On 29 March 2019, the State Bank of Vietnam (SBV) issued Circular 3/2019 to amend and supplement some articles of Circular 32 of the SBV dated 26 December 2034 on restrictions in using foreign exchange within the territory of Vietnam (Circular 32/2013). Circular 3/2019 will take effect from 13 May 2019.
First, a bit of background, under the Foreign Exchange Ordinance, “in the territory of Vietnam” all transactions, payment, price denomination must not be made in foreign currencies except as permitted by the SBV. The SBV usually takes quite a restrictive (and, in our opinion, not reasonable) on what transactions are considered to occur “in the territory of Vietnam”.
Most of the exceptions to the above restriction are provided in Circular 32/2013. The new Circular 3/2019 grants exceptions for foreign investors to use foreign currency as deposit or escrow arrangement in the following cases:
· When the foreign investor purchasing shares in state-owned enterprises which are under equitization process approved by the Prime Minister;
· When the foreign investor purchasing shares or capital contribution of the State in state-owned enterprises; state-invested enterprises which are under divestment process approved by the Prime Minister; and
· When the foreign investor purchasing shares or capital contribution of state-owned enterprises in other enterprises which are under divestment process approved by the Prime Minister.
Before Circular 3/2019 taking effect, foreign investors still have to obtain written approval from the SBV on case-by-case basis to use foreign currency when entering bidding to invest or divest in state-owned enterprises and state-invested enterprises in accordance with Circular 16 of the SBV dated 19 October 2015 on amending and supplementing some articles of Circular 32/2013. This procedure might take up to 45 days from the day the SBV receives valid application dossier.
It is interesting to see that the SBV seems to be in favour of State-owned enterprises when it grants the exceptions to the limitation on use of foreign currencies in Vietnam. In addition to this Circular 3/2019, Vietnam Electricity (a large State-owned enterprise) is also allowed to denominate its purchase electricity price in US$. This seems to go against the principle that enterprises of every economic sectors should be treated equally in the Constitution.
This is contributed by Nguyen Thu Giang, a trainee lawyer at Venture North Law.