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.

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.

Detailed discussion

On one hand, one could argue that the foreign currency amount should prevail because:

The Enterprise Law 2020 requires that the owner or member of a limited liability company must contribute capital to the company “in full and in the type of assets as undertaken when registering incorporation of the company”. This provision can also be applied to subsequent contribution on an analogy basis. This implies that the laws do not mandate the capital to be fully contributed in VND if the owner registers to contribute in USD;
Article 36 of the Enterprise Law 2020 stipulates that if the capital is contributed in assets other than VND, freely convertible foreign currencies, or gold, that portion of the capital contribution must be evaluated and denominated in VND. This provision implies that if the capital is contributed in a foreign currency (e.g. USD), then the actual amount contributed in USD should take precedence; and
In practice, there was a case where a foreign investor was denied by the DICA bank to inject additional capital in USD to address the exchange rate discrepancy between the VND amount converted from the contributed USD and the VND charter capital amount stated in the IRC. The bank's position was that the foreign investor had already fully contributed capital in USD. In response to this situation, the State Bank of Vietnam (SBV) clarified that foreign investors have the option to contribute capital in either VND or a foreign currency that matches the actual currency used for capital contribution, as long as the amount aligns with what is specified in the IRC. This indicates that foreign investors are only required to fully contribute capital in the currency of their choice, provided that both the currency and the corresponding amount are accurately recorded in the IRC.

On the other hand, one could argue that since the charter capital recorded in the ERC/IRC is denominated in VND and the foreign currency amount is only an equivalent, the charter capital should be calculated based on the VND amount. Bearing in mind that

there was a precedent where the MPI took this approach and requested an investor to contribute the capital in VND in full; and
there were practical cases where FDIs were imposed administrative fines for the failure to contribute the VND amount in full.

In light of the above, despite reasonable defenses and the right of FDI investors to contribute charter capital in foreign currency, there still remain risks that the relevant competent authorities may consider that the FDI enterprise's charter capital has not been fully contributed.

This post is written by Nguyen Thuc Anh and edited by Hoang Thi Thanh Thuy.

Vietnam Business Law