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Major changes to authorised currency for Vietnamese onshore contracts

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11 February 2014

A new Vietnamese regulation requires all onshore contracts to be calculated, denominated and paid in Vietnamese Dong (VND). The past practice of denominating contracts in USD to hedge against the depreciation of VND is no longer valid and may render a foreign currency claim, or the entire onshore contract, void or unenforceable in Vietnam.

Foreign exchange restriction

The Vietnamese Ordinance on Foreign Exchange dated 13 December 2005 (the Ordinance) provides in principle that all transactions in Vietnam must be quoted and settled in VND.  In practice, however, Vietnamese courts have held differing views with respect to a contract denominated in USD and paid in VND based on an old resolution of the Supreme Court of Vietnam accepting such USD-indexed prices.

With the aim of restricting the use of foreign currency, particularly USD, in the local market, on 18 March 2013, the Ordinance was amended to clarify that in Vietnam, all transactions, payments, quotations, offerings, advertisements, setting, determination and recording of prices in contracts, agreement on prices or other similar methods must be made in VND.

Upon the further instruction of the Government at the end of 2013, the State Bank of Vietnam (the SBV) issued Circular 32 on 26 December 2013 further prohibiting any conversion, adjustment or reference of prices to foreign currency. Circular 32 became effective on 10 February 2014.  However, it is not entirely clear whether the restrictions set out in Circular 32 also apply to contracts entered into before 10 February 2014.


Circular 32 expressly provides for 17 exceptions to the prohibition on use of foreign currency, including, inter alia:

  1. a credit institution or another entity in Vietnam that is allowed by the SBV to charge in foreign currency;

  2. a corporate entity in Vietnam making equity contributions in foreign currency to implement a foreign-invested project in Vietnam;

  3. a resident being a domestic or foreign contractor, in respect of overseas expenses in relation to the implementation of an international bidding package, is allowed to bid and be paid by the investor and/or main contractors in foreign currency for the purposes of effecting offshore payments or remittances;

  4. a resident or non-resident being an organisation is allowed to pay salaries, bonuses and allowances to its foreign employees in foreign currency in accordance with the relevant employment contracts;

  5. a non-resident is allowed to:

    1. make a bank transfer in foreign currency from its bank account to another non-resident’s bank account; and

    2. quote prices and make payments in foreign currency to a resident by way of effecting remittances from the payer’s bank account to the payee’s bank account pursuant to a contract for export of goods or services (a resident is entitled to quote and to receive payments in foreign currency while providing goods and services to non-residents);

  6. approval from the SBV in other circumstances on a case-by-case basis.

Impact on foreign investors

Foreign investments into Vietnam are classified as either foreign direct or indirect investments.  However, Vietnamese law fails to provide further guidance as to what constitutes each type of investment.  In practice, the acquisition of shares in a Vietnamese domestic company has normally been viewed as a foreign indirect investment.

Circular 32 does not provide an exception for share acquisitions in the form of foreign indirect investments to be denominated in foreign currency.  Accordingly, all investments and shareholder agreements for an equity deal under the form of a foreign indirect investment must be denominated, calculated and paid in VND and should not be indexed in foreign currency.

With respect to a foreign direct investment, Circular 32 also has an impact on shareholder loans or non-equity financial support as it only provides an exception for equity contributions in foreign currency.  As such, domestic shareholders in a joint venture project may not be able to provide non-equity support in foreign currency, including any exchange, conversion or other agreements linked to a foreign currency.

Furthermore, the restriction in Circular 32 is set out as a principle of law.  In a recent court case, the Supreme Court of Vietnam declined the recognition and enforcement of a foreign arbitral award in Vietnam on the grounds that the award was against the “basic principles of Vietnamese law,” which included a principle provided by a specific law.  The court’s refusal to recognise a foreign arbitral award on this basis raises a real concern that a claim relating to foreign exchange, or even the entire contract, may be invalid or unenforceable in Vietnam.

Actions to be taken

Onshore contracts should be reviewed and revised to avoid the risk of being void or unenforceable in Vietnam.  Unless the circumstances fall under the permitted exceptions provided for in Circular 32, USD-indexed prices should be fixed in VND and not linked to any foreign currency.