Circular 19/2014 issued this week is a major regulations on foreign exchange management of foreign-invested enterprises in Vietnam. Circular 19/2014 has filled much of the vacant left by Circular 4/2001 on the same subject. Before Circular 19/2014, foreign invested enterprises (FIEs) can only rely on a few general provisions of Decree 160/2006. Under Circular 19/2014

• It now seems that Circular 19/2014 only applies to FIEs that have been granted an Investment Certificate. A foreign investor which acquires shares in a Vietnamese company and participates in the management of such company does not need to comply with Circular 19/2014 if the acquisition is not subject to issuance of an Investment Certificate. Instead, in that case, the foreign investor will comply with Circular 5/2014 on foreign exchange regime applicable to “indirect” investment. This is an encouraging news for many M&A lawyers who can now advise with more certainty which bank accounts should be used for acquisition of a domestic companies;
• Circular 19/2014 also repeals the requirements under Circular 5/2014 that a foreign investor must convert into compliance with the foreign exchange regime applicable to foreign direct investment once the indirect investment by the foreign investor becomes a direct investment.
• Similar to Decree 70/2014, Circular 19/2014 repeatedly require “an FIE and the foreign investors in such FIE” to open direct investment capital accounts (tài khoản vốn đầu tư trực tiếp) (one in VND and one in foreign currency). 

• Circular 19 expressly requires all payment for transfer of capital in an FIE to be made through the direct investment capital account. In the past, some foreign investors have preferred to by passing the direct investment capital account and receiving payment for capital transfer offshore. 

• The direct investment capital account now also receives proceeds from domestic loans both in Vietnamese Dong and foreign currencies. Under the old regulations, this account only receives proceeds from foreign loans. This requirement may restrict the banking operation of many FIEs in case these FIEs have multiple domestic loans at different banks. This is because an FIE can only have one direct investment capital account for each currency;

• The VND direct investment capital account can receive capital contribution in VND by both foreign investors and Vietnamese investors;

• The direct investment capital account must be used to transfer proceeds from sale of shares or capital contribution in an FIE by a foreign investor unless the sale of shares or capital contribution results in a “change in the legal entity” of the FIE. It is not clear what change in the legal entity means;

• Any foreign currencies converted from VND by a foreign investor must be remitted out of Vietnam within 30 working days from the date of conversion. Presumably, this provision is to prevent foreign exchange speculation by foreign investors in Vietnam;

• A foreign investor is expressly allowed to bring in foreign currency for the preparation of an investment project even before issuance of the Investment Certificate; and

•  By March 2015, all special foreign currency capital accounts (tài khoản tiền gửi vốn chuyên dùng bằng ngoại tệ) opened under Circular 4/2001 must be closed and converted into direct investment capital account under Circular 19/2014.