Foreign direct investment capital plays a vital role in promoting economic development, generating employment, and enhancing technological capabilities in host countries. In particular, for Vietnam, foreign direct investment capital not only contributes to economic growth but also opens opportunities for international cooperation and increases competitiveness in a globalized context. However, activities relevant to such capital sources must comply with legal regulations, especially law on investment.
In this article, NPLaw analyzes the legal regulations governing foreign direct investment capital in Vietnam.
I. Overview of foreign direct investment capital
Foreign direct investment is a crucial form of investment for developing countries, including Vietnam.
Key benefits of foreign direct investment and its capital sources for the host country include:
- Job creation: creating millions of jobs for local workers, especially in the manufacturing and service sectors.
- Technology transfer: obtaining the transfer of modern technologies and techniques, helping local enterprises improve productivity and product quality.
- Infrastructure development: implementing investment in infrastructure and regional development projects, improving residents' quality of life.
- Export promotion: producing for export, helping to boost national export revenue and improving the trade balance.
- Economic growth: contributing to GDP growth and tax revenue for the host country.
II. Legal provisions on foreign direct investment capital
1. What is foreign direct investment capital?
Based on Vietnam's 2020 Law on Investment, foreign direct investment capital is not explicitly defined. However, Clause 22, Article 3 defines:
- An economic organization with foreign investment capital is an organization in which a foreign investor is a member or shareholder.
Thus, foreign direct investment capital can be understood as a form of investment in which an individual, organization, or company from a foreign country (the investor) invests capital in a business, company, or project in Vietnam.
2. How many direct investment capital accounts can a foreign-invested enterprise open?
According to Article 5 of Circular 06/2019/TT-NHNN, a foreign-invested enterprise can open multiple direct investment capital accounts. However, only one account per currency (either VND or foreign currency) is allowed, and all such accounts must be opened at the same licensed bank.
3. What is the maximum number of direct investment capital accounts a foreign investor can open?
Pursuant to Clause 2, Article 5 of Circular 06/2019/TT-NHNN, it can be seen that there is no limit on the number of direct investment capital accounts. However, when a foreign enterprise opens a direct investment capital account in Vietnam, the following conditions must be met:
- A foreign enterprise is only allowed to open 01 direct investment capital account for one type of foreign currency at 01 licensed bank;
- When a foreign enterprise makes an investment in Vietnamese Dong, the foreign investor can open 01 additional direct investment capital account in Vietnamese Dong at a licensed bank that has previously opened a direct investment account in foreign currency;
- For PPP projects and BCC contracts, foreign enterprises must open a separate direct investment capital account for each project, regardless of whether they are at the same licensed bank or not.
III. Common questions regarding foreign direct investment capital
1. How much equity can a foreign investor hold in an FDI company?
According to Clause 2, Article 3 of Circular 06/2019/TT-NHNN, a foreign-invested enterprise includes:
- An enterprise established through foreign investment, where a foreign investor is a member/shareholder and an investment registration certificate is required;
- Enterprises where foreign investor(s) hold 51% or more of the charter capital, including:
+ Enterprises where foreign investor(s) contribute capital, purchase stocks or purchase contributed capital (regardless of business sectors with or without conditions for foreign investors);
+ Enterprises formed after mergers, splits, or consolidations resulting in foreign ownership ≥ 51%;
+ Enterprises newly established under specialized legal regulations;
+ Project enterprises set up by foreign investors to implement PPP projects.
→ Therefore, a foreign investor may own 51% or more of charter capital of the foreign-invested enterprise.
2. Is a direct investment capital account mandatory for foreign investors?
A direct investment capital account is a payment account in either foreign currency or VND, opened by a foreign-invested enterprise or foreign investor at a licensed bank to conduct foreign-invested related transactions.
According to Clause 1, Article 5 of Circular 06/2019/TT-NHNN, the following must open such accounts:
+ Foreign-invested enterprises as defined in Clause 2, Article 3;
+ Foreign investors in BCC contracts or PPP projects without forming a project enterprise.
→ If an investor falls into the above categories, opening a direct investment capital account is mandatory. Otherwise, it is not required.
3. Must the former capital account be closed when opening a new one?
According to the provisions of Clause 4, Article 5 of Circular 06/2019/TT-NHNN on opening and using direct investment capital accounts. When an enterprise decides to open a direct investment capital account at another licensed bank. First, the enterprise needs to open a direct investment capital account at another licensed bank. Then, the entire balance in the previously opened direct investment capital account at the other bank will be transferred to the newly opened direct investment capital account. Finally, the enterprise will close the previously opened direct investment capital account.
Thus, when an enterprise decides to open a new direct investment capital account at another licensed bank, the enterprise will have to close the previously opened direct investment capital account. The implementation process includes opening a new account, transferring the entire balance from the old account to the new account, and closing the old account.
4. Can a foreign-invested enterprise use one account for multiple short-term foreign loans?
According to Point b, Clause 2, Article 26 of Circular 12/2022/TT-NHNN, a foreign-invested enterprise may use one direct investment capital account for multiple short-term foreign loans.
5. Which account is used for medium and long-term foreign loans?
Under Clause 2, Article 26 of Circular 12/2022/TT-NHNN, foreign-invested enterprises must use direct investment capital accounts for all inflows and outflows related to foreign loans.
6. Is it mandatory to use the direct investment capital account for capital transfers between two residential foreign investors?
According to Point a, Clause 1, Article 10 of Circular 06/2019/TT-NHNN, capital transfers between two residential foreign investors in a foreign-invested enterprise do not need to be conducted through the direct investment capital account.
IV. Legal advisory services on foreign direct investment
The above is detailed legal information compiled by NPLaw to assist clients regarding foreign direct investment capital in Vietnam. If you have any questions regarding the issues mentioned or other legal matters, please do not hesitate to contact NPLaw for direct consultation and resolution support.
