Circular No. 05/2014/TT-NHNN dated March 12, 2014 of the State Bank of Vietnam guiding the open and use of indirect investment capital accounts for the implementation of foreign direct investment in Vietnam

CIRCULAR

Guiding the opening and use of indirect investment capital
accounts for implementation of foreign indirect investment activities in Vietnam[1]

Pursuant to June 16, 2010 Law No. 46/2010/QH12 on the State Bank of Vietnam;

Pursuant to June 16, 2010 Law No. 47/2010/QH12 on Credit Institutions;

Pursuant to November 29, 2005 Law No. 59/2005/QH11 on Investment;

Pursuant to June 29, 2006 Law No. 70/2006/QH11 on Securities;

Pursuant to November 24, 2010 Law No. 62/2010/QH12 Amending and Supplementing a Number of Articles of the Law on Securities;

Pursuant to December 13, 2005 Ordinance No. 28/2005/PL-UBTVQH11 on Foreign Exchange;

Pursuant to March 18, 2013 Ordinance No. 06/2013/PL-UBTVQH13 Amending and Supplementing a Number of Articles of the Ordinance on Foreign Exchange;

Pursuant to the Government’s Decree No. 156/2013/ND-CP of November 11, 2013, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam (below referred to as the State Bank);

At the proposal of the Director of the Foreign Exchange Management Department;

The Governor of the State Bank issues the Circular guiding the opening and use of indirect investment capital accounts for implementation of foreign indirect investment activities in Vietnam.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation 

This Circular prescribes the opening and use of indirect investment capital accounts for conducting transactions related to foreign indirect investment activities in Vietnam.

Article 2. Subjects of application

1. This Circular applies to the following subjects:

a/ Foreign investors that are non-residents conducting indirect investment activities in Vietnam;

b/ Organizations and individuals involved in indirect investment activities in Vietnam.

2. This Circular does not regulate foreign investors that are resident foreign organizations and individuals. These subjects shall conduct indirect investment activities in Vietnam in accordance with the current law on securities and other relevant laws.

Article 3. Interpretation of terms 

In this Circular, the terms below are construed as follows:

1. “Foreign investors” include non-resident foreign organizations and individuals that conduct indirect investment activities in Vietnam.

2. “Licensed banks” include commercial banks and foreign bank branches that are licensed to deal in foreign exchange and provide foreign exchange services in accordance with law.

3. “Licensed credit institutions” include credit institutions and foreign bank branches that are licensed to deal in foreign exchange and provide foreign exchange services in accordance with law.

4. “Indirect investment capital account” means a payment account in Vietnam dong opened by a foreign investor at a licensed bank to conduct licensed collection and payment transactions related to foreign indirect investment activities in Vietnam.

Article 4. General principles

1. All indirect investment activities of foreign investors in Vietnam must be conducted in Vietnam dong. Transactions related to foreign indirect investment activities of a foreign investor must be conducted through 1 (one) indirect investment capital account opened at 1 (one) licensed bank.

2. When conducting foreign indirect investment activities in Vietnam in the forms specified in Article 5 of this Circular, foreign investors shall comply with the provisions of this Circular, regulations on opening and use of payment accounts, the Law on Securities and its guiding documents, and current regulations on contribution of capital to, and purchase of shares of, Vietnamese enterprises by foreign investors and activities of foreign investors on the Vietnamese securities market and other relevant laws.

3. Balances on indirect investment capital accounts of foreign investors may not converted into time deposits and savings at credit institutions and foreign bank branches.

Article 5. Forms of foreign indirect investment in Vietnam 

Indirect investment activities of foreign investors in Vietnam may take the following forms:

1. Contribution of capital to, purchase and sale of shares and contributed capital in, Vietnamese enterprises which remain unlisted or unregistered for trading on the Vietnamese securities market without direct participation in the management and execution of such enterprises.

2. Contribution of capital to, purchase and sale of shares of, Vietnamese enterprises on the unlisted public companies market (UPCOM) and listed securities market without direct participation in the management and execution of such enterprises.

3. Purchase and sale of stocks and other types of securities on the Vietnamese securities market.

4. Purchase and sale of other valuable papers in Vietnam dong issued by residents being licensed organizations in the Vietnam territory.

5. Entrustment of investment in Vietnam dong through fund management companies, securities companies and organizations licensed to perform the operation of investment entrustment in accordance with the law on securities; entrustment of investment in Vietnam dong through credit institutions and foreign bank branches licensed to perform the operation of investment entrustment under regulations of the State Bank.

6. Contribution of capital and transfer of capital contributed by foreign investors (not directly participating in management) to securities investment funds and fund management companies in accordance with the law on securities.

7. Other indirect investment forms in accordance with law.

Chapter II

SPECIFIC PROVISIONS

Article 6. Opening of indirect investment capital accounts

1. When conducting indirect investment activities in Vietnam, a foreign investor shall open one (1) indirect investment capital account at one (1) licensed bank to conduct licensed collection and payment transactions under Article 7 of this Circular.

2. In case a foreign investor has opened and is currently using an indirect investment capital account at a licensed bank but still wishes to open another indirect investment capital account at another licensed bank, it/he/she shall close the previously opened indirect investment capital account and transfer the whole balance on such account to the new account. The procedures for opening and closing indirect investment capital accounts comply with regulations of licensed banks.

Foreign investors may conduct collection and payment transactions on their indirect investment capital accounts newly opened under the above regulations only after closing and liquidating previously opened indirect investment capital accounts.

Article 7. Use of indirect investment capital accounts

Indirect investment capital accounts may be used for conducting the following collection and payment transactions related to foreign indirect investment activities in Vietnam:

1. Collection:

a/ Proceeds from the sale of foreign currencies to licensed credit institutions;

b/ Proceeds from the transfer of capital contributions and shares, sale of securities and other valuable papers, receipt of dividends and interests on bonds and valuable papers earned in Vietnam dong from foreign indirect investment activities in Vietnam;

c/ Transfers from payment accounts in Vietnam dong opened by foreign investors at licensed banks;

d/ Transfers from accounts of fund management companies, securities companies, credit institutions and foreign bank branches licensed to perform the operation of investment entrustment for foreign investors (applicable to the case where foreign investors conduct indirect investment in Vietnam in the form of investment entrustment);

dd/ Other lawful collection transactions in Vietnam dong of foreign investors related to their foreign indirect investment activities in Vietnam.

2. Payment:

a/ Expenses for conducting indirect investment activities in Vietnam in the forms specified in Article 5 of this Circular;

b/ Expenses for purchase of foreign currencies at licensed credit institutions for remittance of capital, profits and other lawful revenues abroad;

c/ Lawful expenses arising in Vietnam;

d/ Transfers to payment accounts in Vietnam dong opened by foreign investors at licensed banks;

dd/ Transfers to accounts of fund management companies, securities companies and organizations licensed to perform the operation of investment entrustment for foreign investors (applicable to the case where foreign investors conduct indirect investment in Vietnam in the form of investment entrustment);

e/ Other lawful payments related to foreign indirect investment activities in Vietnam.

Article 8. Remittance of investment capital abroad   

When wishing to remit capital, profits and or lawful revenues earned from indirect investment activities, foreign investors may use Vietnam dong on their indirect investment capital accounts to purchase foreign currencies from licensed credit institutions and remit them abroad.

Article 9. Transformation of investment by foreign investors

1. The transformation of indirect investment into direct investment or vice versa by foreign investors must comply with the current investment law and other relevant laws.

2. In case a foreign investor that is indirectly investing in Vietnam in the form of purchase of shares of, or contribution of capital to, Vietnamese enterprises transforms its investment into direct investment (participation in the management and execution of enterprises), its account shall be transformed as follows:

a/ If the foreign investor does not continue to conduct indirect investment in Vietnam, after completing procedures for transformation of investment under current laws, it shall open a direct investment capital account in Vietnam dong at a licensed bank, and then close the previously opened indirect investment capital account and concurrently transfer the balance of this account to the newly opened direct investment capital account in Vietnam dong for conducting direct investment activities in Vietnam under current regulations on management of foreign exchange and relevant regulations. The procedures for closing the indirect investment capital account and opening the direct investment capital account in Vietnam dong comply with regulations of the licensed bank;

b/ If the foreign investor continues to conduct indirect investment activities in Vietnam, it may use the previously opened indirect investment capital account for conducting indirect investment activities in Vietnam in accordance with this Circular and relevant regulations. At the same time, the foreign investor shall open and use a direct investment capital account for conducting foreign direct investment activities in Vietnam under current regulations on management of foreign exchange in foreign direct investment in Vietnam and other relevant regulations.

Chapter III

RIGHTS AND OBLIGATIONS OF LICENSED CREDIT INSTITUTIONS AND FOREIGN INVESTORS

Article 10. Rights and obligations of licensed credit institutions

1. When conducting collection and payment transactions on indirect investment capital accounts for foreign investors, licensed credit institutions may request foreign investors to produce documents related to their indirect investment activities in Vietnam.

2. When conducting collection and payment transactions on indirect investment capital accounts for foreign investors, licensed credit institutions shall:

a/ Guide foreign investors in carrying out procedures for opening and closing indirect investment capital accounts and complying with this Circular;

b/ Determine, examine and preserve documents related to collection and payment transactions conducted on indirect investment capital accounts produced by foreign investors in order to ensure that the provision of foreign exchange services is for proper purposes and complies with law;

c/ Sell foreign currencies to foreign investors on the basis of self-balancing their foreign-currency sources.

3. In addition to the rights and obligations specified in Clauses 1 and 2 of this Article, licensed banks shall guide foreign investors in transforming indirect investment capital accounts under Article 17 of this Circular.

Article 11. Rights and obligations of foreign investors       

1. Foreign investors may conduct foreign indirect investment activities in Vietnam in accordance with this Circular and other relevant regulations.

2. When conducting collection and payment transactions on indirect investment capital accounts, foreign investors shall:

a/ Declare contents of these transactions related to their indirect investment activities in Vietnam as requested and guided by licensed banks;

b/ Produce and add dossiers and documents as requested by licensed banks.

Chapter IV

REPORTING REGIME

Article 12. Reporting by licensed credit institutions

Licensed credit institutions shall report to the State Bank under the State Bank’s current regulations on reporting and statistics.

Article 13. Requests for irregular reports

When irregularly requested or in case of necessity, foreign investors, licensed credit institutions and the State Bank’s provincial-level branches shall report on contents requested by the State Bank.

Chapter V

EXAMINATION, INSPECTION, SUPERVISION AND
HANDLING OF VIOLATIONS

Article 14. Examination, inspection and supervision 

1. The State Bank and its provincial-level branches shall examine, inspect and supervise the observance by licensed banks and foreign investors of regulations on opening and use of indirect investment capital accounts by foreign investors for conducting foreign indirect investment activities in Vietnam.

2. Examined organizations and individuals shall provide all necessary documents under regulations for the prompt and effective examination, inspection and supervision.

Article 15. Handling of violations

Foreign investors and licensed banks that violate the provisions of this Circular shall, depending on the seriousness of their violations, be sanctioned in accordance with law.

Chapter VI

ORGANIZATION OF IMPLEMENTATION

Article 16. Effect

1. This Circular takes effect on April 28, 2014.

2. This Circular replaces the State Bank’s Circular No. 03/2004/TT-NHNN of May 25, 2004, guiding the management of foreign exchange in the contribution of capital to, and purchase of shares of, Vietnamese enterprises by foreign investors.

Article 17. Transitional provisions

1. Within 90 days from the effective date of this Circular, foreign investors shall transform their accounts into indirect investment capital accounts for continuing their indirect investment activities in Vietnam under the following regulations:

a/ In case foreign investors have opened accounts for capital contribution or share purchase in Vietnam dong, they shall rename these accounts indirect investment capital accounts;

b/ In case foreign investors have opened accounts for capital contribution or share purchase in Vietnam dong and concurrently have Vietnam-dong balance on specialized demand deposit accounts in Vietnam dong opened by securities companies at licensed banks:

- They shall rename the above accounts for capital contribution or share purchase in Vietnam dong indirect investment capital accounts;

- They shall transfer their Vietnam-dong balances on specialized demand deposit accounts in Vietnam dong opened by securities companies at licensed banks to indirect investment capital accounts opened at licensed banks;

c/ In case foreign investors have not yet opened accounts for capital contribution or share purchase in Vietnam dong and have Vietnam-dong balances on specialized demand deposit accounts in Vietnam dong opened by securities companies at licensed banks:

- They shall open indirect investment capital accounts at licensed banks;

- They shall transfer their Vietnam-dong balances on specialized demand deposit accounts in Vietnam dong opened by securities companies at licensed banks to the above indirect investment capital accounts for continuing to conduct indirect investment activities in Vietnam;

d/ In case foreign investors have opened accounts for capital contribution or share purchase in Vietnam dong and at the same time have foreign-currency deposit balances on specialized demand deposit accounts in foreign currencies opened by securities companies at licensed banks:

- They shall rename the opened accounts for capital contribution or share purchase in Vietnam dong indirect investment capital accounts;

- They shall convert their foreign-currency deposit balances on specialized demand deposit accounts in foreign currencies opened by securities companies at licensed banks into Vietnam dong, then transfer such Vietnam dong amounts to indirect investment capital accounts opened for continuing to conduct indirect investment activities in Vietnam;

dd/ In case foreign investors have not yet opened accounts for capital contribution or share purchase in Vietnam dong and at the same time have foreign-currency balances on specialized demand deposit accounts opened by securities companies at licensed banks:

- They shall open indirect investment capital accounts at licensed banks;

- They shall convert their foreign-currency deposit balances on specialized demand deposit accounts in foreign currencies opened by securities companies at licensed banks into Vietnam dong, then transfer such Vietnam dong amounts to indirect investment capital accounts opened for continuing to conduct indirect investment activities in Vietnam.

2. In case foreign investors discontinue indirect investment activities in Vietnam:

a/ They may transfer their Vietnam dong deposit balances on specialized demand deposit accounts in Vietnam dong opened by securities companies at licensed banks and foreign-currency deposit balances on specialized demand deposit accounts in foreign currencies opened by securities companies at licensed banks to their Vietnam-dong accounts or foreign-currency accounts opened at licensed banks for use for lawful purposes in Vietnam under regulations on management of foreign exchange and other relevant laws or for remittance abroad;

b/ They may use their Vietnam dong deposit balances on specialized demand deposit accounts in Vietnam dong opened by securities companies at licensed banks to purchase foreign currencies and remit such foreign-currency amounts abroad upon production of valid dossiers and documents under regulations on management of foreign exchange.

3. Foreign investors that fail to transform their accounts into indirect investment capital accounts under Clause 1 of this Article within 90 days from the effective date of this Circular may not conduct indirect investment activities in Vietnam through their accounts for capital contribution or share purchase and specialized demand deposit accounts in foreign currencies and Vietnam dong opened by securities companies at licensed banks.

Article 18. Organization of implementation

The Director of the Office, the Director of the Foreign Exchange Management Department, heads of related units of the State Bank, directors of the State Bank’s provincial-level branches, chairpersons of Boards of Directors, chairpersons of Members’ Councils, and directors general (directors) of credit institutions and foreign bank branches shall implement this Circular.-

For the Governor of the State Bank
Deputy Governor
DAO MINH TU