BUSINESS ARTICLES

Time to open and use DICA in specific cases

Time to open and use DICA in specific cases
Time to open and use DICA in specific cases

The concept of a direct investment capital account (“DICA”) is no longer unfamiliar to foreign investors and foreign-owned enterprises in Vietnam. To carry out foreign direct investment activities in Vietnam or a foreign direct investment enterprise and a foreign investor to enter a business cooperation contract, it is necessary to open a direct investment capital account in foreign currency or in Vietnamese Dong at an authorized bank in order to conduct revenue and expenditure transactions (according to the regulations on foreign exchange management of the State Bank). The following article will contribute to concretizing regulations related to DICA, as well as the application drawn from specific cases.

Time to open DICA in specific cases

For enterprises in which foreign investors are shareholders or members who have been granted an Investment Registration Certificate (“IRC”)

In this case, the time to open DICA is within 90 days from the date of issuance of IRC as the purpose of DICA is to receive investment capital contribution for the project implementation and to avoid the case of being late for capital contribution within 90 days (according to Law on Enterprise). Therefore, foreign investors should keep in mind the term to ensure the opening of DICA and make capital contribution within the stipulated time. In the case of exceeding prescribed time, the bank may refuse to open DICA and transfer capital contribution from abroad. As a result, the enterprise will have to adjust the time for capital contribution or reduce contributed capital in accordance with the law.

So how do foreign investors transfer money to pay for expenses incurred before the time of being granted IRC? Before being granted IRC by a competent authority, a foreign investor can transfer money from abroad, from a foreign currency payment account, or Vietnamese Dong payment account of that foreign investor opened at an authorized bank in Vietnam to pay legitimate expenses during the stage of pre-investment in Vietnam.

For enterprises in which foreign investors contribute capital, purchase shares, or contributed capital resulting in the ownership of foreign investors more than 50% of the charter capital

The time to open a DICA for this case is from the date of being issued a notification of satisfying conditions for capital contribution, share purchase, and redemption of contributed capital of foreign investors until prior to carrying out procedure for amending enterprise registration certificate (change of members/shareholders). Note: In many practical cases, enterprises opening DICA after changing members/shareholders on the Enterprise registration certificate will face many problems at the money transfer stage, and many banks will not accept the DICA opening.

The use of DICA in specific cases

For enterprises in which foreign investors are shareholders or members who have been granted the IRC

In this case, DICA is used for the purpose of receiving capital contributions in foreign currency from foreign investors or Vietnamese investors and remitting profits or legitimate revenues back to foreign investors. Revenue and expenditure transactions permitted to be performed on DICA must comply with the provisions of Article 6 of Circular 06/2019/TT-NHNN dated June 26, 2019 (“Circular 06”)

For enterprises in which foreign investors contribute capital, purchase shares, or contributed capital, resulting in the ownership of foreign investors more than 50% of the charter capital

If foreign investors purchase shares or contributed capital, there will be problems related to transfer and payment. The use of DICA will be different from the case of foreign investors contributing capital as analyzed above. The DICA now acts as a bridge, receiving money from the foreign investor (the transferee) and paying back to the transferor (which can be a resident foreign investor or a Vietnamese investor).

Regarding the transactions of purchase of shares or contributed capital, there are cases as follows:

  • Case 1: The transferee and transferor are foreign investors (non-resident investors). In this case, according to the provisions of Circular 06, the payment of the transfer price is not made through DICA (not in the territory of Vietnam). The parties will pay in the territory in which they reside.
  • Case 2: The transferee is a foreign investor (non-resident investor) and the transferor is a Vietnamese investor. The process of transferring money to pay for transfer of shares and contributed capital: Foreign investors will transfer foreign currency into the enterprise’s DICA in foreign currency/ DICA in VND. From this DICA, such amount will transfer to the transferor’s payment account, without going through the enterprise’s payment account. However, there are different instructions from many banks in Vietnam as some banks accept the direct transfer to DICA in VND from foreign investors (transferees) (enterprises must open if the transferor is a Vietnamese investor) while others request to transfer to enterprise’s DICA in foreign currency. Then the bank sells foreign currency to transfer it to the transferee’s payment account. To avoid losing time, it is necessary to check with the bank where intending to perform transfer transactions to ensure the procedures before consulting / performing the transaction.

The above are regulations and interpretations related to DICA and the use of DICA in foreign direct investment activities in Vietnam summarized and drawn from legal regulations and applied in practice. These regulations are not too unusual, but the transaction activities still face many difficulties and lack of consistency in professional expertise from the banks where the DICAs are opened. Therefore, the investors and the enterprises should discuss carefully and clearly with the bank that has opened or plans to open DICA before performing transactions of capital contribution, capital transfer, receipt, and payment by DICA to avoid time consumption and affect the compliance with legal regulations.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.