IS SIGNING CONTRACT WITH PAYMENT IN FOREIGN CURRENCY ALLOWED?

Currently, when the economy is open, trade and commerce become convenient and easy, the demand to buy, sell and exchange between Vietnamese and foreign traders also become more popular. So when signing a contract between these subjects, is agreement of payment in foreign currency allowed?

In the article below, Lincon Law Firm will answer this question.

1. Regulations on restrictions on the use of foreign exchange

According to the Foreign Exchange Ordinance regulating the restriction of the use of foreign exchange, in the territory of Vietnam, all transactions, payments, listings, advertisements, quotations, valuations, price recording in contracts, agreements and other similar forms by residents and non-residents may not be made in foreign exchange, except in cases permitted under the regulations of the State Bank of Vietnam.

Cases where payment in foreign currency is allowed within the territory of Vietnam are specifically stipulated in Circular 32/2013/TT-NHNN, amended and supplemented in Circular 16/2015/TT-NHNN and Circular 03/2019/TT-NHNN. Some cases where the State Bank of Vietnam allows payment in foreign currency include:

– Banks, non-bank credit institutions, foreign bank branches licensed to do business and provide foreign exchange services (hereinafter referred to as licensed credit institutions) are allowed to transact, make payments, posting, advertising, quoting, pricing, recording prices in contracts and agreements in foreign exchange within the scope of business and provision of foreign exchange services that have been permitted by the State Bank of Vietnam in accordance with the provisions of the Law on Foreign Exchange;

– Residents execute import and export entrustment contracts according to the following regulations:

Residents who receive import entrustment may record the price in the import entrustment contract in foreign currency and receive payment in foreign currency by transfer for the value of the import contract from the import entrustment party;

Residents receiving export entrustment may record the price in the export entrustment contract in foreign currency and pay in foreign currency by transfer for the value of the export contract to the export entruster;

– Residents who are domestic contractors or foreign contractors shall comply with the following regulations:

+ For foreign costs related to the implementation of bidding packages through international bidding according to the provisions of the Bidding Law: contractors are allowed to bid in foreign currency and receive payment in foreign currency by bank transfer from the investor, the main contractor for payments, disbursements and overseas transfers;

+ For the implementation of bidding packages according to the provisions of law on oil and gas: contractors are allowed to bid in foreign currency and receive payment in foreign currency by transfer from the investor and main contractor for payment, payment and move abroad; etc.

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2. Contract agreement on payment in foreign currency

On the issue of payment agreements in foreign currency in contracts, the Supreme People’s Court’s Judicial Council issued two directions:

– If the content of an economic contract has an agreement to pay in foreign currency while one or both parties are not allowed to pay in foreign currency, then the economic contract is considered null and void in whole. In this case, if one or both parties request the court to resolve the dispute, the court will declare the contract invalid and resolve the consequences of the invalid contract according to the general procedure.

– If the content of an economic contract has an agreement to pay in foreign currency while one or both parties are not allowed to pay in foreign currency, but then the parties agree to pay in Vietnamese Dong, then the contract is not considered null and void in whole.

Therefore, according to the Judicial Council of the Supreme People’s Court, if two parties sign a contract with an agreement to pay in foreign currency that one or both parties do not fall under the cases allowed to pay in foreign currency prescribed in Circular 32/2013/TT-NHNN, then that contract will be null and void in whole.

However, if 2 parties sign a contract with an agreement to pay in foreign currency that one or both parties do not fall under the cases allowed to pay in foreign currency prescribed in Circular 32/2015/TT-NHNN, but then the two parties pay in Vietnamese Dong, then the Judicial Council of the Supreme People’s Court does not consider that contract to be invalid.

Therefore, when businesses sign contracts, they should carefully consider whether to agree to pay in foreign currency or Vietnamese Dong. If the agreement in the contract is to pay in foreign currency, then the two parties should pay in foreign currency to avoid the contract being null and void in whole.

Lincon Law Firm is a law firm with many years of experience in the field of legal consulting, including contracts. Lincon Law Firm is always ready to provide the best legal services to meet the needs of businesses related to consulting and resolving legal issues.