Both forms of direct overseas investment or indirect overseas investment abroad are no longer strange to Vietnamese investors and businesses. Depending on the business plan as well as the business conditions that the business meets, the enterprise may choose one of the following forms: direct, or indirect overseas investment.

In particular, in addition to the traditional markets and forms of overseas investment, investors have also set a new trend to change the investment forms in other fields such as finance, and securities, called “Indirect overseas investment”. However, it can be seen that the national monetary and foreign exchange policies of the Government also influence overseas investment activities in the private sector.

Thus, time by time, depending on the choice of different forms of overseas investment, the Government will grant or adjust the corresponding legal provisions on overseas investment, foreign exchange, and other relevant specialized laws that investors should focus on for correct practical application. Accordingly, this article shall provide readers with an overview of regulations on indirect overseas investment activities and related foreign exchange management.

1. How is an overseas portfolio investment understood?

Different from the form of direct investment abroad under the guidance of the Law on Investment of 2020, indirect overseas portfolio investment under Clause 1, Article 2 of Decree 135/2015/ND-CP, is understood as an activity of overseas investment in the form of buying and selling securities and other valuable papers or investing through securities investment funds and other intermediary financial institutions in foreign countries.

In which, securities, as defined by the Law on securities, are understood as assets falling into the following types:

  • Stocks, bonds, fund certificates;
  • Warrants, covered warrants, right to buy shares, depository certificates;
  • Derivative securities;
  • Other types of securities are regulated by the Government.

At the same time, valuable papers are understood under Clause 1, Article 2 of Circular No. 01/2012/TT-NHNN as proof of debt repayment obligation between the valuable paper issuer and the owner in terms of valuable papers for a certain period of time, interest payment terms and other conditions.

2. Forms of indirect overseas investment

Currently, there is still no guiding document applicable to the Law on Investment of 2020 related to indirect overseas investment activities However, in common practices, the state agencies still provide similar guidance as prescribed in Decree No. 135/2015/ND-CP of the Government and Circular No. 10/2016/TT-NHNN of the State Bank of Vietnam guiding the Law on Investment 2014 for Vietnamese investors to determine the type of their overseas investment for each project. Specifically, the following forms of outward investment are considered forms of indirect investment:

  • Participating in the program to reward shares issued abroad;
  • Proprietary trading of indirect overseas investments;
  • Trust of indirect overseas investments.

Program of reward stocks issued abroad

  • This is the only indirect form of overseas investment applicable to individual investors with Vietnamese nationality.
  • The program of reward stocks issued overseas must ensure the following principles:
    • The issuer of bonus stocks is an organization established in a foreign country and must have a commercial presence in Vietnam such as a subsidiary, branch, representative office, etc.
    • Individual investors must be employees of Vietnamese nationality.
    • The organization launching the program of the bonus stock and performing related registration procedures must be a commercial presence in Vietnam as mentioned above.
    • Before implementing the program of reward stocks issued in foreign countries for Vietnamese employees, the commercial presence of the organization issuing shares in foreign countries must carry out registration procedures and obtain approval from the State Bank of Vietnam.
    • Foreign currency, incomes, and dividends that employees earn from this stock bonus program must be transferred to Vietnam through a separate account of indirect overseas investment. Also, this account should be opened by a commercial presence in Vietnam.

Self-Trading of indirect overseas investments

a. Organizations are allowed to self-employment

  • This form is only applied conditionally to some companies and organizations running their business with some legal conditional business sectors, which is also known as allowed self-trading organizations:
    • A securities company, a fund management company.
    • Securities investment funds through fund management companies (hereinafter referred to as “a securities investment fund”) and securities investment companies.
    • Insurance enterprises;
    • Commercial Banks;
    • General finance company.
    • State Capital and Investment Corporation.

b. Conditions for investment in the form of self-employment

  • Organizations permitted to conduct self-trading of indirect overseas investments must obtain the approval of the State Bank of Vietnam in terms of this business sector, and the certified limitation self-trading of indirect overseas investments in writing.
  • In addition, each object in the group of organizations that are allowed to do self-trading of indirect overseas investments shall meet different legal conditions and be managed by different Ministries and related agencies such as:
    • A group including securities companies, fund management companies, and insurance enterprises must be obtained an overseas investment registration certificate granted by the Ministry of Finance.
    • At the same time, this group also needs to meet the conditions of being profitable within a period of 03 consecutive years, as shown in the audited financial statements of that organization, fulfill tax obligations to the State, and have the internal procedure as well as internal control mechanism on risks and capital management when investing overseas.
    • The group including commercial banks and general finance companies… must be obtained an overseas investment registration certificate as well. Regarding the requirement for satisfaction of legal conditions, in addition to the same conditions as the first group, these organizations also must be allowed to operate foreign exchange on the international market in accordance with specialized laws.
    • The group including the securities investment funds and securities investment companies must obtain the approval from Ministry of Finance to allow investment abroad. In addition, the Charter of these organizations of this group must be recorded the permission on launching indirect overseas investment actives They also need to have an internal procedure, internal control mechanism, and internal audit in terms of risks identification and management when investing overseas. Finally, financial safety criteria as prescribed by the Ministry of Finance are also required, etc.

Trust of indirect overseas investments

Trust of indirect overseas investments means an economic organization (“Settlor“) assigns capital in foreign currency to a permitted organization to receive investment trust in a domestic country (“Trustee“) to trust indirect overseas investments under-investment trust contracts (hereinafter referred to as “Trust”)

a. Settlor

  • As investors, economic organizations are only allowed to run indirect overseas investments in form of investment trusts via a trustee. However, such organizations are not allowed to run indirect overseas investments in the form of trust if they obtained valid certificates of indirect overseas investment registration related to self-trading activities.
  • Regarding satisfied conditions, organizations should focus on the regulations on
    • (i) independently audited financial statements showing the profitable status of the company within 3 consecutive years before registering the trust
    • (ii) compliance with financial and tax obligations of tax competent authorities, and regulations on management and use of Government’s capital
    • (iii) Having their available source of foreign currency for overseas investments and
    • (iv) have a plan for overseas investments approved by the competent authority governing the economic organization by law.

b. Trustee

  • Organizations allowed to receive entrustment include
    • (i) Fund management companies and
    • (ii) Commercial banks.
  • Legal requirement: These two organizations above should obtain a certificate of registration of trust of indirect overseas investments granted by the respective specialized management agencies and get the approval of the trust limitation in writing by the State Bank of Vietnam.
  • In addition, a trustee must meet the conditions for profitable business operations shown in the independently audited financial statements, fulfillment of financial and tax obligations, and compliance with regulations on internal control of risk and capital management under Vietnamese law.
  • Other procedures also should be considered carefully once a settlor trust in form of indirect overseas investments via trustees.

3. Other important notes

In terms of indirect overseas investment activities, it is necessary for Vietnamese investors to carefully consider the following points:

  • The enterprises with foreign investment capital in Vietnam as prescribed in Clause 1, Article 23, Law on Investment 2014 (FDI company) are prohibited from overseas investment activities under all 03 above forms of overseas investment.
  • Vietnamese investors must comply with opening a corresponding account to invest overseas for all three forms mentioned above. In practice, investors should consult with their chosen commercial banks and the State Bank to ensure l the process of foreign exchange movement from Vietnam to abroad and vice versa through this account lawfully comply with regulations on foreign exchange and avoid imposing administrative punishment due to their violations.
  • Comply with the obligation to transfer indirect investment capital abroad, or transfer capital, profits, and lawful revenues arising from overseas investment activities into Vietnam by law.

In short, it can be seen that indirect overseas investment activities are governed in parallel by current valid regulations including the Law on Investment, Ordinance of Foreign exchange, other related regulations, and specialized laws in terms of each specific group of investors and the corresponding permitted overseas investment activities as well. Therefore, investors and organizations involved in indirect overseas investment activities should focus on timelines, and prepare feasible investment plans to suit for changed regulations time by time and avoid forecasted difficulties once launching their investment projects in practice.

The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.


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