‘Circular No. 19/2014 (Circular 19) on Foreign
Exchange Control in Foreign Direct Investment Activities in Vietnam’ was issued
by the State Bank of Vietnam (SBV) and became effective on 25 September 2014.
It requires that payments for the acquisition of shares or equity in foreign
direct invested enterprises (FIE) must be made via the FIE’s direct investment
capital account.

The direct investment capital account (DICA) must
be opened by the FIE at a bank in Vietnam. It can be in Vietnam dong or in
foreign currency depending on the currency of the investment capital of the FIE.

The account must be used for certain capital
related transactions, such as charter capital contributions. Further, it must
be used for transactions involving the transfer/sale of capital, meaning that
although the FIE itself is not a party to the transaction, the consideration
must be routed through its DICA, even where both the buyer and seller are out
of Vietnam. This position has been confirmed by the SBV in a recent official
letter. The SBV’s official letter reinforces the requirement of Circular 19 that
the consideration for the transfer of capital in an FIE needs to be routed
through Vietnam and the target’s DICA.

However, Circular 19 does not provide a clear
answer on the payment route where the target is 100% Vietnamese owned company.
It seems that in such instance the payment for the consideration (i.e., for acquisition
by a foreign buyer from a domestic Vietnamese seller) should be carried out in
accordance with the existing regulations (Decision No. 88/2009 dated 18 June
2009 and Circular 131/2010 dated 6 September 2010), which differ from Circular

Circular 19 places on obligation on FIEs to convert any “specialised
foreign currency capital account” they may have into a DICA by 25 March
2015. According to a very recent ‘Decree 96/2014 on Administrative Penalties
for Violations in the Banking Sector’, which will take effect from 12 December
2014, failure to comply with the rules on opening and using a DICA will lead to
an administrative fine. Importantly, in M&A transactions, the licensing authorities
may have clearer grounds to request evidence that the consideration has been
paid in compliance with Circular 19.