The activities related to the field of finance – banking are governed by the legal documents such as the Law on State Bank No. 46/2010/QH12 passed by the National Assembly of the Socialist Republic of Vietnam in Course XII, Session 7 on June 16th 2010 and the Law on Credit Institutions No. 47/2010/QH12 on 16/06/2010.
1. Banking systems
The domestic banking system is divided into two levels. The highest level is the State Bank of Vietnam (SBV), responsible for the control of monetary policies and supervision, adjustment of the banking system. The secondary level consists of three commercial banks, finance companies, credit cooperatives, people’s credit funds, and insurance companies. Depending on the operating license granted by the State Bank of Vietnam, the joint-venture banks can offer various types of banking services in Vietnam. Domestic partners of a joint venture bank are existing commercial banks and Vietnamese Banks that contribute capital to establish the joint venture banks must be reputable banks and organizations, with financial capacity, healthy operation, efficient business with interest under the above principles of the Circular No. 03/2007/TT-NHNN. Specifically, Vietnamese Banks must meet the following conditions: (i) The operating time is at least 5 years; (ii) the total minimum assets of 10.000 billion dong, the bad debt ratio of less than 2% of total loans, not violate the safety regulations in banking operations as stipulated by the State Bank of Vietnam on the year prior to the application of license for the time when the State Bank considers the application documents of license; (iii) Trading with profit in three (03) consecutive years preceding the year of application for the license. The minimum capital required for a joint venture bank is 10 million USD. Joint venture partner as the foreign bank must have a written commitment with the State Bank of: (i) Ready to support finance, technology, governance, administration and operations for the joint venture bank in Viet Nam; (ii) ensuring the maintenance of the actual value of the joint venture bank not lower than the legal capital and meeting all safety regulations on activities as prescribed by the State Bank.
Similarly with the joint-venture banks, branches of foreign banks are entitled to provide permissible banking services in Vietnam market. The minimum capital required for a branch is specified in Appendix 1 of the Circular No. 36/2014/TT-NHNN on 20/11/2014.
Representative offices of the foreign banks are not allowed to trade in banking services in Vietnam. In essence, the representative offices are the legal representatives of foreign banks in Vietnam, so they may only carry out market research activities and support services of the parent bank.
2. Regulations on foreign exchange operations
Foreign exchange trading activities in the territory of Vietnam may be adjusted by the applicable legal documents as follows:
Ordinance on Foreign Exchange No. 28/2005/PL-UBTVQH11 on 13/12/2005;
Ordinance No. 06/2013/UBTVQH13 on 18/03/2013 on amending and supplementing some articles of Ordinance on Foreign Exchange;
Decree No. 70/2014/NĐ-CP on 17/07/2014 guiding the Ordinance on Foreign Exchange and amended Ordinance on Foreign Exchange;
Circular No. 32/2013/TT-NHNN on 26/12/2013 guiding the implementation of restriction regulations on the use of foreign exchange in the territory of Vietnam issued by the State Bank of Vietnam;
Circular No. 19/2014/TT-NHNN on 11/08/2014 guiding the management of foreign exchange operations for foreign direct investment into Vietnam issued by the State Bank of Vietnam.
(i) General provisions
“In the territory of Vietnam, all transactions, payments, listing or advertising of residents, non-residents are not made in foreign exchange, except for the transactions with credit institutions, payment cases through intermediaries including collection, consignment, agent and other necessary cases permitted by the Prime Minister.” [Article 22, Ordinance on Foreign Exchange No. 28] and guided in details in Article 29 Decree No. 160/2006 guiding to implement the Ordinance on Foreign Exchange in 2005 of the Government (Decree No.160):“ In the territory of Vietnam, all transactions, payments, listing or advertising of residents, non-residents are not made in foreign currencies …”. More specifically, as stipulated in the Circular 32/2013/TT-NHNN on 26/12/2013: “In the territory of Vietnam, except for cases that possibly use foreign exchange as prescribed, all transactions, payments, listing, advertising, quoting, pricing, pricing in contracts, agreements and other similar forms (including the conversion and adjustment in price of the goods and services, the value of contracts, agreements) of the residents, non-residents shall not made by foreign exchange”.
(ii) Provisions for Foreign Investors
Before being granted investment certificate, the foreign investors are allowed to transfer investment capital to Vietnam to meet the legal costs for the preparatory phase of investment in Vietnam under written agreement made by parties concerned and through foreign-currency payment accounts opened at the authorized bank;
The foreign investors are allowed to use the investment funds that transferred to Vietnam as prescribed to meet the legal costs for the preparatory phase of investment in Vietnam on the basis of compliance with the provisions of the current law on use of foreign exchange in the territory of Vietnam;
All indirect investment activities of foreign investors in Vietnam must be made in Vietnam dong. Transactions related to foreign indirect investment activities by the foreign investors must be made through 01 (one) indirect investment capital account opened in 01 (one) authorized bank.
3. Opening of bank account
Foreign investors, Vietnamese investors in the enterprises with foreign direct investment capital are allowed to make capital contribution in foreign currencies or in Vietnam dong at the level as prescribed in the investment certificate. To carry out foreign direct investment in Vietnam, the enterprises with foreign direct investment capital and the foreign investors who participate in business cooperation contracts must open capital accounts by direct investment capital account in foreign currencies or Vietnam dong at 01 (one) authorized bank to conduct transactions of revenue and expenditure. Specifically:
The enterprises with foreign direct investment capital, the foreign investors who participate in business cooperation contracts may open direct investment capital account in selected foreign currencies for investment capital contribution. Corresponding to the selected foreign currencies to implement capital contribution, the enterprises with foreign direct investment capital, the foreign investors who participate in business cooperation contracts shall open only 01 (one) direct investment capital account in such foreign currencies for investment capital contribution;
In case of having demand to open direct investment account in other authorized bank, the enterprises with foreign direct investment capital, the foreign investors who participate in business cooperation contracts must close the opened direct investment accounts, transfer entire balance on this account to the new account. The procedures for opening and closing direct investment account shall comply with the provisions of the authorized bank. The enterprise with foreign direct investment capital, foreign investors who participate in business cooperation contracts shall only carry out the transactions of revenue and expenditure on newly-open capital account after closing and finalizing the previously-opened direct investment account.
4. Transfer of capital, profits, and legitimate revenues abroad
The foreign investors are allowed to transfer abroad the direct investment capital in case of dissolution or termination of activities of enterprises with foreign direct investment capital, capital reduction or termination, liquidation, termination of activities of investment projects and business cooperation contracts under the provisions of law on investment, principal amount, interest and foreign borrowing costs, profits and other lawful revenue related to direct investment activities in Vietnam through direct investment capital account. In case that the enterprises with foreign direct investment capital must close the direct investment capital account due to dissolution or termination of the business operations or by the transfer or investment capital to change its original entity of the enterprises with foreign direct investment capital, the foreign investors may use the payment account in foreign currencies, its payment accounts in Vietnam dong at the athorized bank to carry out transactions of purchasing foreign currencies, transfer the direct investment capital and legitimate revenue abroad;
The foreign investors are allowed to use the legitimate revenue in Vietnam dong from direct investment activities in Vietnam to purchase foreign currencies at an authorized credit institution and transfer abroad, within 30 working days from the date of purchasing the foreign currencies.