Regulations on opening and use of capital accounts for indirect investment in Vietnam

Regulations on opening and use of capital accounts for indirect investment in Vietnam (Internet image)

1. Foreign indirect investors in Vietnam

According to Article 2 of Circular 05/2014/TT-NHNN on regulations, foreign indirect investors include:

- Foreign investors who are nonresidents conducting indirect investment activities in Vietnam;

- Organizations and individuals who are related to indirect investment activities in Vietnam.

Note: The foreign indirect investment in Vietnam does not apply to foreign investors being residents who are foreign organizations and individuals.

These subjects conduct indirect investment activities in Vietnam according to prevailing legal provisions on securities and other relevant normative legal documents.

2. Forms of foreign indirect investment in Vietnam

Forms of foreign indirect investment in Vietnam according to Article 5 of Circular 05/2014/TT-NHNN (amended in Circular 06/2019/TT-NHNN) are as follows:

- Capital contribution, purchase or sale of shares or stakes of Vietnamese enterprises which are not yet to be listed or registered for transactions on stock exchanges of Vietnam and not in the cases specified in clause 2 Article 3 of Circular 06/2019/TT-NHNN dated July 26 2019 guiding the foreign exchange management for the foreign direct investment in Vietnam and other amended documents (if any).

According to Clause 2, Article 3 of Circular 06/2019/TT-NHNN, “FDI enterprises” means:

+ Any enterprise established in the form of investment of establishing a business organization whose members or shareholders are foreign investors and granted the investment registration certificate in accordance with law on investment.

+ Any enterprises other than those prescribed in point a of this clause and at least 51% of charter capital of which is owned by foreign investors as follows:

++ Any enterprises (operating in conditional business lines or without conditions applicable to foreign investors) at least 51% of charter capital of which is held by foreign investors through contribution purchase of shares/stakes;

++ Enterprises derived from division, acquisition, consolidation whose 51% of charter capital is owned by foreign investors after such events.

++ New enterprises established in accordance with relevant laws;

+ Project enterprises established by foreign investors to implement PPP projects in accordance with law on investment.

- Capital contribution, purchase or sale of shares or stakes of Vietnamese enterprises which have been listed or registered for transactions on stock exchanges of Vietnam.

- Sales and purchase of bonds and other types of stocks on the securities market of Vietnam.

- Sale and purchase of other valuable papers in Vietnam Dong which are permitted to issue within the territory of Vietnam by organizational residents.

- Investment trust in Vietnam Dong through fund management companies, securities companies and organizations are permitted to conduct the investment trust operation under the legal provisions on securities; investment trust in Vietnam Dong through credit institutions and branches of foreign banks are allowed to conduct the investment trust operation under the provisions of the State Bank.

- Capital contribution, transfer of stakes of foreign investors in securities investment funds and fund management enterprises according to legal provisions on securities.

- Other forms of indirect investment as prescribed by law.

3. Regulations on opening and use of capital accounts for indirect investment in Vietnam

3.1. Opening of capital accounts for indirect investment in Vietnam

According to Article 6 of Circular 05/2014/TT-NHNN on opening foreign portfolio capital accounts as follows:

- When conducting indirect investment activities in Vietnam, the foreign investor will have to open one (01) capital account of indirect investment at one (01) licensed bank for implementation of receipt-payment transactions permitted under provisions of Article 7 of Circular 05/2014/TT-NHNN.

- In the case where the foreign investor is having and using a capital account of indirect investment at a licensed bank but has demand to open another indirectly-invested capital account in another licensed bank, such foreign investor is requested to close the existing capital account for direct investment, transfer all the balance in this account to the new account.

Procedure on the opening and closing of the capital account for indirect investment will be conducted according to provisions of the licensed bank.

The foreign investor will only be entitled to conduct receipt and expense transactions on the newly-opened capital account of indirect investment as prescribed above after having the previously-opened capital account of indirect investment closed and settled.

3.2. Use of indirectly-invested capital accounts in Vietnam

According to Article 7 of Circular 05/2014/TT-NHNN stipulating that the indirectly-invested capital account will be used for implementation of receipt-payment transactions relating to foreign indirect investment activities in Vietnam as follows

* Receipts:

- Receipts from selling foreign currencies to licensed credit institutions;

- Receipts from transfer of contributed capital, shares, sale of securities and other valuable papers, receipt of dividends and interests from bonds and valuable papers in Vietnam Dong from foreign indirect investment activities in Vietnam;

- Receipts of transfer from payment accounts in Vietnam Dong of foreign investors opened at licensed banks;

- Receipts of transfer from accounts of fund management enterprises, securities companies, credit institutions and branches of foreign banks permitted to conduct investment trust operation for foreign investor (applied in cases that foreign investors conduct indirect investment in Vietnam under the form of investment trust);

- Other legal transactions of receipts in Vietnam Dong of foreign investors relating to foreign indirect investment activities in Vietnam.

* Payments:

- Payments for implementation of foreign indirect investment activities in Vietnam under forms prescribed in Article 5 of this Circular;

- Payments for buying foreign currencies from licensed credit institutions in order to transfer capitals, interests and other lawful incomes to foreign countries;

- Payments for legal expenses incurred in Vietnam;

- Payments for transfer to payment accounts in Vietnam Dong of foreign investors opened at licensed banks;

- Payments for transfer to accounts of fund management enterprises, securities companies, and organizations permitted to conduct investment trust operation for foreign investor (applied in cases that foreign investors conduct indirect investment in Vietnam under the form of investment trust);

- Other transactions for lawful payments relating to foreign indirect investment activities in Vietnam.

Quoc Dat

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