With the fluctuations of exchange rates and the need to protect assets amid domestic and international economic shifts, many individuals and enterprises have chosen foreign currency investment as a financial tool to maximize returns/ profits. Investing in international currencies/ foreign currencies not only helps diversify investment portfolios but also offers profit opportunities through exchange rate differentials. NPLaw invites readers to explore the legal issues related to foreign currency investment.
I. The role of foreign currency investment
Foreign currency investment plays a significant role in the economy, not only for individuals and enterprises but also for national economic stability.
For investors, foreign currency investment serves as a safeguard against exchange rate volatility and domestic inflation, while also creating opportunities for profit through currency arbitrage. Additionally, it contributes to portfolio diversification, thereby reducing risk and enhancing financial stability for individuals and businesses.
On a national level, foreign currency investment stimulates foreign exchange activities and strengthens foreign reserve levels, supporting the State’s monetary policies. Maintaining adequate reserves helps stabilize the national currency, supports international trade activities, and balances the country’s payments. Furthermore, foreign currency investment can attract foreign capital inflows into the financial market, foster the development of new financial products, and improve the competitiveness of the national economy.
II. Legal regulations on foreign currency investment
1. What is foreign currency investment?
Foreign currency investment refers to the use of financial resources to purchase and hold foreign currencies (i.e., currencies issued by other countries) with the goal of earning profits from exchange rate differences between foreign currencies and the domestic currency. The core objective is to capitalize on exchange rate fluctuations by buying at a low rate and vice versa.
2. Conditions for conducting foreign currency investment
To conduct foreign currency investments, investors must meet the following conditions:
- Under Article 5 of Circular 06/2019/TT-NHNN, foreign investors must open a direct or indirect investment account in foreign currency at a commercial bank licensed to engage in foreign exchange operations in Vietnam. All investment transactions (e.g., capital contributions, profit remittances, divestments) must go through such an account.
- Investment activities must fall under the permitted business sectors as outlined in the Law on Investment 2020. Foreign investors must also comply with market access conditions and must not engage in restricted or prohibited sectors.
- All use of foreign currency within Vietnam must comply with Chapter 3 of the Ordinance on Foreign Exchange 2005, amended in 2013, which governs the use of foreign currencies on Vietnamese territory (foreign currency is only permitted in specific authorized transactions). Any required currency exchange must be carried out through licensed banks.
Hence, investors must fully satisfy the conditions above when engaging in foreign currency investment in Vietnam.
3. Regulations on duration and scope of foreign currency investment
Pursuant to Articles 4 and 9 of Circular 02/2021/TT-NHNN, licensed credit institutions may conduct foreign exchange transactions within the following terms and scopes:
- Regarding investment duration:
+ Licensed credit institutions may determine transaction durations with partners in line with their risk management capacity and business characteristics.
+ If transactions occur outside the set time frame, institutions must implement risk control measures, obtain approval from authorized personnel, and record the transaction in the institution’s foreign exchange state on the transaction date.
- Regarding investment scope:
+ Licensed credit institutions may conduct spot, forward, swap, and option transactions with other licensed institutions. They may also execute spot, forward and swap transactions, and option sales with economic organizations; and engage in spot and forward transactions with resident individuals and organizations.
+ With non-resident individuals and organizations, only spot transactions are allowed.
+ For non-resident foreign investors holding VND-denominated government bonds in the domestic market, forward transactions for selling foreign currency are permitted to exchange rate risk hedging.
III. Questions on foreign currency investment
1. Can investors buy and hold foreign currency without converting it?
Currently, Vietnamese law does not prohibit investors from purchasing and holding foreign currencies without converting them into VND. However, such activities must comply with the foreign exchange management regulations issued by the State Bank of Vietnam.
Thus, investors may hold foreign currency without conversion, provided it aligns with applicable regulations regarding exchange rates, transaction limits, and reporting requirements.
2. Is foreign currency investment subject to taxation?
Under Point e, Clause 8, Article 5 of the Law on Value-Added Tax (VAT) 2008, foreign currency trading activities are not subject to VAT.
As for other types of taxes, Vietnamese law currently does not specifically regulate taxation on foreign currency investment activities.
Therefore, transactions involving the purchase or exchange of foreign currency are not subject to taxation.
3. Which banks are authorized to provide foreign currency investment services?
According to Clause 1, Article 2 of Circular 02/2021/TT-NHNN, the following banks are authorized to offer foreign currency investment services in Vietnam:
- Commercial banks licensed by the State Bank of Vietnam to engage in foreign exchange activities;
- Non-bank credit institutions (e.g., finance companies, leasing companies) licensed for foreign exchange business;
- Branches of foreign banks legally operating in Vietnam and licensed to provide foreign exchange services.
These entities are collectively referred to as licensed credit institutions, i.e., entities authorized by the State Bank of Vietnam to provide foreign currency investment services in accordance with applicable laws.
IV. Legal advisory services on foreign currency investment
The above article by NPLaw outlines the legal framework on foreign currency investment. With a team of experienced lawyers and legal experts, NPLaw is always ready to accompany and support clients in legal matters related to foreign currency investment. For assistance with any legal issues, please contact NPLaw using the details below:
