DIRECT INVESTMENT CAPITAL ACCOUNT OF YOUR COMPANY IN VIET NAM (DICA)

DIRECT INVESTMENT CAPITAL ACCOUNT OF YOUR COMPANY IN VIET NAM (DICA) – WHAT YOU NEED TO KNOW ABOUT THAT DICA

What is Direct Investment Capital Account (DICA)?

Direct investment capital account means a payment account in foreign currency or in VND which an FDI enterprise or foreign investor opens at an authorized bank in order to conduct transactions relevant to FDI activities in Vietnam.

To be able to carry out investment activities in Vietnam, investors are required to know about DICA. It can be understood as an intermediary tool for foreign investors to transfer investment capital from abroad to Vietnam and vice versa transfer profits and lawful income from investment activities from Vietnam to abroad.

Subjects must open DICA in Vietnam

Issues related to DICA are directly governed by Circular No. 06/2019/TT-NHNN of the State Bank. Accordingly, the subjects that must be open and use DICA includes:

• FDI enterprises comprise:

- Enterprises established in the form of investment to establish an economic organization with foreign investors who are members or shareholders and which must conduct procedures for issuance of an investment registration certificate (IRC);

- Enterprises with foreign investors holding 51% or more of the charter capital of the enterprise because (i) An enterprise having a foreign investor who contributes capital or purchases shares or a capital contribution portion in the enterprise (ii) An enterprise established after a demerger, division, merger or consolidation (iii) A newly established enterprise.

• Foreign investors participating in a BCC, and foreign investors directly implementing a PPP project in cases where a project enterprise is not established

So, enterprises with foreign investors holding less than 51% of the charter capital of the enterprise or not being granted IRC can’t open DICA.

Additionally, if after assigning shares or capital contribution portions or issuing additional shares to increase charter capital of the FDI enterprise, the percentage ownership of shares and/or capital contribution portions by foreign investors in the enterprise decreases to below 51%, enterprises must close the DICAs which they previously opened. The enterprises must also close the DICAs after the FDI being a public company has its shares listed or registered for trading on the Stock Exchange.

However, investors can still transfer investment capital or conduct revenue and expenditure transactions through the form of opening and using indirect investment capital account (IICA) based on the provisions of Circular 05/2014/TT-NHNN Guiding opening and use of indirect investment capital accounts to implement indirect investment activities in Vietnam.

How to open legally DICA?

The subjects mentioned above must open a DICA in foreign currency at one (1) authorized bank to conduct revenue and disbursement transactions in foreign currency relevant to the FDI activity in Vietnam, but corresponding to the type of foreign currency in which investment capital is contributed, it is only permitted to open one (1) DICA in such foreign currency at one (1) authorized bank.

If the investment is conducted in VND, it is only permitted to open one (1) DICA in VND at the authorized bank where it has opened its DICA in foreign currency to conduct revenue and disbursement transactions in VND relevant to the FDI activity in Vietnam. This means that a business can open multiple DICAs but each DICA can only be opened in 1 currency. For example, an enterprise has 3 DICA in Vietnam Dong, USD, Euro opened at an authorized bank in Vietnam.

With BCC and PPP project: A foreign investor participating in several BBCs or directly implementing several PPP contracts must open a separate DICA corresponding to each BCC contract or PPP project.

When do investors open DICA?

After the competent agency has issued the IRC, investors transfer investment capital through DICA to carry out the project within the time limit for capital contribution according to the provisions of the Law on Enterprises 2020. Or after the time of notification of foreign investors meeting the conditions for capital contribution, share purchase, or redemption of contributed capital, for enterprises in which foreign investors own 51% or more of charter capital due to capital contribution, purchase of shares, contributed portion capital.

The provisions of Circular No. 06/2019/TT-NHNN of the State Bank also show that:

Before the competent agency issues the IRC, or notice to the foreign investor that it satisfies the conditions to contribute capital, purchase shares, or acquire a capital contribution portion, the foreign investor is permitted to transfer money from abroad, or to transfer money from a payment account in foreign currency or VND which such foreign investor opens at an authorized bank in Vietnam, in order to pay lawful expenses in the phase of conducting investment preparation activities in Vietnam. These things carry out without DICA (This is the difference compared to Circular No. 19/2014/TT-NHNN of the State Bank). The remaining money after being remitted to Vietnam for investment preparation activities can be used in the following ways:

• Conversion in whole or part into capital contribution;

• Conversion in whole or in part into a foreign loan of the FDI enterprise;

• Repayment of the amount which was remitted to Vietnam to conduct investment preparation activities to the foreign investor in foreign currency or in VND after deducting lawful expenses relevant to such preparatory activity in Vietnam.

Circular 19/2014/TT-NHNN of the State Bank dose not specify how the remaining money after conducting pre-investment activities will be converted into capital contribution? However, based on the general provisions of this Circular, it can be understood that this amount of money still has to be transferred to enterprises through DICA.

The transactions mentioned above shall be conducted on the basis of the agreement reached between the parties, on presentation of valid documents and source vouchers proving the amount of money transferred into Vietnam and proving lawful expenses relevant to the investment preparation activity in Vietnam, ensuring compliance with the laws on forex control, investment, accounting, and other relevant laws.

For BCC and PPP contracts, the investor opens DICA after being granted IRC.

Remittance overseas of capital, profit, and lawful revenue

A foreign investor must make overseas remittances via the DICA in cases:

(i) Its direct investment capital on reduction of investment capital; on the assignment of the investment project (except in case the transaction between the investors both being non-residents or between the investors both being residents is not required to be made via a DICA); or on completion, liquidation or termination of operation of the investment project [or] of the BCC or of the PPP contract in accordance with the law on investment;

(ii) Principal, interest and charges on foreign loans (except in case enterprises open an account for the foreign loan to borrow a foreign loan in a different currency from the currency it uses to open the DICA), and profit and lawful income relating to the direct investment activity in Vietnam.

ADK & Co Vietnam Lawyers Law Firm