OPEN DICA OR ICCA WHEN FOREIGN CAPITAL CONTRIBUTION IS BELOW 51%?

When foreign investors engage in investment activities in Vietnam, the selection of the appropriate investment capital account is a critical factor to ensure compliance with legal requirements and to mitigate potential risks in subsequent financial transactions. The issue that arises is: In cases where an investor contributes capital to a Vietnamese enterprise with foreign ownership of less than 51%, which account should be utilized in accordance with the applicable regulations – ICCA or DICA?

What are the differences between DICA and ICCA?

The Indirect Investment Capital Account (ICCA) is a payment account in the currency of Vietnam dong, opened by foreign investors at an authorized bank, to facilitate permitted transactions related to indirect foreign investment activities in Vietnam.

It is essential to differentiate between the ICCA and the Direct Investment Capital Account (DICA), which is a payment account in either foreign currency or Vietnam dong, established for the purpose of conducting transactions related to direct foreign investment activities in Vietnam.

The fundamental distinction between ICCA and DICA lies in the type of investor and the intended purpose of the account.

When a foreign investor contributes capital resulting in ownership of less than 51% of the charter capital in a Vietnamese company, should they open an ICCA or DICA?

According to Clause 1, Article 5 of Circular 05/2014/TT-NHNN (amended by Clause 2, Article 14 of Circular 06/2019/TT-NHNN), when a foreign investor contributes capital resulting in ownership of less than 51% of the charter capital in a Vietnamese company, it is considered as a form of indirect foreign investment in Vietnam. Therefore, to conduct activities related to investment capital, the investor must use the ICCA as per the regulations.

Clause 1, Article 5 of Circular 05/2014/TT-NHNN (amended by Clause 2, Article 14 of Circular 06/2019/TT-NHNN) guiding the opening and use of the Indirect Investment Capital Account for conducting indirect foreign investment activities in Vietnam:

“Article 5. Forms of indirect foreign investment in Vietnam

The indirect investment activities of foreign investors in Vietnam include the following forms:

1. Contributing capital, buying, or selling shares, or capital contributions of foreign investors in enterprises not falling under the provisions of Clause 2, Article 3 of Circular 06/2019/TT-NHNN dated June 26, 2019, by the Governor of the State Bank of Vietnam, guiding foreign exchange management for foreign direct investment activities in Vietnam and any amendments or supplements (if any), which are not listed, nor registered for trading on the stock exchange.”

The provision in Clause 2, Article 3 of Circular 06/2019/TT-NHNN is as follows:

“Article 3. Explanation of terms

…

2. “Enterprise with foreign direct investment” includes:

a) An enterprise established under the form of investment to set up an economic organization, in which the foreign investor is a member or shareholder and must complete the procedure for obtaining an investment registration certificate in accordance with investment law;

b) An enterprise that does not fall under the case specified in point a of this clause, but where the foreign investor holds 51% or more of the charter capital, including:

(i) An enterprise in which the foreign investor contributes capital, buys shares, or capital contributions to the enterprise (operating in conditional or non-conditional business sectors for foreign investors) resulting in the foreign investor owning 51% or more of the charter capital of the enterprise;

(ii) An enterprise established after a division, merger, or consolidation resulting in the foreign investor owning 51% or more of the charter capital of the enterprise;

(iii) An enterprise established according to the provisions of specialized laws;

c) A project enterprise established by a foreign investor to implement a PPP project in accordance with investment law.”

Additionally, the ICCA is also used to serve other indirect investment activities, including the buying and selling of securities, negotiable instruments, or investment trusts, or other forms of indirect investment as prescribed by the law.

What should investors be aware of when using ICCA?

Only one account can be opened and used at any given time

ICCA can only be opened at an authorized bank in accordance with the law. At any given time, an investor can only open one account for transactions related to indirect investment activities.

In case the investor wishes to change the bank where the ICCA is held, the investor must close the current account and transfer the entire balance to the new account.

The currency for transactions through ICCA is Vietnam Dong

ICCA is essentially a payment account in Vietnam dong (VND), meaning all indirect investment activities of foreign investors in Vietnam through ICCA must be conducted in Vietnam dong.

ICCA is used for a limited number of transactions

According to legal regulations, ICCA can only be used for authorized inflows and outflows, specifically:

– Inflows related to the indirect investment activities of the investor, including proceeds from selling foreign currency to credit institutions, capital or securities transfers, and receiving interest/profits from investment activities, etc.

– Outflows related to indirect investment activities, such as transferring capital or investment profits abroad, or paying reasonable expenses incurred in Vietnam, etc.

Furthermore, the balance in the ICCA is not permitted to be transferred to term deposits or savings accounts at credit institutions or branches of foreign banks.

How to transfer capital abroad from ICCA?

According to regulations from the State Bank of Vietnam, foreign investors can use ICCA to transfer profits, dividends, or proceeds from the sale of shares, capital contributions, or other legitimate sources of income abroad, or when concluding investment activities in Vietnam.

It is mandatory to use Vietnam dong in the ICCA to purchase foreign currency and transfer it abroad for the aforementioned investment-related income.

>> DIRECT INVESTMENT CAPITAL ACCOUNT (DICA), IMPORTANT ISSUES https://linconlaw.vn/direct-investment-capital-account-dica-important-issues/

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