Understanding foreign indirect investment capital in vietnam with NPLaw

In the context of international economic integration, Vietnam has increasingly attracted the attention of foreign investors not only through direct investment but also via indirect investment. It is an important channel through which international capital flows into the Vietnamese market, contributing to the development of the national economy. However, foreign indirect investment capital is governed by various legal regulations, requiring investors to have a clear understanding of the relevant conditions and procedures. The following article provides essential information on foreign indirect investment capital in Vietnam, helping investors seize opportunities while ensuring full compliance with applicable laws.

Below, NPLAW respectfully invites our valued readers to explore issues related to foreign indirect investment capital in Vietnam.

I. Overview of foreign indirect investment capital in Vietnam

Foreign indirect investment capital refers to a form of investment in which foreign investors do not directly participate in the management of enterprises in Vietnam, but invest mainly through the purchase and sale of securities, capital contributions to investment funds, or other financial instruments.

Such a form of investment helps attract substantial capital from international markets, facilitates the development of the domestic financial market, and does not alter the control rights of Vietnamese enterprises. However, due to its particular nature, foreign indirect investment is subject to strict management to ensure economic stability and effective control of capital inflows and outflows.

II. Legal regulations on foreign indirect investment capital in Vietnam

1. What is foreign indirect investment capital in Vietnam?

Clause 14 Article 4 of the Ordinance on Foreign Exchange 2005 (as amended by Clause 1 Article 1 of the amended Ordinance on Foreign Exchange 2013) provides a definition of indirect investment in Vietnam. Accordingly, foreign indirect investment capital in Vietnam may be understood as foreign investors investing in Vietnam through the purchase and sale of securities, other valuable documents, capital contributions, share acquisitions, and through securities investment funds and other intermediary financial institutions in accordance with law, without directly participating in the management of investment activities.

2. Are foreign investors making indirect investments in Vietnam allowed to open foreign currency indirect investment accounts?

Pursuant to Article 12 of the Ordinance on Foreign Exchange 2005 (as amended by Clause 5 Article 1 of the amended Ordinance on Foreign Exchange 2013), the following provisions apply:

• Foreign investors who are non-residents must open an indirect investment account in Vietnamese dong to conduct indirect investment activities in Vietnam. Foreign currency indirect investment capital must be converted into Vietnamese dong for investment through such an account.
• Lawful income of foreign investors who are non-residents derived from indirect investment activities in Vietnam may be used for reinvestment or for purchasing foreign currency at licensed credit institutions for remittance abroad.
• The State Bank of Vietnam shall regulate the opening and use of Vietnamese dong accounts for indirect investment activities and other lawful capital transfer transactions related to indirect investment activities in Vietnam.

Accordingly, foreign investors who are non-residents are required to open an indirect investment account in Vietnamese dong to conduct indirect investment activities in Vietnam. Indirect investment capital in foreign currency must be converted into Vietnamese dong for investment through such an account. Therefore, foreign currency indirect investment accounts are not permitted.

3. Are foreign investors making indirect investments in Vietnam required to open a personal capital account to invest in Vietnam?

Article 4 of Circular No. 05/2014/TT-NHNN provides several regulations concerning the opening of personal capital accounts for foreign investors making indirect investments in Vietnam, as follows:

• All indirect investment activities of foreign investors in Vietnam must be conducted in Vietnamese dong. Transactions related to foreign indirect investment activities in Vietnam must be conducted through one (01) indirect investment capital account opened at one (01) licensed bank.
• When conducting foreign indirect investment activities in Vietnam in the forms prescribed in Article 5 of this Circular, foreign investors must comply with this Circular, regulations on the opening and use of payment accounts, provisions of the Law on Securities and its guiding documents, current regulations on capital contribution and share acquisition by foreign investors in Vietnamese enterprises, foreign investors’ activities in the Vietnamese securities market, and other relevant legal regulations.
• Balances in the indirect investment capital accounts of foreign investors may not be converted into term deposits or savings deposits at credit institutions or foreign bank branches.

Accordingly, foreign investors making indirect investments in Vietnam are required to open a personal indirect investment capital account to invest in Vietnam.

4. How are capital transactions of foreign indirect investment forms in Vietnam regulated?

Pursuant to Article 12 of the Ordinance on Foreign Exchange 2005 (as amended by Clause 5 Article 1 of the amended Ordinance on Foreign Exchange 2013), capital transactions relating to foreign indirect investment in Vietnam are regulated as follows:

• Foreign investors who are non-residents must open an indirect investment account in Vietnamese dong to conduct indirect investment activities in Vietnam. Indirect investment capital in foreign currency must be converted into Vietnamese dong for investment through this account.
• Lawful income of foreign investors who are non-residents derived from indirect investment activities in Vietnam may be used for reinvestment or for purchasing foreign currency at licensed credit institutions for remittance abroad.
• The State Bank of Vietnam shall regulate the opening and use of Vietnamese dong accounts for indirect investment activities and other lawful capital transfer transactions related to foreign indirect investment activities in Vietnam.

III. Questions regarding foreign indirect investment capital in Vietnam

1. Which authority manages foreign indirect investment capital in Vietnam?

Pursuant to Clause 5 Article 5 of Circular No. 05/2014/TT-NHNN, forms of foreign indirect investment in Vietnam are managed by the State Bank of Vietnam. Accordingly, such forms include:

• Investment entrustment in Vietnamese dong through fund management companies, securities companies, and other institutions permitted to conduct investment entrustment operations in accordance with securities laws;
• Investment entrustment in Vietnamese dong through licensed credit institutions and foreign bank branches permitted to conduct investment entrustment operations.

2. How can foreign investors conducting indirect investment activities in Vietnam remit profits abroad?

Pursuant to Article 8 of Circular No. 05/2014/TT-NHNN, regulations on remittance of investment capital abroad are as follows:

• If there is a need to remit capital, profits, and other lawful income derived from indirect investment activities abroad, foreign investors may use Vietnamese dong in their indirect investment capital accounts to purchase foreign currency at licensed credit institutions for remittance abroad.

Accordingly, foreign investors may remit profits abroad by using Vietnamese dong in their indirect investment capital accounts to purchase foreign currency at licensed credit institutions and transfer such funds overseas.

3. How do foreign investors open indirect investment capital accounts in Vietnam?

The opening of indirect investment capital accounts in Vietnam for foreign investors is guided in Article 6 of Circular No. 05/2014/TT-NHNN as follows:

• Foreign investors must open one (01) indirect investment capital account at one (01) licensed bank to conduct permitted receipt and payment transactions as prescribed in Article 7 of Circular No. 05/2014/TT-NHNN (Clause 1 Article 6).
• If a foreign investor has already opened and is using an indirect investment capital account at one licensed bank but wishes to open such an account at another licensed bank, the investor must close the previously opened account and transfer the entire balance to the new account. Procedures for opening and closing indirect investment capital accounts shall comply with the regulations of the licensed bank (Clause 1 Article 6).
• Foreign investors may only conduct receipt and payment transactions on the newly opened indirect investment capital account after closing and fully settling the previously opened indirect investment capital account in accordance with the above regulations (Clause 1 Article 6).

IV. Legal consulting services related to foreign indirect investment capital in Vietnam

In the current complex legal environment, the use of professional legal consulting services is an optimal solution to ensure full compliance with legal regulations. Lawyers provide advice on conditions applicable to foreign indirect investment capital in Vietnam and propose the most effective solutions for clients.

Ngoc Phu Law Company Limited, with a team of experienced lawyers, is ready to assist clients in all matters related to foreign indirect investment capital in Vietnam. We are committed to providing effective legal solutions and maximizing our clients’ legitimate rights and interests throughout the transaction process.