Is it legal to use foreign currency in share transfer and capital contribution transactions?

1. Foreign exchange management policy

The Foreign Exchange Ordinance 2005 amended and supplemented in 2013 (Ordinance 2005) regulates foreign exchange activities in Vietnam, including regulations on restrictions on the use of foreign exchange. Accordingly, restricting the use of foreign exchange is considered a measure to stabilize the foreign currency market. And also contribute to improving the convertibility of Vietnamese dong.

Ordinance 2005 classifies transactions on the market into two forms:

– Current transactions;

– Capital transactions.

– Transactions of transferring shares and contributed capital in the form of capital transactions. They are different from current transactions that use foreign currency in transactions. Capital transactions are subject to restrictions on the use of foreign exchange in accordance with this Ordinance. Specifically, Ordinance 2005 provides as follows:

“In the territory of Vietnam, all transactions, payments, listings, advertisements, quotations, pricing, pricing in contracts, agreements and other similar forms of residents, non-residents cannot be done in foreign exchange, except for cases permitted under regulations of the State Bank of Vietnam.”

2. Foreign exchange management policy for foreign investors

There are 02 forms of foreign investment in Vietnam as follows:

– Foreign direct investment in Vietnam;

– Foreign indirect investment in Vietnam.

According to Article 12, Ordinance 2005, foreign currency indirect investment capital must be converted into Vietnam Dong.

Ordinance 2005 classifies transactions on the market into two forms:

– Current transactions;

– Capital transactions.

– Transactions of transferring shares and contributed capital in the form of capital transactions. They are different from current transactions that use foreign currency in transactions. Capital transactions are subject to restrictions on the use of foreign exchange in accordance with this Ordinance. Specifically, Ordinance 2005 provides as follows:

– In the territory of Vietnam, all transactions, payments, listings, advertisements, quotations, pricing, pricing in contracts, agreements and other similar forms of residents, non-residents cannot be done in foreign exchange, except for cases permitted under regulations of the State Bank of Vietnam.”

3. Foreign exchange management policy for foreign investors

There are 02 forms of foreign investment in Vietnam as follows:

– Foreign direct investment in Vietnam;

– Foreign indirect investment in Vietnam.

According to Article 12, Ordinance 2005, foreign currency indirect investment capital must be converted into Vietnam Dong.

To this day, this Resolution is still referenced to apply to the above issue. However, this application is controversial because:

The issuing of the Resolution occurred in 2003, predating the promulgation of the 2005 Ordinance. That is, at that time regulations on restrictions on the use of foreign exchange were not strict.

The list of legal documents that expire at the end of 2021 includes the resolution. The resolution holds only reference value and is no longer usable as a legal basis.

Therefore, this method still has risks in share and capital transfer transactions. To ensure safety, investors should consult or educate themselves about regulations that restrict the use of foreign currencies to minimize risks.

(Refer to the Investment Newspaper on November 23, 2022)