The trouble with the investment capital account


According to a report of the Foreign Investment Department, in the first five (05) months of 2017, the total of new, increased registered capital and share contribution by the foreign investors was USD 12.13 billion, up 10.4% over the same period in 2016[1]. This is a joyful sign demonstrating that Vietnam's economic market is flourishing, attracting a lot of attention from foreign investors (“Foreign Investors”). However, in addition to the achieved results, the process and procedures for investment into Vietnam still have certain disadvantages, especially the troubles the Foreign Investors encounter in relation to the investment capital account (“Capital Account”).


Ambiguity in the provisions on Capital Account


According to the provisions of the 2014 Law on Enterprises, payments for transfer of shares/stakes, and receipt of dividends of foreign investors must be made through their capital accounts opened at banks in Vietnam, except for payment with assets[2]. Meanwhile, the 2014 Law on Investment stipulates that transfer of money from Vietnam to abroad and from abroad to Vietnam pertaining to outward investment must be made via a separate capital account[3]. However, the 2014 Law on Enterprises and the 2014 Law on Investment only provide the implementation principle without any common definition or processes, procedures for opening, closing and using this Capital Account.


In fact, the matters relating to the Capital Account still apply under the regulations of the State Bank of Vietnam (the “State Bank”). Accordingly, the Foreign Exchange Ordinance[4], Circular 05[5] and Circular 19[6] make a distinction between a direct investment capital account (“DICA”) and an indirect investment capital account (“IICA”) with respect to the Foreign Investor corresponding to the forms of direct investment and indirect investment under the 2005 Law on Investment and the documents guiding its implementation. The DICA applies to the Foreign Investor investing under the form of setting up an enterprise, engaging in a business co-operation contract as well as the form of investing through capital contribution, share/capital contribution purchase to operate and manage the enterprise. In contrast, the IICA is used by the Foreign Investor under the form of capital contribution, purchase of share/capital contribution/valuable papers in Vietnam without directly participating in the management and operation of the enterprise.


Nonetheless, the division of the Capital Account under the form of investment mentioned above is no longer consistent with the current practice. The provisions of the Foreign Exchange Ordinance, Circular 19 and Circular 05 are referred to the provisions of the 2005 Law on Investment, whereas the 2014 Law on Investment, effective as from 1 July 2015, replacing the 2005 Law on Investment, no longer makes distinction between direct and indirect investment. In addition, Circular 19 and Circular 05 also cause many difficulties to the Foreign Investor when determining the type of Capital Account when introducing a very general concept of “participating in managing and operating enterprises”. The Foreign Investor, when participating in capital contribution, share/capital contribution purchase, also wishes to have the right to make decisions and manage that enterprise. As owner/member/shareholder of the enterprise, the Foreign Investor has the full right to participate in managing and operating that enterprise, whether directly or indirectly. If the Foreign Investor already has the right to manage and run the enterprise, the classification of Capital Account under Circular 19 and Circular 05 does not mean so much.


It is noteworthy that the State Bank, though the highest regulatory authority on banking and money transfer activities of the Foreign Investors from Vietnam to abroad and vice versa,  is not the specialized investment management authority. Therefore, it does not suit the reality that the Foreign Investors still have to apply the regulations on classification of Capital Account pursuant to the form of investment in Circular 09 and Circular 05 while the Law on Investment has changed.


In addition, if the above-said documents of the State Bank apply, after completing the procedures for capital contribution and share purchase into enterprises to participate in managing the investment activities in Vietnam, this enterprise is entitled to only open a DICA after being issued with an Investment Certificate by the competent authority and must provide this document in the working dossier at the bank. However, under the 2014 Law on Investment and its guiding documents, contribution of additional capital, purchase of additional shares and capital contributions by the Foreign Investor in the enterprise are not subject to procedures for application for the Investment Certificate or Investment Registration Certificate. Actually, instead of applying the provisions of Article 11.2 of Circular 19, for cases where enterprises are not granted Investment Certificates in order for the Foreign Investors to open and use the IICA under Circular 05, the Bank still requires enterprises to open the DICA but does not require them to attach the Investment Certificate. Therefore, it can be seen that the provisions of Circular 19 currently may not be in line with the reality and spirit of the 2014 Law on Investment and need amending.

Proposals and recommendations


As analyzed above, the provisions on Capital Account currently cause many difficulties to the Foreign Investor in carrying out the investment procedures in Vietnam. Therefore, in order to create more favorable conditions for the Foreign Investor, we are of the opinion that the State Bank should adjust the regulations on DICA and IICA in line with the spirit and regulations of the 2014 Law on Investment and the 2014 Law on Enterprises. Specifically, the Foreign Investor only needs to open a Capital Account to manage its investment cash flows into and out of Vietnam.


[1] Report on attraction of foreign investment in the first five months of 2017,, accessed on 2 July 2017

[2] Article 36.3 of the 2014 Law on Enterprises

[3] Article 63 of the 2014 Law on Investment

[4] Foreign Exchange Ordinance No. 28/2005 /PL-UBTVQH11 as amended by Ordinance No. 06/2013/UBTVQH13

[5] Circular No. 05/2014/TT-NHNN guiding the opening and use of indirect investment capital accounts for conducting indirect foreign investment activities in Vietnam

[6] Circular 19/2014/TT-NHNN providing guidelines on foreign exchange management over direct foreign investment into Vietnam