Should Foreign Investors Contribute Capital to Enterprises with Foreign Direct Investment (FDI) in Foreign Currency or in Vietnamese Dong?
An FDI enterprise is a business established by a foreign investor, with or without domestic investors. It is common practice for foreign investors to contribute capital to an FDI enterprise in foreign currency, such as USD, with the amount in that specific foreign currency recorded in the Enterprise Registration Certificate (ERC) and/or the Investment Registration Certificate (IRC) of the FDI enterprise. Exchange rate fluctuations between the date the Investment Registration Certificate (IRC) is issued and the date of actual capital contribution often result in a discrepancy between the VND amount converted from the foreign currency contribution and the VND amount stated on the IRC.
In such cases, it remains unclear whether foreign investors are considered to have fully contributed their capital, as it is unclear which amount will be used to determine whether the authorized capital of the FDI enterprise has been fully contributed: (i) the VND amount after conversion from foreign currency, or (ii) the actual amount contributed in currency (see analysis below). Different competent authorities may have differing views on this issue, as discussed in detail. On the one hand, one could argue that the foreign currency amount should prevail because:
The 2020 Enterprise Law requires owners or members of a limited liability company to contribute capital to the company “in full and in the form of assets as committed upon registration of the company’s establishment.” This provision may also apply to subsequent capital contributions on a similar basis. This implies that the law does not require the full capital contribution to be in VND if the owner registered the contribution in USD;
Article 36 of the 2020 Enterprise Law stipulates that if a capital contribution is made in assets other than VND, freely convertible foreign currency, or gold, such contribution must be valued and recorded in VND. This provision implies that if capital is contributed in foreign currency (e.g., USD), the actual amount contributed in USD takes precedence; And
In practice, there have been cases where foreign investors were denied additional funding in USD by DICA Bank to address the exchange rate difference between the VND amount converted from the USD capital contribution and the VND charter capital recorded on the Business Registration Certificate. The bank’s position is that the foreign investor has already contributed sufficient capital in USD. In response to this situation, the State Bank of Vietnam (SBV) stipulates that foreign investors have the right to choose to contribute capital in VND or foreign currency, provided that the actual currency used for the amount complies with the regulations in the IRC. This indicates that foreign investors are only required to fully contribute capital in the currency of their choice, provided that both the currency and the corresponding amount are accurately recorded in the IRC.
On the other hand, some argue that since the authorized capital stated in the Business Registration Certificate is in VND and the foreign currency amount is only equivalent in value, while the authorized capital on the Business Registration Certificate is VND (with an equivalent amount of foreign currency), the authorized capital must be calculated based on the VND amount. Note that there is a precedent where the Ministry of Planning and Investment has applied this method and required investors to contribute the full amount in VND; and in practice, there have been cases where FDI projects were subject to administrative penalties for failing to contribute the full amount in VND.
Given the above, although there are reasonable safeguards and rights for FDI investors regarding the contribution of authorized capital in foreign currency, there remain risks that relevant authorities may deem the authorized capital of an FDI enterprise as insufficiently contributed.
