Foreign exchange is a field that is strictly managed by the State to stabilize exchange rates, control inflation and maintain foreign exchange reserves to serve national needs, ensure monetary security and economic development. Therefore, Vietnam always has very specific policies to manage money transfer activities from Vietnam to foreign countries, including money transfer activities for the purpose of foreign direct investment. Therefore, individuals and organizations conducting foreign direct investment activities (“Investor”) need to pay attention to compliance to first get approval to carry out foreign investment activities and then minimize violations during project implementation. This article hopes to provide Investors and readers with an overview of foreign direct investment activities.  

Conditions and forms of foreign direct investment activities

Foreign direct investment activities (“DTRNN”) is understood as “the transfer of investment capital from Vietnam to foreign countries by investors, using profits earned from this investment capital to carry out investment and business activities abroad”[1], can be expressed in a number of forms such as establishing economic organizations; investing in the form of contracts abroad; contributing capital, buying shares, buying capital contributions of economic organizations abroad to participate in management.[2]. The entities that are allowed to carry out FDI activities include organizations (enterprises, cooperatives, credit institutions, business households) and individuals of Vietnamese nationality, except for individuals who do not have the right to establish and manage enterprises according to regulations such as cadres, civil servants, public employees, etc.[3]

Investors can invest in any industry or field, except for industries prohibited under the Investment Law 2020 such as drugs, firecrackers, etc.; industries and professions with technology and products subject to export prohibition under the provisions of the law on foreign trade management such as weapons, ammunition, certain chemicals, etc.; and industries prohibited from investment and business according to the laws of the country receiving the investment. In addition, some fields such as banking, insurance, securities, press, broadcasting or real estate business[4] is considered a conditional investment industry, requiring approval by competent state agencies according to specialized laws during the investment registration process.

Before conducting FDI activities, Investors need to carry out procedures to apply for a Certificate of registration for overseas investment (“Investment Registration Certificate”). Depending on the industry, investment sector and/or capital level of the project, the investor will have to complete additional procedures to request approval of the investment policy from the National Assembly or the Prime Minister. If this is not the case, the Investor only needs to complete the procedures to apply for an Investment Registration Certificate at the Ministry of Planning and Investment. Normally, the project will need to seek opinions and receive approval from the State Bank (“NHNN”), relevant ministries and branches before the Ministry of Planning and Investment issues a decision to grant an Investment Registration Certificate[5].

Transfer of investment capital abroad

As mentioned in the introduction, to ensure strict management of foreign exchange activities, Investors are only allowed to receive and transfer money through 01 single account. Specifically, after being granted the Investment Registration Certificate, Investors need to open 01 investment capital account in a single foreign currency suitable for the need to transfer investment capital or simultaneously open 01 additional investment capital account in Vietnamese Dong in case of transferring investment capital in Vietnamese Dong at the same licensed commercial bank in Vietnam. Each Investor and each investment project need to have a separate capital account within the scope of the Investment Registration Certificate.[6]. The Investor then needs to register for foreign exchange transactions with the State Bank at the branch of the province/city where the Investor is headquartered or permanently residing. This registration must be done when the Investor has an Investment Registration Certificate, has opened a capital account and has received investment approval (or equivalent document) in the country receiving the investment.[7].

However, in some special cases, Investors are allowed to transfer investment capital before being granted an Investment Registration Certificate. These cases include market research activities, documents, appraisal of investment projects; organization of seminars, scientific conferences; participation in the purchase and sale, merger of companies, deposits, collateral or other forms of financial guarantees… These activities still need to be carried out through a capital account with a limit not exceeding 5% of total foreign investment capital and not exceeding 300.000 USD.[8].

Use profits from investment

After generating profits from FDI activities, Investors have two options: repatriating profits or using these profits to continue other FDI activities.

In case of repatriating profits, the Investor must repatriate all profits and other income from FDI activities to Vietnam within 06 months from the date of tax settlement report in accordance with the law of the country receiving the investment. If this deadline cannot be guaranteed, the Investor can request an extension from the Ministry of Planning and Investment and the State Bank. However, the maximum extension period shall not exceed 12 months from the date of expiration of the deadline for repatriating profits to Vietnam.[9].

Investors retain profits for reinvestment in the following cases: (i) continuing to contribute investment capital in case of not contributing enough capital as registered; (ii) increasing investment capital; (iii) implementing new investment projects. [10]. In case the Investor retains profits to contribute enough capital or increase investment capital abroad, the Investor needs to adjust the Investment Registration Certificate and report to the State Bank within 30 days from the date of issuance of the adjusted Investment Registration Certificate. In case the Investor retains profits to implement a new investment project, the Investor needs to carry out procedures to apply for an Investment Registration Certificate for this new project and at the same time register foreign exchange transactions with the State Bank according to the requirements mentioned above.

Obligations of Investors in the process of implementing overseas investment projects

During the period from the commencement of FDI activities to the liquidation of the project, the Investor must comply with the following obligations:

First, Financial obligations. Investors must fully perform financial obligations arising from foreign investment activities in accordance with the legal provisions on tax on income and the transfer of assets related to foreign investment activities. Because the implementation of foreign investment activities is not only subject to the laws of Vietnam but also the laws of the country receiving the investment, Investors will need to pay attention to the provisions of the Double Taxation Avoidance Agreement between Vietnam and the country receiving the investment project to ensure compliance with tax obligations as well as avoid having to pay more tax than the obligations stipulated in the agreement.

Monday, Reporting obligations. Due to the nature of being subject to strict management, submitting reports on FDI activities is a mandatory obligation for Investors, including reporting on the implementation of FDI activities within 60 days from the date the investment project is approved in the investment receiving country; reporting on the operation status of the investment project within 06 months from the date of tax settlement report; quarterly and annual reports on the operation status of the investment project[11]In addition, Investors also need to periodically report quarterly on the situation of transferring investment capital abroad according to regulations on foreign exchange management.[12]. The agencies receiving these reports include the Ministry of Planning and Investment, the State Bank of Vietnam and the Vietnamese representative agency in the investment-receiving country. If an Investor fails to perform or does not fully perform this obligation, it may be subject to an administrative fine of up to VND 30.000.000 and remedial measures may be applied to compel full performance of the outstanding obligations.[13].

Tuesday, obligation to liquidate the project immediately after the end of the investment activity. Within 06 months from the date of the tax settlement report in accordance with the laws of the investment receiving country, the Investor must transfer back to the country all revenues from the liquidation of the investment project and may request an extension of no more than 06 months. Within 60 days after completing this liquidation, the Investor must complete the procedures to terminate the validity of the Investment Registration Certificate in accordance with the provisions of the Investment Law 2020.[14].

[1] Article 3.13 of the Investment Law 2020

[2] Article 52 of the Investment Law 2020

[3] Article 68 of Decree 31/2021/ND-CP guiding the Investment Law 2020

[4] Article 54 of the Investment Law 2020

[5] Article 61 of the Investment Law 2020

[6] Article 5 Circular 12/2016/TT-NHNN guiding foreign exchange management of overseas investment activities

[7] Article 10 Circular 12/2016/TT-NHNN guiding foreign exchange management of overseas investment activities

[8] Article 82 of Decree 31/2021/ND-CP guiding the Investment Law 2020

[9] Article 68 of the Investment Law 2020

[10] Article 67 of the Investment Law 2020

[11] Article 73.3 of the Investment Law 2020

[12] Article 25 Circular 12/2016/TT-NHNN guiding foreign exchange management for overseas investment activities

[13] Article 20 of Decree 122/2021/ND-CP on administrative sanctions for violations in the field of planning and investment

[14] Article 86 of Decree 31/2021/ND-CP guiding the Investment Law 2020