The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.
This summary is, necessarily, selective and is no substitute for detailed legal advice.
What follows is no more than an outline of the law in relation to this complex topic.
1. The basic law is contained in State Bank Circular 6 TT-NH7 dated 18 September, 1993.
2. The law provides that an enterprise with foreign invested capital must open local bank accounts for both Dong and foreign currencies. The account may be at the branch of a foreign bank. Only one bank may be used at each place where the enterprise carries on business.
All income must be placed into those accounts. There is an exception where the terms of a loan agreement made with an overseas lender require it to open an overseas foreign currency account. To qualify, however, the loan must be for more than US$3 million and the account must only be used to service that loan. Once the loan is repaid, the account, whose opening requires State Bank consent, must be closed.
3. The law states :-
"Enterprises must balance their foreign currency sources on the basis of the principle that the revenue received in foreign currency must at least meet the foreign currency requirements of expenditure, including the profits remitted abroad by the investor. Vietnamese banks shall not have the responsibility of balancing the foreign currency requirements of enterprises."
5. Until 1 October, 1994, it was common, and accepted, practice for the United States Dollar to be used freely in Vietnam as a parallel currency to the Dong. Invoicing was frequently done in Dollars.
6. In June, 1994 it was first announced that the Government intended to phase out the use of the Dollar and require Dong (subject to exceptions) to be the predominant currency.
7. Two main reasons were given
(1) national integrity;
(2) to control money supply.
8. On 1 October, 1994 the law changed. The law now provides "Organisations and units ...shall not be permitted in any way to purchase, sell, make payments in, assign, or make loans in foreign currency to each other."
There are a number of exceptions, including paying for goods imported through import/export agencies and principals. The exceptions mentioned in paragraph 4 above continue to apply.
9. There are two principal questions :-
(a) Can an enterprise in Vietnam invoice for, and require payment in, Dollars'?
(b) If it cannot, can it convert Dong revenues to permit it to meet Dollar outgoings, including profit remittances, repayment of foreign currency loans and interest on such loans?
10. The answer to 9 (a) is, apparently, that it cannot, without consent, be done. There is inconsistency in daily practice at present with some charges in Dollars and some in Dong. The State Bank recently issued a circular to all banks requiring compliance with the law. This may presage a stricter approach. The answer to 9 (b) is that outside the exceptions in paragraph 4, it may not. There are limited exceptions (i) to permit participation in the HoChiMinh City and Hanoi currency exchange markets; and (ii) to permit trading in other commodities to generate foreign currency.
11. At present, therefore, there is no guarantee that, outside the permitted exceptions, an enterprise will be able to invoice in Dollars or convert Dong revenues to service Dollar obligations, which is of particular relevance to businesses selling goods and services in Vietnam in Dong, which, unlike export oriented companies, will not hive earnings in a foreign currency.
NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".
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