parent entities (UPE), intermediate parent entities, and partially owned parent entities—that hold ownership stakes in low-tax foreign jurisdictions. Scope MNEs subject to Thailand’s implementation of the global minimum tax framework are defined in the emergency decree as those whose UPEs report consolidated revenue of at least EUR 750 million (approximately THB 28 billion) in at least two of the four accounting periods preceding the relevant fiscal year. Reporting and Payment In-scope MNEs must comply with specific reporting obligations to the Thai Revenue Department. The filing deadline is set
Read More
December 20, 2024
With intellectual property playing an ever-increasing role in economic development, the need to harness, promote, and protect ASEAN innovation remains urgent as integration progresses. Among its objectives, the ASEAN Economic Community aims to transform the region into a hub of innovation and competitiveness and ensure that the region remains an active participant in the international IP community. With ASEAN member states increasing IP generation and further committing to global IP regimes, the region is increasingly looking toward sophisticated IP ownership and holding structures. IP Holding Companies ASEAN-based companies continue to centralize ownership of their IP assets in offshore holding and licensing vehicles—an approach multinational companies headquartered elsewhere have been using for a number of years. IP-intensive companies look to locate their IP portfolios in low-tax jurisdictions with strong IP registration and protection laws. The company then licenses the IP to operating companies in the group or to third-party licensees, franchisees, agents, distributors, and other partners in return for royalties or license fees. These special-purpose vehicles are typically referred to as IP holding companies. IP holding companies are popular because they can help corporations minimize tax, gain tax benefits or concessions, protect IP from bankruptcy or other claims against the parent company, and focus management attention on the IP portfolio as an income generator. Tax and IP Holding Companies Tax is the primary reason most companies park their IP in separate IP holding vehicles. Sometimes, companies choose to establish their IP holding company in a no-tax, low-tax, or preferred-tax jurisdiction close to their home country. The selected jurisdiction should also be a country with a large and well-established tax treaty network. Double taxation treaties are key considerations in jurisdiction shopping. If the IP assets need to be pledged as security for future borrowings or if they are to be included
Read More