International investors can have their accounts in Vietnamese dong after SBV passes a draft circular on this matter.— Photo nld.com

(Biz Hub)—International investors and foreign direct investment enterprises operating in Vietnam may soon be allowed to open investment accounts in Vietnamese dong thanks to a draft circular passing through the State Bank of Vietnam (SBV) this week.

This comes as the central bank overturns its previous draft law to replace Decree 160, which guides the implementation of the Foreign Exchange Ordinance and originally sought to limit foreign currency deposits and transactions to fulfill a national de-dollarization scheme. After the opposition to the draft cited both its potential interference with local customs – particularly gifting foreign money during the Lunar New Year – and its possible result of illegal remittances, the central bank is considering an amended draft that will benefit foreign investors and FDI businesses.

The draft circular would allow the parties in a business cooperation contract to open investment accounts in foreign currency or in dong. These accounts may be used for capital contribution as long as they are held together in a bank licensed for foreign exchange transactions in Vietnam.

"Holding accounts in dong really makes things easier for foreign investors because it streamlines the investment accounts for capital contribution," says Huyen Hoang Thu, Country Manager of Dezan Shira and Associates' Vietnam Offices. "It also means that international investors have more options as they can utilize a greater variety of legal funding sources in both dong and foreign currency."

Yet some complications still exist, particularly in moving accounts from one bank to another. According to the circular, a company must maintain their dong-denominated account with the same bank that holds their foreign currency deposits.

If a foreign company wishes to open a domestic currency account with another bank, they will be required to close their current accounts and transfer their entire balance, including foreign currency deposits, to the new bank.

Despite these procedural difficulties, the new circular is expected to benefit foreign investors operating in Vietnam, which boasts the third most stable currency in Asia.

FDI inflows to Vietnam have seen a marked increase this year following similar policies designed to attract foreign interest. These initiatives have resulted in over US$12 billion in overseas investment during the first seven months of 2013, an increase of nearly 20 percent over the previous year's contributions.

This article was first published on Vietnam Briefing

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

For further details or to contact the firm, please visit www.dezshira.com.