When foreign investors decide to choose indirect investment in Vietnam, it requires strict management from the State Bank of Vietnam. In indirect investments, all investment activities must be conducted in Vietnam Dong. Additionally, transactions related to foreign indirect investments in Vietnam must be carried out through an indirect investment capital account opened at an authorized bank.
1. What is indirect investment?
Indirect investment activities of foreign investors in Vietnam include the following forms:
- Contributing capital, buying shares, contributing capital portions in companies, or participating in corporate restructuring, mergers, and consolidations leading to foreign investor(s) owning shares, capital portions, with a stake of less than 51% of the charter capital of the company.
- Contributing capital, buying or selling shares, capital portions of foreign investors in listed stock companies, or those registered for trading on the Vietnam Exchange.
- Buying and selling bonds and other securities in the Vietnam stock market.
- Buying and selling other valuable papers in Vietnam Dong issued by resident entities authorized to issue within the territory of Vietnam.
- Entrusting investment in Vietnam Dong through organizations permitted by securities laws and regulations of the State Bank.
- Contributing capital, transferring capital portions of foreign investors in securities investment funds and fund management companies in accordance with securities regulations.
- Other forms of indirect investment as regulated by laws.
In a broad sense, indirect investment activities of foreign investors in Vietnam involve investing through the purchase of shares, contributed capital, stocks, bonds, other valuable papers, securities investment funds, or other intermediary financial mechanisms where the investors have no direct control over the commercial or financial operations linked to their investment.
2. General principles of indirect investment
- Investment currency: All foreign investors’ indirect investment activities in Vietnam must be conducted in Vietnam Dong.
- Opening and using indirect investment capital account: Transactions related to foreign indirect investment activities in Vietnam must be conducted through an indirect investment capital account opened at an “Authorized Bank” (including commercial banks and foreign bank branches authorized to operate and provide foreign exchange services).
- Legal compliance: When conducting indirect investment activities, foreign investors must comply with regulations on opening and using payment accounts, securities laws, regulations related to capital contribution and share purchase by foreign investors in Vietnamese companies, regulations on the Vietnamese stock market, and other relevant legal provisions.
- Limitations: Balances in the foreign investor’s indirect investment capital account must not be transferred to fixed-term deposits and savings accounts at credit institutions and foreign bank branches.
3. Indirect investment capital account (IICA)
The “Indirect investment capital account” is a payment account in Vietnam Dong opened by foreign investors at an Authorized Bank to carry out permitted transaction activities related to foreign indirect investment activities in Vietnam.
When conducting indirect investment activities in Vietnam, foreign investors must open, and can only open, one indirect investment capital account at an Authorized Bank to carry out permitted transaction activities as regulated by law.
In case the foreign investors use an indirect investment capital account at one Authorized Bank but need to open a new account at another Authorized Bank, the foreign investors must close the existing indirect investment capital account and transfer the entire balance to the new account. Additionally, the investors can only transact on the new account after closing and settling the previous account.
4. Use of the indirect investment capital account
The indirect investment capital account can only be used to carry out permitted transaction activities related to foreign indirect investment activities in Vietnam. These include:
4.1 Deposit
- Selling foreign currency to “Authorized Credit Institutions” (including credit institutions and foreign bank branches authorized to operate and provide foreign exchange services).
- Transferring contributed capital, shares, trading securities, and other valuable papers, receiving dividends, interest from bonds and related securities denominated in Vietnam Dong from indirect investment activities.
- Receiving transfers from the payment account denominated in Vietnam Dong of the foreign investor opened at an Authorized Bank.
- Receiving transfers from the accounts of fund management companies, securities companies, credit institutions, and foreign bank branches permitted to perform entrusted investment operations (applicable to the form of entrusted investment).
4.2 Expenditure
- Spending on indirect investment activities in Vietnam.
- Purchasing foreign currency at Authorized Credit Institutions for capital transfers, profits, and lawful revenue abroad.
- Covering any legal expenses that arise in Vietnam.
- Transferring to the payment account in Vietnamese Dong of the investor opened at the Authorized Bank.
- Transferring to the accounts of fund management companies, securities companies, and other entities permitted to carry out entrusted investment operations (applicable to the form of entrusted investment).
- Other lawful expenditures related to foreign indirect investment activities in Vietnam.
When conducting indirect investment activities in Vietnam, foreign investors need to use Vietnam Dong in all transactions, open and use indirect investment capital accounts for related revenue, expenditure, and transactions. Additionally, strict adherence to the regulations of the State Bank and relevant legal provisions is essential to ensure compliance, effective investment, and risk mitigation throughout the investment process.
