Vietnam - New Decree On Offshore Indirect Investment.
Legal News & Analysis - Asia Pacific - Vietnam - Corporate/M&A
16 March, 2016
On 31 December 2015, The Government promulgated Decree No. 135/2015/ND-CP on offshore indirect investment (“Decree No. 135”). Decree No. 135 took effect on 15 February 2016. This Decree details offshore investment in the forms of purchase and sale of securities, other valuable papers or making investments via overseas securities investment funds or other intermediary financial institutions.
1. Investors as individuals
The Ordinance on Foreign Exchange has recognised the right of individual residents to do offshore indirect investment if allowed if it is done so in compliance with the requirements as provided by the State Bank of Vietnam (“SBV”). However, so far, the SBV has yet to issue any regulation regarding this matter. Therefore, it has been impossible for individuals to realize such rights, except for in such cases where shares were obtained without transferring money out of Vietnam under an offshore company’s share award plan as approved by the SBV on a case by case basis.
Decree No. 135 now repeats the regulation of the Ordinance and confirms that an individual investor with Vietnamese nationality may perform offshore indirect investment only in the form of participation in plans of awarded shares issued offshore of foreign entities for employees in Vietnam.
However, we still need to wait for a Circular to be issued by the SBV on procedure, process, contents and implementation of share award plans, and participation of employees.
2. Investors as organizations
The offshore indirect investment of economic organizations will be performed by 02 methods, namely, (i) proprietary trading of offshore indirect investment and (ii) entrusted offshore indirect investment.
Proprietary trading entities and entrusted entities can perform offshore indirect investment in the following forms:
- Direct purchase and sale of securities and other valuable papers offshore.
- Investment through sale and purchase of certificates of securities investment funds offshore, and entrusting investment to other intermediary financial institutions offshore.
2.1. Proprietary Trading
Only the following entities are allowed to perform proprietary offshore indirect investment:
(1) Security companies and fund management companies;
(2) Securities investment funds through fund management companies, securities investment companies;
(3) Insurance business enterprises;
(4) Commercial banks;
(5) General finance companies; and
(6) State Capital Investment Corporation
In order to perform offshore indirect investment, proprietary trading entities must obtain an Offshore Indirect Investment Registration Certificate (“OIIRC”) issued by the Ministry of Finance (“MOF”) for securities companies, fund management companies, insurance business enterprises; or the OIIRC issued by the SBV for commercial banks, and general finance companies; or the Approval Letter issued by the MOF for securities investment funds and securities investment companies.
2.2. Entrusted Investment
Economic organizations may only perform offshore indirect investment in the form of entrusted investment. Under Decree No. 135, economic organizations may entrust offshore indirect investment to (i) fund management companies and (ii) commercial banks.
In order to receive entrustment of offshore indirect investment, entrusted entities must obtain an Entrusted Offshore Indirect Investment Registration Certificate issued by the MOF for fund management companies or a similar certificate issued by the SBV for commercial banks.
The SBV will detail the types of and criteria for selection of investment tools in foreign countries in each period. Investors may only make offshore indirect investment via the investment tools specified by the SBV. Proprietary trading entities and entrusted entities being commercial banks and general finance companies can only perform proprietary trading, receive investment entrustment of bonds and other tools on the monetary market specified by the SBV.
Capital sources for offshore indirect investment
Proprietary trading entities (except for commercial banks and general finance companies) can use their self-available foreign currency in accounts and foreign currency purchased from credit institutions or foreign bank branches permitted to provide foreign exchange services in Vietnam to perform offshore indirect investment.
Entrusting entities (except for commercial banks and general finance companies) can only use their self-available foreign currency in accounts for performance of offshore indirect investment in the form of entrustment to entrusted entities.
Commercial banks and general finance companies balance their foreign currency sources to perform offshore indirect investment on the basis of ensuring compliance with provisions on foreign currency status, and prudential ratios and limits in banking activities.
Investors are not permitted to use domestic or overseas loans in foreign currencies, loans in Vietnam Dong from credit institutions and/or foreign banks’ branches to purchase foreign currencies for offshore indirect investment.
However, the above requirements will not apply to the offshore indirect investment of economic organizations of which the State owns at least 65% of charter capital and indirect investment projects with a value of VND800 billion or more. Such investments will be subject to separate regulations issued by the Prime Minister.
In addition, this Decree also regulates other important contents with respect to conditions for proprietary trading, entrusting and entrusted offshore indirect investment, annual total of limits of offshore indirect investment, proprietary trading limits, entrusted limits, etc.
For further information, please contact:
Oanh H. K. Nguyen Partner, Baker & McKenzie