State Bank of Vietnam Issues New Circular on Foreign Investment

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HANOI – Recently, the State Bank of Vietnam issued Circular No. 05/2014/TT-NHNN, which guides the opening and use of indirect investment capital accounts for the implementation of foreign direct investment in Vietnam.

The circular applies to the following subjects:

  • Foreign investors who are nonresidents conducting indirect investment activities in Vietnam;
  • Organizations and individuals who are related to indirect investment activities in Vietnam.
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The key provisions of the circular stipulate that:

  • All indirect investment activities of foreign investors in Vietnam must be conducted in Vietnam Dong;
  • Transactions relating to foreign indirect investment activities in Vietnam of foreign investors must be conducted through one indirectly-invested capital account opened at one licensed bank; and
  • Balance on indirect investment capital accounts of foreign investors are not permitted to transfer to definite-term deposits and saving deposits at credit institutions and branches of foreign banks.

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Foreign indirect investment activities conducted by foreign investors which are covered by this circular include:

  • Capital contribution, purchase or sale of shares or contributed capitals in Vietnamese enterprises which are not yet listed or registered for transactions on the securities market of Vietnam and do not directly participate in the management and administration of enterprises;
  • Capital contributions, purchase or sale of shares in Vietnamese enterprises on the Unlisted Public Company Market (UPCOM) and the listed securities market and do not directly participate in the management and administration of enterprises;
  • Sales and purchase of bonds and other types of stocks on the securities market of Vietnam;
  • Investment trusts 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;
  • Capital contributions, transfer of contributed capitals of foreign investors (who do not directly participate in management) in securities investment funds and fund management enterprises according to legal provisions on securities; and
  • Other indirect investment forms according to legal provisions.

The circular also outlined the specific procedures related to opening indirect investment capital accounts, these include:

  • When conducting indirect investment activities in Vietnam, the foreign investor will have to open one capital account of indirect investment at one licensed bank for implementation of receipt-payment transactions.

Certain rights and obligations have been granted to foreign investors as a result of this circular. Foreign investors are permitted to conduct indirect investment activities in Vietnam on the basis of compliance with provisions of this circular and other relevant legal provisions of Vietnam.

However, when conducting transactions of receipts and payments on capital accounts of indirect investment, foreign investors are responsible for:

  • Declaring contents of transactions of receipts and payments which are related to foreign indirect investment activities in Vietnam as per requirements and instructions of licensed banks; and
  • Submitting, supplementing dossiers, documents or materials at the requests of licensed banks.

According to Dam Thi Phuong Mai, a member of the legal team at Dezan Shira & Associates in Vietnam, “this new circular shows that the Vietnamese government is continuing to improve the ease of doing business within the country for foreign investors. The new circular will facilitate foreign investment into Vietnam since it provides more details about the process involved and clears up some of the inconsistencies in the previous legislation regarding indirect foreign investment. However, there are also some new restrictions that must be taken into account. These restrictions arise from the changes to the Ordinance on Foreign Currency, which relates to four types of investment accounts and seeks to limit the amount of U.S. dollars in the Vietnamese market.”

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