Foreign Exchange Control in Vietnam

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Aug. 5 – Foreign exchange control is the paramount concern for all foreign investors entering into Vietnam, as regulations on capital inflows and outflows have a great influence on operations and profit. These transactions include transferring capital into and out of the country, opening and using bank accounts, borrowing foreign loans and paying foreign debts, dealing with currency exchanges, government reporting and handling violations.

Transferring Capital into Vietnam

To transfer capital into Vietnam, foreign investors must first set up a foreign-invested enterprise (FIE), and then open a capital bank account in a legally licensed and operating bank.

A capital bank account is a special-purpose foreign-currency account designed to enable tracking of the movement of capital flows in and out of the country. This type of account is required to transfer money from the capital account to current accounts in order to make in-country payments and other current transactions.

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Investment capital contribution schedules are set out in joint venture contracts, FIE charters or articles of association, and/or business cooperation contracts, in addition to the FIE’s investment license. Foreign investors are required to strictly follow the committed contribution schedule to avoid fines.

Transferring Capital and Profit out of Vietnam

International transfers of capital and profit follow the procedure stipulated by the Law on Foreign Exchange Management. Foreign investors can transfer both capital and profit out of Vietnam as follows:

  • Capital that can be transferred includes legal capital, reinvestment capital, and capital for the performance of business cooperation contracts (upon operation, termination or dissolution of enterprises or reduction in the legal capital amount of enterprises).
  • Profits that can be distributed to foreign investors at the end of the fiscal year after fulfilling financial obligations to the State of Vietnam.

Transfer Procedure

At the end of a fiscal year, after giving notice to local managing tax offices at least seven working days in advance, foreign investors may remit profits abroad after fulfilling financial obligations to the State of Vietnam and submitting audited financial statements and corporate income tax finalization declarations to managing tax offices.

FIEs may not transfer profits abroad in the case of accumulated losses in financial reports.

Currency

Transferring capital and profit out of Vietnam must be done in foreign currency capital accounts in a freely convertible currency, most likely US$ or Euro. Lawful revenue in VND shall be permitted to be converted into foreign currency for remittance abroad via authorized credit institutions.

Tax Withholding

Accordingly, after completing their tax obligations to the State of Vietnam, FIEs are free to transfer profit abroad and shall not be subjected to withholding tax.

Opening and Using Accounts in Vietnam Banks

An FIE can open four types of bank accounts:

(i) Foreign-currency special-purpose capital accounts
FIEs are required to open foreign-currency special-purpose capital accounts to conduct foreign investors’ capital transfer transactions. Foreign currency special-purpose capital accounts can be used to perform the following transactions:

  • Deal with foreign investors’ charter capital contributions, investment capital implementations, medium and long-term foreign loans;
  • Pay foreign currency into Vietnam-based FIE accounts;
  • Pay all costs of medium and long term foreign currency loans overseas 
(principal, interest and fees and other related costs);
  • Transfer capital, profit and other legal revenues out of the country;
  • Sell foreign currency to credit institutions for foreign exchange; and
  • Other revenue and expenditure transactions related to investment.

(ii) Foreign-currency deposit accounts
In addition to the foreign-currency special-purpose capital accounts used to bring foreign investor’s capital and profits into and out of the country, FIEs may open and use foreign-currency deposit accounts. Generally, FIEs have to exchange foreign currency for VND by selling it to a bank licensed to take such transactions.

FIEs can use the foreign currency stored in foreign-currency deposit accounts for the following purposes:

  • Payments, including those for imported commodities and services (including related costs arisen);
  • Salary, bonus and other allowances to non-residents and foreign residents working for the organization;
  • Fees and interest;
  • Sale of foreign currency to credit institutions who are allowed to do foreign exchange business;
  • Investment in securities and commercial papers issued in a foreign currency, and principal and interest payments;
  • Exchange into other foreign currency payment instruments, including checks, payment cards and as regulated by the bank who is allowed to do foreign exchange business;
  • Capital contribution for implementing investment projects as regulated by the Law on Investment; and
  • Other transactions, including those in the form of account transfers or cash deposits with a license from the Governor of the State Bank.

Foreign-currency deposit accounts can receive bank interest according to the account structure. For demand deposit, specialized or cash-cover accounts, interest is counted on the number of actual deposit days and incorporated into principal monthly or on the balance withdrawal date.

For fixed deposit accounts, interest is paid once at maturity. If FIEs do not withdraw at maturity, all the principal and interest will be transferred into a new account with a new period upon account holder’s request at that moment; or into the current account if the licensed banks receive no notice from account holders about maintaining fixed deposit accounts.

(iii) VND Accounts
All transactions relating to investment activities can be done through VND accounts, including:

  • Receipt of revenues in VND for transactions in country;
  • Payment in VND for expenses incurred in country;
  • Purchase of foreign currency from credit institutions allowed to transfer overseas; and
  • Other income/expenditure transactions related to investment in country.

The procedures and materials required to open VND accounts are similar to those required for opening foreign-currency capital accounts and foreign-currency deposit accounts. For newly established FIEs, after obtaining an investment license, capital bank accounts and deposit accounts in both foreign currency and VND are opened.

(iv) Overseas foreign-currency accounts
FIEs may open foreign-currency accounts at overseas banks to borrow medium-term and long-term foreign loans. The application dossier (submitted to the State Bank of Vietnam, Foreign Exchange Management Department) includes:

  • An application to open and use overseas accounts;
  • Notarized photocopies of documents proving legal status, including Decision of Enterprise Establishment, and Business License or Investment License;
  • Loan contracts signed with the foreign lenders and the loan registration approval from the State Bank;
  • Documents providing the requirement of the foreign lenders of opening accounts at overseas banks;
  • Monthly foreign-currency revenues/overseas account expenditures plan; and
  • Other documents as required.

Foreign Loans

The following foreign loans are available to FIEs:

  • Financial loans (in cash);
  • Import of goods/services with deferred payment by opening letters of credit, collection via licensed banks or other modes of deferred payment;
  • Foreign finance leases;
  • Issuance of bonds overseas; and
  • Other forms of foreign loans.

When signing foreign loan agreements without capital-withdrawing effect, such as framework credit agreements, memorandums of understanding and other similar agreements, enterprises do not need to register with the State Bank provided that all contents comply with Vietnamese laws and regulations.

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Short-term foreign loans
FIEs can sign short-term foreign loans to meet demands for working capital for production and business, but must conform to the details of an enterprise’s business registration certificates, investment licenses or operation permits issued by competent bodies. Such short-term loan contracts do not need to be registered with the State Bank.

In the FIE’s establishment period, the balance of the short-term, medium-term and long-term loans (including domestic loan balance) must be within the permitted borrowing limits and not exceed the total investment capital stated in the investment licenses. When the enterprise becomes fully operational, there is no limit to the amount of its short term loans.

Medium and long-term foreign loans
FIEs may sign contracts for medium and long-term foreign loans only when the following conditions and requirements are satisfied:

  • FIEs have investment projects or production and business schemes approved by competent authorities;
  • The foreign loans are used for meeting production and business demands strictly according to the enterprises’ operation spheres prescribed in their business registration certificates, investment licenses or operation permits issued by competent bodies;
  • The medium and long-term foreign loan contracts comply with the State Bank Governor’s regulations in each period.

Within 30 working days of the date of signing foreign loan contracts and before withdrawing capital, FIEs must register foreign loans and loan repayment with the State Bank.

Portions of this article was was taken from Vietnam Briefing’s Doing Business in Vietnam technical guide. This guide aims to assist foreign investors in understanding the business environment of Vietnam, including reasons to invest and the challenges for which to prepare for. This publication is available as a PDF download in the Asia Briefing Bookstore.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email vietnam@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across Vietnam by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

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1 thought on “Foreign Exchange Control in Vietnam

    This is very informative .. user friendly .. seriously thinking of venturing into Vietnam

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