Should Foreign Investors Contribute Capital To Foreign Direct Investment (FDI) Enterprise In An Amount Denominated In A Foreign Currency Or In VND?

Introduction

An FDI enterprise is an enterprise which is established by foreign investors with or without domestic investors. It is a common practice for foreign investors to contribute capital to an FDI enterprise in a foreign currency, such as USD, with the amount denominated in that particular foreign currency recorded in the FDI enterprise's Enterprise Registration Certificate (ERC) and/or Investment Registration Certificate (IRC). The difference in exchange rate between the date of the IRC and the date of actual contribution often leads to a disparity between the VND amount converted from the contributed capital in foreign currency and the VND amount recorded in the IRC. Different

In such cases, it remains uncertain whether the foreign investors will be considered to have fully fulfilled their capital contribution because it is not clear which amount should be used to determine if the FDI enterprise's charter capital has been fully contributed: (i) the VND amount after being converted from the foreign currency, or (ii) the actual contributed amount in foreign currency (see analysis below). Different authorities may have different views on this issue.

Environment Permits Under The Environment Protection Law 2020 in Vietnam

The Environment Permit (Giấy phép môi trường) is a new concept under the Environment Protection Law 2020. In essence, an Environment Permit consolidates most of the environment permits or licences under the previous environment laws into a single document which would help the relevant authorities and businesses to monitor and record all the environmental aspects of an investment project. 

Projects subject to Environment Permit

Except for some certain emergency public investment projects, an Environment Permit is required for all investment projects which have potential adverse effect on the environment and which generate wastewater, dust and emissions or hazardous waste which must be treated or managed (the Regulated Projects).

Timing

Regulated Projects which have not started commercial operation by 1 January 2022, and which have an approved Environment Impact Assessment Report must obtain the Environment Permit before commissioning the environmental protection works of the Regulated Project.

Regulated Projects which have not started commercial operation by 1 January 2022, and which do not have an approved Environment Impact Assessment Report must obtain the Environment Permit before issuance of the mining licence (for mining project), the approval of the field development plan (for oil exploration project), the approval of the feasibility study (for PPP project or construction project), and the investment decision for other projects.

Comparison: Investment inside vs. outside an industrial park/industrial cluster in Vietnam

As Vietnam is on its way to become a new global manufacturing hub, many investors now consider the country as a new destination for their manufacturing business. However, finding the right location to implement the proposed project may be a vexed question.

In general, the following options are available for the investor:

  • Option 1: Acquisition of land inside industrial manufacturing-oriented zones, which include industrial park (IP) and industrial cluster (IC); and

  • Option 2: Acquisition of land outside the industrial manufacturing-oriented zones.

In this article, we discuss and compare the available options based on specific criteria and from both legal and practical perspectives to assist investors in making their best decision.

With respect to the industrial manufacturing-oriented zones, the law distinguishes between IP and IC based on certain criteria. In addition, the legal frameworks applied to investment in the IP and IC may sometimes be different. Accordingly, doing investment inside the IP and IC will be discussed separately as two potential options, where applicable.

Foreign ownership limits in Business Cooperation Contracts in Vietnam

In certain business sectors (e.g., film projection service, or road transportation services), Vietnam undertakes to allow foreign investors to invest though setting up a joint venture or a business cooperation contracts (BCC) with capital contribution not exceeding certain limits. However, it is not clear if the ownership limit provided in these commitments apply to investment through a joint venture only or to both investment through joint ventures and BCCs.