Payment Methods For Transfer Price Of Shares/Contribution Capital Amounts Of Foreign Investors In M&A Transactions

When paying or receiving payment for Transfer price of shares/contribution capital amounts of an enterprise in Vietnam, Foreign Investors must comply with the Ordinance on Foreign Exchange and a number of procedures at the commercial bank where the payment account is opened. Below are some notes related to the payment of Transfer price in M&A transactions which involves the participation of Foreign Investors:

1. Investment Capital Accounts used for payment methods for Transfer Price of Shares/Contribution Capital Amounts of Foreign Investors

Depending on each specific case, Foreign Investors and Enterprises have to clarify which Investment Capital Accounts shall be used to pay or receive payment of transfer price of shares/contribution capital amounts.

1.1. Direct investment capital account (“DICA”)

DICA means account of a Foreign-Invested Enterprise opened at a bank eligible for performing business and providing foreign exchange services in Vietnam. DICAs are used to conduct transactions related to foreign direct investment in Vietnam. Each Foreign-Invested Enterprise shall be allowed to open only one (01) Direct investment capital account in a foreign currency (“DICA-FC”) and one (01) Direct investment capital account in Vietnam Dong (“DICA-VN”) at the same authorized bank.

The establishment or purchase of shares/contribution capital amounts of a Foreign Direct Investment Enterprise in Vietnam shall be considered as foreign direct investment in Vietnam. Foreign Direct Investment Enterprises include:

(a) Enterprises established as economic organizations with Foreign Investors as members or shareholders and granted investment registration certificates according to law provisions on investment;

(b) Enterprises other than those specified at the above-mentioned Point (a) with Foreign Investors owning at least 51% of their charter capital, including:

(i) Enterprises with Foreign Investors contributing capital or buying shares or contribution capital amounts of enterprises (operating in business lines with or without conditions applied to Foreign Investors), which leads to Foreign Investors owning at least 51% of the charter capital of the Enterprises;

(ii) Enterprises established upon the separation, merger, acquisition, which leads to Foreign Investors owning at least 51% of charter capital of the Enterprises;

(c) Project enterprises established by Foreign Investors to implement PPP projects according to law provisions on investment.

1.2. Indirect investment capital account (“IICA”)

IICA means a payment account in Vietnam Dong opened by a Foreign Investor at a bank eligible for performing business and providing foreign exchange services in Vietnam. IICAs are used to conduct authorized revenue and expenditure transactions related to foreign indirect investment activities in Vietnam.

Foreign Investors’ indirect investment activities in Vietnam include the following forms:

(a) Contribution of capital, purchase and sale of shares or contribution capital amounts of Foreign Investors in enterprises not being the cases prescribed in Clause 2, Article 3 of Circular 06/2019/TT-NHNN dated June 26, 2019, not listed or registered for trading in the Stock Exchanges (cases specified in section 1.1 above);

(b) Contribution of capital, purchase and sale of shares or contribution capital amounts of Foreign Investors in enterprises with shares listed or registered for trading in the Stock Exchanges;

(c) Purchase and sale of bonds and other types of securities on the Vietnamese securities market;

(d) Purchase and sale of other valuable papers in Vietnam Dong issued by residents being licensed organizations in the Vietnam territory;

(e) Entrustment of investment in Vietnam Dong through fund management companies, securities companies and organizations allowed to perform the operation of investment entrustment in accordance with the law on securities; entrustment of investment in Vietnam Dong through credit institutions and foreign bank branches licensed to perform the operation of investment entrustment under the State Bank’s regulations;

(f) Capital contribution and transfer of contributed capital of Foreign Investors in securities investment funds and fund management companies in accordance with law provisions on securities.

Payment Methods For Transfer Price Of Shares
Payment Methods For Transfer Price Of Shares/Contribution Capital Amounts Of Foreign Investors In M&A Transactions

2. Payment methods through each type of Investment Capital Accounts

2.1. DICA:

Payment through DICA shall be made in accordance with the Circular 06/2019/TT-NHNN dated June 26, 2019 guiding foreign exchange management for foreign direct investment in Vietnam. Accordingly, DICA shall be the intermediary account to receive payment of the Transfer price from the Buyer and transfer such amount to the Seller. The following issues are worth consideration:

(a) The payment of Transfer price of shares/contribution capital amounts at Foreign Direct Investment Enterprises shall be made as follows: 

(i) Among Non-Resident Investors or among Resident Investors not via Direct Investment Capital Accounts;

(ii) Among Non-Resident Investors and Resident Investors via Direct Investment Capital Accounts.

(b) Currencies for pricing and payment of transfer value of investment capital or investment projects of foreign direct investment activities in Vietnam:

(i)  The pricing and payment of transfer value of investment capital, investment projects between two non-resident investors shall be conducted in foreign currencies; 

(ii) The pricing and payment of transfer value of investment capital, investment projects between resident and non-resident investors, or among resident investors must be conducted in Vietnam dong.

2.2. IICA:

Payment through IICA shall be made in accordance with the Circular 05/2014/TT-NHNN dated March 12, 2014 providing guidelines on the opening and use of indirect investment capital accounts to carry out foreign indirect investment activities in Vietnam. Accordingly, Foreign Investors shall use IICA accounts to receive payment of the Transfer price from the Buyer or pay the Transfer price to the Seller.

3. Bank consultation:

Before making payment of the Transfer price, the parties should consult the Commercial Bank where the DICA or IICA account is opened to clarify whether the Payment method is suitable for the share/contribution capital amount transfer transaction. It is not recommended that the payment of Transfer price is interrupted because there are different viewpoints on the payment method between the Commercial Bank and the involved parties. The following issues need to be clarified with the Commercial Bank:

(a) The account used to make payment when performing M&A transactions (DICA-FC, DICA-VN, IICA or not paying through Investment Capital Accounts);

(b) Whether the payment currency is Vietnam Dong or other foreign currencies;

(c) Documents to be provided to the Commercial Bank for each payment;

(d) Contents of payment terms (if necessary).

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to IPO & Capital Raising. Please refer to our services IPO & Capital Raising and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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