M&A lawyers in Vietnam usually spend a great deal of time (and client’s monies) to figure out how and when payment for an M&A transaction should be made. This is partly due to the fact that the SBV has not issued any guidance on foreign exchange control for investment activities under the Investment Law 2014 since 2015. From September 2019, hopefully, the situation will be significantly improved thanks to the new Circular 6/2019 of the SBV. Under Circular 6/2019,

· Foreign-invested enterprises, which must open a Direct Investment Capital Account (DICA), include, among others, (1) enterprises which are incorporated by, among others, foreign investors and are issued an Investment Registration Certificate (IRC), and (2) enterprises which are first incorporated by Vietnamese investors but are later acquired by foreign investors who own 51% or more of the charter capital of such enterprises. Previously, enterprises under (2) are not required to open a DICA if they do not have an Investment Registration Certificate. However, it appears that an enterprise, which is a subsidiary of a DICA enterprise, is not required to open a DICA.

· The DICA is used by a DICA enterprise to handle fund transfers for capital transactions such as capital contributions by shareholders/members of the DICA enterprise or loans from foreign lenders. For M&A transactions including secondary transfer of shares/capital contribution, the DICA plays an important role because the SBV requires payment for secondary transfer of capital in a DICA enterprise to be made via DICA. The bank which operates DICA could require various supporting documents in order to allow monies can be transferred in or out of the DICA.

· Foreign investors are allowed to invest in an DICA enterprise as provided in the IRC, operating licence, the notice approving a registration of an M&A transaction by a foreign investor (M&A Approval), the PPP contracts signed with authorised State body, and other documents evidencing that the investment by the foreign investors are legally permitted. This is a major improvement. Under the old Circular 19/2014, a foreign investor is allowed to invest in a DICA enterprise as permitted by the IRC. Therefore, many remitting banks have requested foreign investors to obtain an IRC before allowing payment via DICA even though an IRC is not required under the investment regulations.

· Domestic loans of a DICA enterprise are no longer required to be disbursed through DICA.

· Circular 6/2019 now makes clear that only payment for cross-border transfer of capital between a resident and a non-resident needs to be affected through DICA. Under existing regulations, it is not clear if payment for a transfer of capital between two non-residents needs to be made via DICA.

· Circular 6/2019 now makes clear that only payment for transfer of capital in a DICA enterprise between a two non-resident entities can be denominated and paid in foreign currencies. In all other cases, payment for transfer of capital in a DICA enterprise must be denominated and paid in Vietnamese Dong. Before Circular 6/2019, it is arguable that payment for transfer of capital in a DICA enterprise between a resident and a non-resident can still be made in foreign currencies.

· Circular 6/2019 also requires a DICA enterprise to close DICA if it no longer satisfies the conditions of a DICA enterprise (e.g., it is no longer controlled by foreign investors). The foreign investors in such case will need to open an Indirect Investment Capital Account (IICA). However, Circular 6/2019 does not contemplate how a transfer from DICA which is opened in the name of the DICA enterprise to IICA which is opened in the name of the foreign investor should be conducted.

This post is contributed by Nguyen Quang Vu.

Vietnam Business Law