Opening bank accounts is a fundamental move when initiating a business in Vietnam. Companies owned by foreigners are obliged to uphold various kinds of bank accounts, each fulfilling specific roles and objectives. This makes it crucial for entrepreneurs and executives to grasp the distinctions between these account varieties to avoid slowdowns and mistakes in routine activities. The Capital Account and the Current Account are the two primary classifications. Now, let’s delve into their unique characteristics, functions, and the specific situations where you might prefer one over the other.
UNDERSTANDING A CAPITAL BANK ACCOUNT IN VIETNAM
A Capital Bank Account, or alternatively known as a Direct Investment Capital Account (DICA), is a banking account specifically designed to accommodate capital or loans from abroad. Primarily, it serves as the conduit for foreign investors; the business proprietors, to inject the company’s capital into the freshly set up business. Once the registration of a foreign-owned company is successfully completed or a company is transferred to a foreign owner, establishing a Capital Bank Account emerges as the preliminary and crucial move.
THE PURPOSE OF THE CAPITAL ACCOUNT
Every corporate entity has a 90-day period from the business license issuance date (BRC date) to complete their capital injection duties. Due to this stringent deadline, it is imperative to set up the capital account at the earliest, facilitating timely capital transfers by the owner(s). The Capital Account, as aptly suggested by its name, mainly handles transactions involving the business owners and the capital. However, it is not designed to take care of routine business transactions.
Capital-Related Activities:
- Adding initial capital post-acquisition of the business license.
- Capital augmentation when the business requires additional funds from its owner(s).
Borrowing/Debt Financing from foreign sources:
- Procuring loans from overseas entities.
- Clearing foreign debt.
Owners’ Profit Distribution:
- Allocation of dividends and other profit types to owners.
Each foreign-owned Vietnamese firm is allowed to possess a single Capital Account (DICA) for one specific currency at a time. Thus, to launch a new USD Capital Account with another bank, the existing USD DICA must be closed to maintain one USD DICA for the company. Generally, the currency for the DICA is USD, but alternatives exist. The capital’s currency stipulated on the license must coincide with the DICA’s currency.
It’s important to note that the Capital Account adheres to distinct objectives as outlined above and does not cater to everyday business transactions. Hence, to utilize the capital you’ve injected into the business for vendor or staff payments, the capital has to be transferred to a different account, namely the “Current Account”, which we’ll explore further.
UNDERSTANDING THE CURRENT ACCOUNT IN VIETNAM
The Current Bank account is essentially the financial conduit for your business, handling all business-related transactions. This includes receiving payments from clients, and disbursing payments to suppliers or staff. Essentially, the Current Account is the core of your company’s financial activities.
Also known as a Payment account, the Current Account provides a snapshot of the actual financial activity of the business. In Vietnam, businesses have the flexibility to open multiple Current Accounts in diverse currencies with various banks, with no restrictions on the number of such bank accounts a company can hold.
In summarization, the numerous functions of a Current Account include:
- Gathering revenue
- Receiving client payments
- Accumulating interest from other investments
- Distributing expenses
- Spending for vendors
- Remunerating employees
- Meeting tax duties and authority obligations
- Resolving bank loans
- Investing in other businesses
- Procuring assets/property
- Venturing into new businesses or other enterprises
Compare Capital Account Vs. Current Account in Vietnam (Summary)
| Capital Account | Current Account | |
| Who needs this? | Foreign-owned company | Every company |
| When to open? | After BRC is obtained (within 90 days, ASAP) | After the Capital Account is done |
| Purpose of use | Capital + Owner related only | Daily transactions |
| Main Currency | USD (Foreign currency) | VND (++ USD or others) |
| Frequency of use | Once for capital injection, then rarely be used | Every-day transaction |
| A number of accounts can be opened | Only One for each currency | Unlimited |
AVOIDING COMMON BLUNDERS WHEN DEALING WITH CAPITAL AND CURRENT BANK ACCOUNTS IN VIETNAM
Grasping the nuances of banking jargon in Vietnam can be a daunting task, particularly for those who are novices in the fields of finance, banking, and accounting. We acknowledge that this complexity can pose a hurdle for foreign investors venturing into the Vietnamese market for the first time. Leveraging our vast experience of assisting thousands of foreign entities to successfully establish their operations in Vietnam, we have amassed extensive insights into the various types of bank accounts and how to distinguish between them, as illustrated above. We intend this guide to serve as a tool for our clientele to sidestep the frequent errors listed below:
- Delaying the establishment of a Capital Account, which can lead to a frantic scramble for capital infusion or even belated capital transfers.
- Misdirected capital transfers.
- Dispatching the capital in DICA without designating it as a “capital injection”.
- Insisting on clients/customers depositing payments into the Capital Account.
- Initiating an account with the incorrect currencies.
- Redistributing profits from the current account.
- Receiving or repaying foreign loans via the current account.
Falling into these pitfalls can result in potentially lengthy delays in executing your business strategies, or even graver repercussions. For instance, banking institutions would freeze funds transferred to the wrong account, demanding an elucidation and verification before issuing a reimbursement – a process that can be time-consuming. Additionally, such blunders can lead to delayed capital infusions, putting the company at risk of severe penalties or even shutdown.
HOW IRIS INTERNATIONAL CAN HELP YOU SET UP BANK ACCOUNT(S) FOR YOUR COMPANY IN VIETNAM?
At Iris International, we recognize the trials faced by many foreign-owned companies when first entering Vietnam. We strive to help you comprehend the entire process, offering complimentary consultations on all matters that may impact your enterprise, from obtaining permits to actual operations. Our experts will engage in a comprehensive discussion on bank account setup with the clients.
Confused about where or how to initiate these steps? Don’t stress!!! Included in our complete company setup service package, every organization will have three bank accounts set up for them: a Capital Account (primarily in USD) and two Current Accounts (one in VND and another in the foreign currency of your preference). This guarantees your company is completely equipped to commence operations. All you have to do is contribute the capital and begin your business activities.
WE BRING TO YOU A WIDE RANGE OF SERVICES BEYOND THE STANDARD COMPANY ESTABLISHMENT PACKAGE
Additionally, we don’t just provide the bank account details and leave you to figure out everything independently. We supply you with step-by-step instructions on how to invest the capital, which account to utilize, and how to accurately draft the transfer description. This guarantees everything is done correctly from the onset, avoiding errors that could mean time and cost delays for your enterprise.
We realize that timing and deadlines are key to the seamless functioning of any company. Therefore, we endeavor to ensure that your capital contribution deadline will be met. We also include several other free guidelines throughout the process to help you understand the business landscape in Vietnam.
Going beyond these services, we also provide complete business solutions touching on other aspects of running an enterprise. These include accounting and bookkeeping, regulatory compliance reports, and talent acquisition. We also offer virtual office setups and license modifications services. Our aim is to be your go-to resource for setting up and running your business in Vietnam. Reach out to our consultant today to learn everything you need to know about initiating a business in Vietnam.
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