Barriers block foreign investors being residents

Over the past few years, in an effort to provide foreign investors with better legal conditions to make investments in Vietnam, the State Bank of Vietnam (SBV) issued various new...

Over the past few years, in an effort to provide foreign investors with better legal conditions to make investments in Vietnam, the State Bank of Vietnam (SBV) issued various new regulations on foreign exchange control. One such regulation of particular interest to foreign investors is Circular No.19/2014/TT-NHNN guiding foreign exchange control of foreign direct investment (FDI) activities in Vietnam (Circular 19), which took effect from September 25, 2014.

While Circular 19 – in comparison with previous regulations – has undoubtedly facilitated direct investment activities into Vietnam by certain means, namely, allowing foreign investors to open direct investment capital accounts (DICAs) in foreign currencies as well as in dong, after more than a year in effect the regulation has revealed uncertainties which may cause difficulties for foreign investors carrying out investment activities in Vietnam. This article will examine a notable legal difficulty that foreign investors who are legally deemed residents face when investing in enterprises with foreign directly invested capital (FDIEs).

General view on DICAs and Circular 19

Under the Ordinance on Foreign Exchange Control 2005, as amended in 2013 (FXC Ordinance), an FDIE or a foreign investor participating in a business cooperation contract must open a DICA at a licensed credit institution. At present, the opening and use of DICAs are primarily governed by Circular 19.

It is noteworthy that under Circular 19 “foreign investors” are defined as non-residents (organisations or individuals) conducting FDI activities in Vietnam in the form of direct investment as stipulated in the current laws on investment. Under this circular, “FDIE” means an enterprise in which a foreign investor(s) contribute(s) capital for the establishment and management of the enterprise and to conduct investment activities in Vietnam.

Right of foreign residents to invest in Vietnam

According to Article 4.2 of the FXC Ordinance, residents are defined as including, among other groups, foreigners who are allowed to reside in Vietnam for 12 months or more (herein referred to as “foreign residents”). Article 4.5 of Circular No.32/2013/TT-NHNN, as amended in 2015 (Circular 32), further provides that residents are allowed to contribute capital in foreign currency remittances in order to carry out their foreign investment projects in Vietnam.

In practice, there are quite a few circumstances where foreign residents may have to transfer capital to a target FIDE with a DICA in accordance with Circular 19. For example, given that A is a foreigner who has been residing and investing in Vietnam for a certain number of years, A is qualified as a foreign resident. One day, A and two other investors who are qualified as foreign investors in accordance with Circular 19 may wish to establish a new enterprise to carry out an investment project in Vietnam. Since the enterprise intended to be established is an FDIE in accordance with Circular 19, such an enterprise must open a DICA, and A’s contribution capital must be transferred to that DICA. Although A’s contribution capital should be allowed on the basis of the above-mentioned provision of Circular 32, A is facing trouble in making such a transfer as further explained below.

Legal difficulty for foreign residents to transfer capital to DICAs

It has been noted that the DICAs of enterprises are only allowed to be used for receiving certain types of allowable revenues, which are listed by Articles 7.1 and 8.1 of Circular 19, including, among others, capital contributions in a foreign currency or dong from foreign investors and from Vietnamese investors in the FDIEs.

The problem with foreign residents in general, and investor A in particular, is rooted in how Circular 19 interprets “foreign investors”. As the definition of foreign investors under Circular 19 includes solely non-residents, foreign residents apparently fall out of this definition. Also, it is not even reasonably persuasive to deem foreign residents as Vietnamese investors. For such reasons, it appears that capital contributions by foreign residents are currently not expressly recognised by Article 7.1 and 8.1 of Circular 19 as allowable payments into enterprises’ DICAs.

Generally, in Vietnam, when someone does something that has not yet been specifically stipulated by law, such a person is exposed to numerous legal risks and burdens. Hence, although Article 7.1.(dd) of Circular 19 broadly provides that DICAs may be used for receiving lawful revenues in foreign currency relevant to FDI activities in Vietnam other than types of revenues previously mentioned from articles 7.1.(a) to 7.1.(d), this article, if not further interpreted, is of very little applicability in practice.

Furthermore, according to Article 24.2.(h) of Decree No.96/2014/ND-CP (Decree 96), organisations or individuals that remit money to serve foreign investment activities in Vietnam in non-compliance with the laws and regulations may be subject to fines varying from VND40 million to 80 million ($1,792 to $3,585).

Given the uncertainty within Circular 19, and to avoid the risk of falling foul of the legal penalties stipulated by Decree 96, credit institutions tend to be reluctant to process the requests of foreign residents transferring capital to enterprises’ DICAs. Investor A in the above-mentioned case is not an exception.

Definition of “foreign investors” under LoI may be a good alternative

In contrast to Circular 19, the Law on Investment 2014 (LoI) provides a different definition of “foreign investor”, which does not differentiate between residents and non-residents. Under the LoI, “foreign investor” means any individual with a foreign nationality, or an organisation established in accordance with foreign laws and conducting business activities in Vietnam (Article 3.14 of the LoI). In my opinion, for the ultimate purpose of synchronising the laws and regulations, the definition of “foreign investor” and other relevant contents of Circular 19 should be amended to be compliant with the LoI. By doing so, foreign residents will be included in the governing scope of Circular 19 and the above-said matter in relation with enterprises’ DICAs will be clarified.


In short, despite the fact that the right of foreign residents to carry out investment activities in Vietnam has been recognised under Circular 32, they are, in practice, currently barred from contributing capital to enterprises’ DICAs due to the uncertainty created by Circular 19 through its definition of “foreign investor”. Hopefully, Circular 19 will be soon amended to be consistent with the LoI and the matter will be clarified.


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