Analyzing Foreign Direct Investment (FDI) Capital Flow Structure in Vietnam: The Pre-Incorporation “Investment Project Formation Cost” Puzzle
Understanding the FDI capital flow structure is the starting point for any serious analysis of foreign investment in Vietnam. In the structure of foreign direct investment (FDI) capital flows into Vietnam, the pre-incorporation stage is consistently the most sensitive and complex phase. Currently, the State Bank of Vietnam (SBV)’s process of collecting feedback for the Draft Circular replacing Circular No. 06/2019/TT-NHNN is attracting special attention from legal and financial experts.
Although it carries expectations of streamlining procedures, the new Draft still leaves a significant technical “grey area” regarding the definition and operational mechanism of “investment project formation costs.” This bottleneck could potentially freeze the pre-investment capital flows of international corporations. Below is an in-depth perspective and analysis from IVLF Advisors LLC regarding the critical issues related to these costs.
1. What is the legal nature of “Investment Project Formation Costs”?
Although the term “investment project formation cost” (or investment preparation cost) appears commonly in SBV foreign exchange management documents and tax settlement regulations, there is currently no synchronized or consistent legal definition in higher-level legal documents such as the Law on Investment or the Law on Enterprises.
This lack of clarity creates a significant gap between legal regulations and accounting reality:
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Commercial Banks’ Confusion: When foreign-invested enterprises or investors transfer funds, Credit Institutions (CIs) lack a clear legal basis to approve whether such expenditures fall under the legitimate category of “investment project formation costs.”
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Corporate Income Tax (CIT) Risk: If an expenditure is not accurately defined, tax authorities may refuse to recognize it as a deductible expense for tax calculation after the entity is established, or refuse to allow the conversion of these expenditures into charter capital (equity conversion).
IVLF Advisors LLC recommends: The new Draft Circular should issue a specific definition or a “white-list” of cost categories recognized as investment project formation costs to serve as a uniform basis for implementation.
2. The Income – Expenditure Bottleneck on DICA Accounts regarding Investment Project Formation Costs
According to current regulations, a Foreign-Invested Enterprise (FDI Enterprise) in Vietnam is the entity that opens and utilizes the Direct Investment Capital Account (DICA), not the foreign investor (except for Business Cooperation Contracts – BCC). The DICA is the sole channel for managing capital inflows and outflows.
However, during the transition period—when the FDI enterprise has been established (has an Enterprise Registration Certificate – ERC and a DICA) but the new project is still in the process of obtaining an Investment Registration Certificate (IRC)—the income-expenditure mechanism for investment project formation costs faces a severe bottleneck:
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Regarding Income (Inflow Restraints): The Draft needs to clarify: Is the DICA restricted, thereby disallowing the receipt of pre-investment capital contributions from both foreign and Vietnamese investors (in joint venture projects) to pay for initial investment project formation costs? If income mechanisms are tightened, FDI enterprises will lose the ability to consolidate financial resources from local partners.
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Regarding Expenditure (Outflow Bottleneck): The Draft has not yet created a smooth corridor for FDI enterprises to sell foreign currency from the DICA to transfer to a VND payment account for the purpose of paying for essential investment project formation costs before the IRC is granted.
3. Employee Salaries, Taxes, and Office Rent: Are they recognized as Investment Project Formation Costs?
This is a practical technical question that IVLF Advisors LLC frequently receives from CFOs and international investors. To launch a project in Vietnam, an FDI enterprise must incur three major expenses: salaries for initial personnel, office/location rent, and related taxes/fees.
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If recognized as investment project formation costs: The FDI enterprise has the full right to use foreign currency transferred by the investor into the DICA, execute an order to sell foreign currency to a VND payment account, and disburse funds legally under bank supervision.
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If not recognized: The disbursement channel via the DICA will be blocked. Commercial banks will refuse to process dossiers because the capital use purpose is inconsistent with pre-IRC regulations. The consequence is that enterprises are forced to seek unofficial cash flow circulation solutions, creating significant risks regarding audits and legal compliance.
4. Handling Deposits before ERC via Offshore Accounts
Another practical issue tied to investment project formation costs is deposits for office or land leases. To file for an IRC and ERC, the investor must prove their legal right to use the location through a contract or principle agreement. To sign these documents, the foreign investor must pay a deposit to the lessor in Vietnam. However, at this time, the FDI enterprise has not been established, meaning the DICA does not yet exist (banks only allow DICA opening after an ERC is obtained).
According to current Circular 06/2019/TT-NHNN, foreign investors are permitted to transfer funds directly from their offshore accounts to the lessor’s payment account in Vietnam to pay for these specific investment project formation costs. IVLF Advisors LLC’s major concern: Will the new Draft Circular continue to inherit and maintain this offshore account transfer mechanism? If the Draft tightens or abolishes this without an alternative plan (such as a temporary USD payment account for foreign investors), the entire deposit and location-access process for new FDI projects will be stalled right from the starting step.
5. Recommendations from IVLF Advisors LLC
Investment project formation costs, though incurred over a short period, are the foundation that determines the success and compliance of an entire FDI project in Vietnam. IVLF Advisors LLC expects that the final official Circular from the State Bank of Vietnam will clear this bottleneck by:
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Clearly and synchronously defining the categories that constitute investment project formation costs.
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Permitting and clearly guiding the process of selling foreign currency to VND payment accounts from DICA accounts to pay for operational costs during the pre-IRC phase.
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Maintaining the mechanism for paying investment project formation costs (deposits) directly from the foreign investor’s offshore account prior to the establishment of the legal entity.
Optimizing and transparentizing these capital flows will be a major plus, helping Vietnam maintain its position as a safe, attractive, and streamlined investment destination. This would be a powerful signal affirming Vietnam’s commitment to building a favorable, safe, and international-standard business environment.
6. ABOUT IVLF ADVISORS LLC
IVLF Advisors LLC is an independent advisory firm based in Hanoi, specializing in: Project Investment, Foreign Investment, International Investment, Project Financing, M&A, Capital Markets, and Financial Restructuring. With a team of experts deeply versed in foreign exchange management practices and cross-border transactions, we strive to provide the most optimal and secure capital structure solutions for our Clients.
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Website: www.ivlf-advisors.com
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Email: nghia@ivlf-advisors.com
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Disclaimer: This article is prepared by the experts at IVLF Advisors LLC for information and academic analysis purposes and does not constitute official legal advice for any specific case. Readers should consult legal experts before executing related transactions.
FDI Capital Flow Structure in Vietnam: A Practical Review
An FDI capital flow structure in Vietnam should be reviewed as a sequence of commercial and documentary steps. The timing of project formation, the role of each investor and the evidence supporting payments can all affect how the proposed structure is understood and implemented.
- Define the project stage: distinguish preparatory activity from the stage at which an investment project and operating entity are in place.
- Trace each payment: record its purpose, payer, recipient and relationship to the proposed investment.
- Keep supporting documents aligned: contracts, approvals, accounting records and funding documents should describe the same commercial arrangement.
- Review the structure before implementation: early review allows the parties to address gaps without having to reconstruct the transaction record later.
Using This Analysis Responsibly
Cross-border investment and payment questions turn on the actual transaction documents and applicable rules at the relevant time. This article is general information only and should be used as a starting point for a case-specific review, not as a substitute for advice on a completed or proposed transaction.
Reading capital flow data like an investor
Raw statistics on registered capital tell you little; the useful signal sits in the capital flow composition. A rising share of capital contribution and share purchase transactions signals confidence in existing businesses; heavy reliance on offshore loans signals leverage entering the system; and the gap between registered and disbursed figures shows how much announced capital flow actually lands. Investors who track these three ratios read Vietnam’s market months ahead of the headlines.
FDI capital flow: quick answers
What are the main capital flow channels into Vietnam?
Equity contributions into licensed FDI companies, capital contributions and share purchases in existing firms, offshore loans registered with the State Bank, and reinvested earnings. Each capital flow channel carries its own registration duties and remittance mechanics, and mixing them without planning is the most common source of stuck money.
Why does the capital flow structure matter for exits?
Profit repatriation and sale proceeds can only exit through the same front door the capital flow entered: the direct investment capital account, with tax finalisation completed. Investors who document every inbound capital flow correctly exit in weeks; those who improvised entry routes spend months reconstructing the paper trail.
How do recent reforms change the analysis?
The 2025-2026 framework shortens licensing where the capital flow supports priority sectors and tightens beneficial-ownership disclosure everywhere. The analytical core of this article is unchanged: map the structure first, then move the money.
Where can IVLF help?
We structure inbound capital flow for new projects through our company incorporation and capital markets practices, repair documentation for past contributions, and manage the full exit – valuation, tax clearance and remittance – as one engagement – start with a scoping call via our contact page.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
