Investing in securities brings great returns to investors. Currently, Vietnam is one of the promising investment destinations for foreign investors to invest in the securities market. To invest in securities in Vietnam, foreign investors need to conduct some procedures. These procedures include opening an indirect investment account to transfer investment money and profits back. This article shall analyze some noteworthy points for performing transactions through an indirect investment capital account.
1. Methods of securities investment available for foreign investors
According to the provisions of ‘Decree 155/2020/ND-CP’ which lays down some guidelines on the implementation of the Law on Securities, foreign investors including individuals holding a foreign nationality or an organization established under foreign laws can conduct securities investment transactions in Vietnam through two methods:
- Direct investment and trading on the securities market of Vietnam.
- Indirect investment by entrusting a securities fund management company or the branch of a foreign fund management company in Vietnam.
2. Register a securities trading code
This is a mandatory requirement for foreign investors to trade on the securities market in Vietnam. Before opening an indirect investment capital account, foreign investors need to register a securities trading code. The securities trading code is considered as the identification of foreign investors on the securities market.
According to the provisions of ‘Decree 155/2020/ND-CP’, the registration of securities trading code at the Vietnam Securities Depository (VSD) shall be conducted as follows:
- In the case of direct investment, the foreign investor must apply for a securities trading code at VSD before investing.
- In case of indirect investment, foreign investors do not have to register for a securities trading code. The fund management company or the branch of a foreign fund management company in Vietnam entrusted by the foreign investor shall apply for the securities trading code.
The application for and receipt of the securities trading code shall be carried out via depository members (securities companies, commercial banks, FBBs licensed to provide securities depositing services by SSC and accepted by Vietnam Securities Depository as depository members).
3. Open Indirect Investment Capital Account (IICA)
After being granted a securities trading code, foreign investors must open an indirect investment capital account at a custodian bank possessing the license for foreign exchange trading in Vietnam. According to the provisions of the ‘Circular 51/2021/TT-BTC’ providing guidelines on obligations of foreign organizations and individuals making investments in Vietnam’s securities market. Effective from August 16, 2021, the opening of an IICA is regulated as follows:
- Each foreign investor shall be allowed to open one indirect investment capital account at one custodian bank possessing the license for foreign exchange trading to perform investment transactions in Vietnam’s securities market.
- Each issuer of depositary receipts in a foreign country shall be allowed to open one indirect investment capital account at one custodian bank possessing the license for foreign exchange trading to issue or cancel depositary receipts and perform other relevant activities in accordance with regulations of law.
In case foreign investors indirectly invest by entrusting a fund management company or the branch of a foreign fund management company in Vietnam and do not have an indirect investment capital account, the opening of an indirect investment capital account shall be conducted as follows:
- Fund management companies or branches of foreign fund management companies in Vietnam shall be allowed to open indirect investment capital accounts to receive capital from foreign investors.
- In such cases, indirect investment capital accounts shall be opened in the names of fund management companies or branches of foreign fund management companies in Vietnam.
Also according to the provisions of ‘Circular 51/2021/TT-BTC’, all activities of foreign investors such as transmitting money to make investments and payments relating to securities and activities of issuers of depositary receipts in foreign countries receiving and using dividends or distributed profits, or buying foreign currency to remit it to foreign countries (if any) and other relevant transactions must be carried out through indirect investment capital accounts (IICAs).
After opening an indirect investment capital account (IICA), foreign investors can transfer money to the IICA to place trading orders and transact securities in Vietnam. The transfer of money to Vietnam must strictly follow applicable regulations of anti-money laundering and ensure the legality of the source of money transferred to Vietnam to trade securities.
Hence, Vietnam’s securities market has undergone changes in recent years with increased participation from foreign investment funds and foreign investors. This helped Vietnam become one of the promising destinations for foreign investors investing in securities.