On 26 June 2019, the State Bank of Vietnam (the "SBV") issued Circular No. 06/2019/TT-NHNN on foreign exchange management for foreign direct investment in Vietnam ("Circular No. 06"). Circular No. 06 will take effect from 06 September 2019 and replace Circular No. 19/2014/TT-NHNN dated 11 August 2014 of the SBV on the same matter ("Circular No. 19").

To guarantee regulatory consistency, Circular No. 06 also provides amendments to Circular No. 05/2014/TT-NHNN dated 12 March 2014 of the SBV on opening and using indirect foreign investment capital accounts for implementing indirect foreign investment in Vietnam ("Circular No. 05"); and supplementations towards Circular No. 16/2014/TT-NHNN dated 01 August 2014 of the SBV on instructions on the use of foreign currency and Vietnamese Dong accounts for residents and non-residents at authorized banks (as amended by Circular No. 49/2018/TT-NHNN dated 31 December 2018 of the SBV on term deposits) ("Circular No. 16").

We have highlighted the key points of Circular No. 06 as below:

1. Entities Subjected to Requirements on DICA

Under Circular No. 06, entities subject to the requirement to open a foreign direct investment capital account (“DICA”) include:

a) Foreign investors that:

i. participate in a business cooperation contract ("BCC");

ii. directly carry out public private partnership ("PPP") projects in which [the foreign investors] do not establish project enterprises.

Circular No. 06 elaborates on foreign investors to be including individuals with foreign nationality and organizations being established in accordance with foreign laws carrying out foreign direct investment ("FDI") in Vietnam.

b) Enterprises with FDI, including:

i. Enterprises being established in the investment form of establishment of economic organizations, which have foreign investors as members or shareholders and must carry out the procedures of the issuance of investment registration certificates in accordance with the Laws on Investment.

ii. Enterprises other than (i), with 51% or more of the charter capital of the enterprises owned by foreign investors, including:

A. Enterprises (operating in conditional business lines for foreign investors or not) with foreign investors contributing capital in, or purchasing shares of, that leads to foreign investors owning 51% or more of the charter capital of the enterprises;

B. Enterprises being established after the separation, merger, consolidation that leads to foreign investors owning 51% or more of the charter capital of the enterprises;

C. Newly established enterprises in accordance with specialized laws.

c) Project enterprises established by foreign investors in order to carry our PPP projects in accordance with the laws on investment

2. New Regulations Regarding the Opening, Use and Closing of DICA

a) The opening of DICA in Vietnamese Dong and foreign currency are expressly restricted to 01 account respectively.

b) For each of DICA in Vietnamese Dong and DICA in foreign currency, Circular No. 06 provides for a non-exhaustive list of DICA uses, i.e., the receipts and payment of certain transactions via DICA.

Under Circular No. 06, among others, the list of uses of DICA in foreign currency is broadened to include the receipt of the domestic products of oil and gas (after fulfilling financial obligations and excluding costs in Vietnamese Dong) in accordance with the laws on oil and gas and the agreement on guarantee and commitment from the Government (if applicable). Also, such list is curtailed to exclude the receipt of investment withdrawals in foreign currency from domestic loans once required under Circular No. 19.

c) Enterprises who no longer meet the conditions as mentioned in Section 1(b) above must close its DICA and foreign investors in such enterprises must open a foreign indirect investment capital account ("IICA") if:

i. After performing the transaction of contributing capital/shares transfer or issuing additional shares for increasing charter capital in the enterprise with FDI, the foreign ownership ratio drops below 51%;

ii. After the enterprise with FDI being a public company having shares listed or registered for being traded on the securities exchange.

3. DICA and M&A Transaction in Enterprises with FDI

a) Circular No. 06 details the scope of M&A transactions subjected to the requirements on payment via DICA, more specifically:

i. Regarding the transfer of investment capital:

A. Payment via DICA is not required for such transfer between investors being non-residents or between investors being residents;

B. Payment via DICA is required for such transfer between investors being non-residents and investors being residents.

ii. Regarding the transfer of investment project, applicable to investors in BCC or directly carrying out PPP project:

Payment via DICA is required for such transfer between investors being non-residents or between investors being non-residents and investors being residents.

b) Circular No. 06 also details the currency for appraisal and payment of transfer value depending on the parties to the transfer, more specifically:

i. Allowing for foreign currency if the transfer is between nonresidents; and

ii. Allowing for Vietnamese Dong if the transfer is between residents and non-residents, or between residents

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Should you like to discuss any queries or concerns in relation to any of the above, please do not hesitate to contact us.

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