Circular No. 03/2004/TT-NHNN guiding foreign exchange management for foreign investors' capital contribution and share purchase in Vietnamese enterprises.

CIRCULAR

Guidelines on foreign exchange management for foreign investors' capital contribution and share purchase in Vietnamese enterprises

of foreign investors in Vietnamese enterprises

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Pursuant to Article 2 of Decision No. 36/2003/QĐ-TTg dated March 11, 2003 of the Prime Minister on the issuance of regulations on foreign investors' capital contribution and share purchase in Vietnamese enterprises, the State Bank of Vietnam provides specific guidelines on foreign exchange management for foreign investors' capital contribution and share purchase in Vietnamese enterprises as follows:

PART I

GENERAL PROVISIONS

2. Applicability:

1.1. These Circulars regulate foreign exchange transactions related to the activities of foreign investors contributing capital and purchasing shares in Vietnamese enterprises, including transferring capital into Vietnam for capital contribution and share purchase, converting foreign currency into Vietnamese dong, opening and using Vietnamese dong accounts for capital contribution and share purchase, converting Vietnamese dong into foreign currency, and transferring foreign currency out of the country.

1.2. Foreign exchange transactions related to securities trading at the securities trading centers in Vietnam shall be carried out according to separate guidelines issued by the State Bank of Vietnam.

1.3. Foreign exchange transactions of foreign investors related to direct investment in Vietnam under the Law on Foreign Investment are not within the scope regulated by these Circulars.

2. Explanation of terms

In this Circular, the following terms are understood as follows:

2.1. Foreign investors include:

- Non-resident economic and financial organizations established under foreign laws;

- Non-resident individuals who are foreigners not permanently residing in Vietnam and Vietnamese citizens residing abroad;

- Resident individuals who are foreigners permanently residing in Vietnam.

2.2. Authorized banks are commercial banks operating in Vietnam permitted by the State Bank of Vietnam to engage in foreign exchange business.

2.3. Vietnamese enterprises receiving foreign investors' capital contributions and selling shares include state-owned enterprises undergoing corporatization, joint-stock companies (including those listed on the stock market), limited liability companies, joint ventures, cooperative unions, cooperatives engaged in business activities in sectors and trades determined by the Prime Minister or delegated to the Minister of Planning and Investment to announce periodically.

3. Currency for capital contribution and share purchase in Vietnamese enterprises:

Within the territory of Vietnam, foreign investors' capital contribution and share purchase in Vietnamese enterprises must be conducted in Vietnamese dong.

4. Sources of funds for capital contribution and share purchase in Vietnamese enterprises:

Foreign investors may use the following sources of foreign currency and Vietnamese dong for capital contribution and share purchase:

4.1. Foreign currency transferred into Vietnam in accordance with current foreign exchange management regulations;

4.2. Foreign currency and Vietnamese dong in the accounts of foreign investors specified in Point 2.1 of Chapter I of this Circular opened at commercial banks;

4.3. Vietnamese dong in the domestic securities trading accounts of such foreign investors in accordance with foreign exchange management laws;

4.4. The portion of profits distributed to foreign investors from their direct investment activities in Vietnam;

4.5. Proceeds from the transfer, liquidation, or dissolution of foreign investors' direct investment activities in Vietnam as stipulated by law;

4.6. Wages, bonuses, and other lawful income of foreign individuals in Vietnam in compliance with applicable laws;

4.7. Other sources if approved by the State Bank of Vietnam.

Transfer of Capital In and Out of Vietnam:

5.1. Foreign investors shall open foreign currency accounts at authorized banks in accordance with current foreign exchange management regulations.

5.2. Foreign investors holding foreign currency must sell it to authorized banks to obtain Vietnamese dong for capital contribution and share purchase.

5.3. After fulfilling all tax obligations as prescribed by Vietnamese law, foreign investors may purchase foreign currency from authorized banks to transfer out of the country.

Chapter II

MANAGEMENT OF FOREIGN INVESTORS' CAPITAL CONTRIBUTION AND SHARE PURCHASE TRANSACTIONS IN VIETNAMESE ENTERPRISES

Part I. OPENING AND USING CAPITAL CONTRIBUTION AND SHARE PURCHASE ACCOUNTS IN VIETNAMESE ENTERPRISES

6. Opening a "Capital Contribution and Share Purchase Account in Vietnamese Dong":

To carry out capital contributions and share purchases in Vietnamese enterprises, foreign investors must open a "Capital Contribution and Share Purchase Account in Vietnamese Dong" (hereinafter referred to as "Capital Contribution and Share Purchase Account") at a commercial bank operating in Vietnam. All transactions for transferring funds to implement capital contributions, share purchases and sales, capital contribution transfers, dividend and profit distribution receipts and uses, foreign currency purchases from authorized banks for transfer abroad, and other transactions related to foreign investors' capital contribution and share purchase activities in Vietnamese enterprises must be conducted through this account.

7. Using the Capital Contribution and Share Purchase Account:

Foreign investors are only permitted to use the Capital Contribution and Share Purchase Account to serve capital contributions and share purchases in Vietnamese enterprises:

Part Receipts:

a. Receipts from selling foreign currencies to authorized banks;

b. Receipts from sources of Vietnamese dong as specified in Points 4.2, 4.3, 4.4, 4.5, and 4.6 of Section I of this Circular;

c. Receipts transferred from the foreign investor's domestic securities trading account for capital contributions and share purchases;

d. Receipts from capital contribution and share transfers;

e. Receipts of dividends, profits distributed, and other income arising from capital contributions and share purchases.

Part Payments:

a. Expenditures for capital contributions, share purchases, and payment of related transaction costs;

b. Expenditures transferred to the foreign investor's domestic securities trading account to purchase securities at the Stock Exchange;

c. Expenditures for purchasing foreign currencies from authorized banks for transfer abroad.

Part II. MANAGEMENT OF CAPITAL CONTRIBUTION AND SHARE PURCHASE ACCOUNTS

8. Registering Capital Contribution and Share Purchase Accounts:

8.1. Within two working days from the date of opening a capital contribution and share purchase account at a commercial bank, foreign investors must register their capital contribution and share purchase accounts with the State Bank of Vietnam (Department of Foreign Exchange Management). The application package includes:

a. Application form for registering a capital contribution and share purchase account (Form No. 01);

b. Documents proving the legal status of the foreign investor;

c. Confirmation from the commercial bank regarding the foreign investor's opening of a capital contribution and share purchase account at the bank. The confirmation includes: name, address, nationality of the account holder; account number; account balance.

8.2. Within five working days from the date of receiving complete and valid applications, the State Bank of Vietnam is responsible for confirming the registration of the Capital Contribution and Share Purchase Account (Form No. 2) so that foreign investors can conduct capital contribution and share purchase transactions in Vietnamese enterprises through the opened Capital Contribution and Share Purchase Account at the commercial bank. In case of non-confirmation, the State Bank of Vietnam must provide a written response stating the reasons.

8.3. Foreign investors are only allowed to conduct receipt and expenditure transactions on the Capital Contribution and Share Purchase Account according to the provisions set forth in Point 2 of Section I of Part II above after receiving the confirmation letter from the State Bank of Vietnam.

8.4. In the following cases, foreign investors must re-register their Capital Contribution and Share Purchase Accounts with the State Bank of Vietnam:

a. Changes in name or contact address;

b. Changes in legal status;

c. Changes in the commercial bank where the foreign investor opens the Capital Contribution and Share Purchase Account.

The procedures for re-registration are carried out according to the provisions set forth in Points 8.1, 8.2, and 8.3 of Section II of Part II of this Circular.

8.5. Foreign investors who are organizations must submit the application package for registering a Capital Contribution and Share Purchase Account directly to the State Bank of Vietnam (Department of Foreign Exchange Management). The confirmation letter for the account registration will be sent directly to the foreign investor by the State Bank of Vietnam.

8.6. For individual foreign investors, the application package is submitted through the commercial bank where the Capital Contribution and Share Purchase Account is opened. The confirmation letter for the account registration will be sent to the foreign investor by the State Bank of Vietnam through the commercial bank.

9. Closing Capital Contribution and Share Purchase Accounts:

In the following cases, foreign investors must close their Capital Contribution and Share Purchase Accounts opened at commercial banks and return the original confirmation letter for account registration to the State Bank of Vietnam (Department of Foreign Exchange Management):

9.1. Transferring the entire balance on the account abroad or to a securities trading account;

9.2. Dissolution, bankruptcy, and termination of legal entity status (for foreign investors who are organizations);

9.3. Other cases as prescribed by the State Bank of Vietnam.

Mục III. PROVISIONS ON DOCUMENT VERIFICATION

10. Verification of registration account confirmation documents of the State Bank:

When conducting transactions for receipts and payments on the Capital Contribution and Share Purchase Account at the request of foreign investors, commercial banks shall be responsible for verifying the documents issued by the State Bank confirming the registration of the Capital Contribution and Share Purchase Account of foreign investors. Commercial banks may only conduct transactions for receipts and payments on the accounts of foreign investors when they have the documents confirming the registration of the Capital Contribution and Share Purchase Account issued by the State Bank as stipulated in Section II Chapter II of this Circular.

11. Verification of transaction documents:

When conducting transactions for receipts and payments on the Capital Contribution and Share Purchase Account for foreign investors, commercial banks shall be responsible for verifying the following documents:

11.1. For sources of income:

Cash deposits in Vietnamese dong into the Capital Contribution and Share Purchase Account: Documents proving the source of income arising from activities as prescribed in Point 7 Section I Chapter II of this Circular.

11.2. For expenditures related to capital contribution and share purchase in Vietnamese enterprises:

For each case of capital contribution and share purchase in various types of Vietnamese enterprises, commercial banks shall be responsible for verifying the following documents:

a. For State-owned Enterprises undergoing equitization:

In the case of issuing shares for the first time to foreign investors: The document of the competent authority approving the equitization plan regarding the sale of shares to foreign investors.

b. For Joint Stock Companies that are operating but not listed on the stock market:

- Minutes of the Shareholders' Meeting or Board of Directors (if applicable) regarding the sale of shares to foreign investors.

- Share transfer contracts or share transfer certificates.

c. For Limited Liability Companies, Partnership Companies, Cooperative Unions, Cooperatives:

Minutes of the Board of Members, General Partners (for Partnership Companies), or General Assembly of Members (for Cooperative Unions, Cooperatives) deciding on the capital contribution plan of foreign investors.

11.3. For expenditures transferred to the Securities Trading Account:

Commercial banks shall be responsible for verifying that the amount transferred must be correctly deposited into the Securities Trading Account of the foreign investor opened at a permitted Depository Member according to the State Bank's regulations on foreign exchange management for the purchase and sale of securities by foreign investors at the Securities Exchange Center.

11.4. For expenditures in Vietnamese dong to purchase foreign currency to be transferred abroad:

The document of the competent tax authority confirming the completion of tax obligations to the Vietnamese State with respect to profits obtained from capital contribution and share purchase in Vietnamese enterprises.

Chapter IV

INFORMATION REPORTING AND VIOLATION HANDLING

12. Reports of commercial banks:

Monthly (no later than the 5th day of the following month), semi-annually (no later than the 10th day of July each year), and annually (no later than the 10th day of January of the following year), commercial banks must report to the State Bank (Department of Foreign Exchange Management):

a. The situation of opening and closing the Capital Contribution and Share Purchase Accounts of foreign investors at commercial banks (Form No. 03);

b. The operation status of the Capital Contribution and Share Purchase Accounts of foreign investors at commercial banks (Form No. 04);

c. The situation of buying and selling foreign currencies, purchasing foreign currencies to transfer abroad by foreign investors at permitted commercial banks for foreign exchange operations (Form No. 05);

d. In cases where necessary, commercial banks shall be responsible for providing information and reports as required by the State Bank.

13. Reports of foreign investors:

Quarterly (no later than the 5th day of the first month of the next quarter) and annually (no later than the 10th day of the first month of the following year), foreign investors must report to the State Bank (Department of Foreign Exchange Management) on the situation of their activities in purchasing shares and contributing capital to Vietnamese enterprises (Form No. 06).

14. Handling of violations:

Foreign investors who commit the following violations shall have their registration confirmation certificates for the Capital Contribution and Share Purchase Account issued by the State Bank revoked:

- Opening more than one Capital Contribution and Share Purchase Account in Vietnamese dong to carry out capital contribution and share purchase in Vietnamese enterprises;

- Conducting receipts and payments on the Capital Contribution and Share Purchase Account outside the provisions set forth in Point 7 Section I Chapter II of this Circular;

- Not submitting complete and timely reports to the State Bank as stipulated in Point 13 Section I Chapter IV of this Circular;

- Violating current foreign exchange management regulations.

Chapter V

IMPLEMENTING PROVISIONS

15. Implementation Provisions:

15.1. This Circular shall take effect fifteen days after its publication in the Official Gazette.

15.2. Foreign investors who conduct capital contribution and share purchase activities in Vietnamese enterprises before the issuance of this Circular must comply with the account registration regulations, reporting requirements, and other provisions set forth in this Circular.

16. Organizational Implementation:

The Head of the Department of Foreign Exchange Management, Heads of units under the State Bank, Governors of the State Bank Branches in provinces and centrally-administered cities, Chairmen of the Boards of Directors and General Managers (Directors) of commercial banks, and foreign investors contributing capital and purchasing shares in Vietnamese enterprises shall be responsible for implementing this Circular./.