Quynh Anh, Vu Lan Huong, Ngo Trung Hieu Vision & Associates[1]
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On April 29, the Governor of the State Bank of Vietnam (SBV) issued Circular 03/2025/TT-NHNN on opening and use of accounts in Vietnamese currency to conduct foreign indirect investment activities in Vietnam (the Circular). The Circular takes effect on June 16, and replaces the SBV Governor’s Circular 05/2014/TT-NHNN of 2014, guiding the opening and use of indirect investment capital accounts for foreign indirect investment activities in Vietnam (Circular 05), and amends the SBV Governor’s Circular 06/2019/TT-NHNN, guiding the foreign exchange management of foreign direct investment activities in Vietnam (Circular 06).
Compared to the two previous Circulars, the Circular introduces a number of notable new provisions.
Foreign investor definition
Foreign investors referred to in the Circular are still non-residents that conduct foreign indirect investment (FII) activities in Vietnam. However, the Circular clearly defines institutional foreign investors as organizations established under foreign laws, while individual foreign investors are defined as individuals holding foreign citizenships. These definitions are similar to those provided in Circular 06, which defines foreign investors as organizations and individuals conducting direct investment activities in Vietnam.
Thus, revenue and expenditure transactions related to FII activities in Vietnam of foreign investors being residents are not subject to the Circular but may be conducted on payment accounts in Vietnamese currency in accordance with the relevant regulations.
Transactions requiring opening and use of indirect investment accounts
Similar to Circular 05, the Circular clearly provides that an indirect investment account (IIA) (formerly referred to as indirect investment capital account (IICA) under Circular 05 and previous regulations) is a payment account in Vietnamese currency opened by a foreign investor at an authorized bank in Vietnam. However, the Circular defines more clearly FII transactions in Vietnam, which require the opening and use of IIAs, including:
o Purchase and sale of securities on the Vietnamese securities market, and purchase and sale of other valuable papers.
o Contribution of capital, purchase of shares and capital contribution portions in unlisted enterprises that are not subject to opening of direct investment capital accounts (DICA) under Circular 06 (the Circular removes the criteria of “not yet registered for transactions” and “not directly participating in the management and operation of enterprises” specified in Circular 05).
o Making of investment entrustment in Vietnamese currency through fund management companies or organizations licensed to provide other investment entrustment services in accordance with law.
o Purchase and sale of other types of securities in accordance with the law on securities.
Therefore, unlike Circular 05, the following activities will no longer be regarded as FII transactions in Vietnam:
o Contributing capital to and transferring capital contribution portions of foreign investors (not directly participating in the management) through securities investment funds or fund management companies in accordance with the laws on securities; and,
o Contributing capital to Vietnamese enterprises on the unlisted public company market (UPCOM) or the listed securities market and not directly participating in the management and operation of these enterprises, unless such transactions are determined to fall within the specified circumstances.
Worthy of note, the Circular revises the provisions of Circular 06 on the threshold for distinguishing between foreign direct investment (FDI) and FII, to be consistent with the 2020 Law on Investment. Accordingly, the threshold of 50 percent stipulated in the 2020 Law on Investment (in replacement of 51 percent stipulated in the 2014 Law on Investment) will be used to distinguish between FDI and FII. According to the new regulations, within 12 months from the effective date of the Circular, enterprises with foreign investors holding shares or capital contribution portions of more than 50 percent but less than 51 percent of their charter capital will have to open DICAs under Circular 06 for use instead of their existing IIAs. During the transition period, to facilitate foreign investors of the above enterprises (currently holding shares or capital contribution portions equal to between over 50 percent and under 51 percent of such enterprises’ charter capital and using IIAs under Circulars 05 and 06) to continue using their existing IIAs (until they open DICAs under the new regulations) to carry out revenue and expenditure transactions related to contribution of capital to, and purchase of shares and capital contribution portions in, the aforesaid enterprises.
General principles applicable to the opening and use of indirect investment accounts
In addition to continuing to adhere to the principles specified in Circular 05, such as:
l All revenue and expenditure transactions related to FII activities in Vietnam of foreign investors must be conducted through IIAs; and,
l The balance on IIAs of foreign investors cannot be transferred to time deposits and savings deposits.
The Circular sets out some new principles:
l Foreign investors are not allowed to open joint IIAs (with two or more entities jointly opening an account) for FII activities in Vietnam.
l Money transfer orders related to foreign investors’ FII activities in Vietnam must clearly state the purpose of the transfer so that authorized banks have a basis for comparison, verification, retention of documents and implementation of transactions.
Opening of IIAs
While retaining Circular 05’s provisions that allow a foreign investor to open only one IIA at one licensed bank to conduct revenue and expenditure transactions related to FII activities in Vietnam, the Circular adds some exceptions where a foreign investor may open additional IIA(s), as follows:
o A foreign investor being a foreign securities company may open two IIAs corresponding to two assigned securities trading codes: one for its dealing activities and the other for its securities brokerage activities;
o A foreign investor being a foreign investment fund or a foreign organization managed by many foreign fund management companies may open additional IIA(s) corresponding to the assigned securities trading code(s), of which each investment portfolio managed by a foreign fund management company may open one IIA corresponding to one granted securities trading code; an investment portfolio self-managed by a foreign investment fund or organization that has been granted one separate securities trading code may open one IIA correspondingly;
o Foreign investors being investment organizations under foreign governments or investment and financial organizations under international financial institutions of which Vietnam is a member may open additional IIAs corresponding to the assigned securities trading codes, of which each investment portfolio deposited at a custodian bank that has been granted one securities trading code may open one IIA correspondingly.
As per the Circular, for documents and information contained in the application for opening an IIA to make investments on the Vietnamese securities market that are made in foreign languages or issued by foreign authorities, consular legalization is not required. Instead:
l The documents and information must be notarized or certified in accordance with Vietnam’s law or foreign laws within 12 months after the bank is allowed to accept the application;
l The licensed bank may reach agreement with customers on whether or not to translate them into Vietnamese, provided that:
o The licensed bank checks and is responsible for confirming contents of such foreign-language documents and information to ensure that they fully provide requested information as specified in the Circular;
o Foreign-language documents and information are translated into Vietnamese if requested by a competent authority, and translations are certified by the licensed bank’s competent person or properly notarized or authenticated.
The new regulations not only help simplify administrative procedures for foreign investors when opening IIAs but also create more favorable conditions for foreign capital flow into the Vietnamese market, marking an important step forward to remove one of the bottlenecks so as to upgrade the Vietnamese securities market.
Use of IIAs
The Circular guides more specifically the use of IIAs to conduct revenue and expenditure transactions related to FII activities in Vietnam:
Regarding revenues
In addition to the transactions specified in Circular 05, including:
l Receiving revenues from the sale of foreign currencies to the licensed bank;
l Receiving revenues from the transfer of capital contribution portions and shares, selling securities and other valuable papers; receiving dividends, bonds, profits from investments in securities and valuable papers in Vietnamese currency; getting profits from capital contributions, purchases of shares and capital contribution portions for FII activities in Vietnam;
l Receiving revenues from the transfer from foreign investors’ payment accounts in Vietnamese currency opened at the licensed bank (excluding the IIA); and,
l Receiving transfers from accounts of fund management companies and other organizations permitted to conduct investment entrustment operations for foreign investors in accordance law (applicable in case foreign investors conduct FII activities in Vietnam in the form of investment entrustment);
The Circular adds the following transactions:
l Collecting and transferring interest and other lawful revenues when conducting securities purchase transactions that do not require sufficient funds upon order placement by foreign institutional investors in accordance with the current law on securities;
l Collecting and transferring deposits and collateral to conduct FII transactions in Vietnam, including:
o Receiving money amounts to conduct deposit and collateral transactions;
o Receiving and refunding deposits and collateral to foreign investors in accordance with law and agreements between the parties; and,
l Collecting bank transfers from old IIAs (applicable in case where foreign investors need to open an IIA at another licensed bank).
Regarding expenses
In addition to the expenses specified in Circular 05, including:
l Expenses for capital contribution or purchase of shares, capital contribution portions, securities and other valuable papers;
l Expenses for purchase of foreign currencies at the licensed bank to transfer capital, profits and lawful incomes abroad;
l Expenses for transfer of money amounts to payment accounts in Vietnamese currency of foreign investors opened at the licensed bank (excluding FII account);
l Expenses for transfer of money amounts to accounts of fund management companies and other organizations licensed to provide investment entrustment services for foreign investors in accordance with law (applicable in case foreign investors conduct FII activities in Vietnam in the form of investment entrustment); and,
l Expenses for payment of fees, charges, taxes, administrative fines and expenses related to FII transactions in Vietnam;
The Circular adds the following payments and expenses:
l Payments for losses and other expenses arising from securities purchase transactions which do not require sufficient funds upon order placement by foreign institutional investors in accordance with the current law on securities;
l Payments for transfer of deposits and collateral related to FII transactions in Vietnam, including:
o Conducting deposit and collateral transactions;
o Transferring to the foreign investor’s Vietnamese-currency payment account or purchasing foreign currencies for transferring abroad deposits and collateral that the foreign investor has transferred into Vietnam but has been refunded in accordance with law and the agreement between the parties; and,
l Payments for money transfer to a new IIA (applicable in case where foreign investors need to open an IIA at another licensed bank).
Obligations of concerned parties
Obligations of foreign investors
In addition to the obligations to truthfully and fully declare the content of transactions related to FII activities in Vietnam and to provide records, documents, information and data as required by licensed banks when opening and using IIAs under Circular 05, foreign investors have the following new obligations under the Circular:
l To comply with the provisions of the Circular; the domestic laws on investment, securities, prevention and combat of money laundering, terrorist financing and financing of proliferation of weapons of mass destruction; and other relevant laws.
l To be responsible before law for the authenticity, validity and legality of records, documents, information and data provided to licensed banks.
Obligations of licensed banks
In addition to the obligation to check and keep papers and accounting source documents for actual transactions to ensure that the provision of foreign exchange services is carried out for the right purposes and in accordance with law as specified in Circular 05, licensed banks have the following new obligations under the Circular:
l To be responsible before law for the completeness and validity of the application filed for opening an IIA;
l To issue internal regulations on application filing, and procedures for opening and using an IIA; and to make them publicly available for foreign investors to know and implement. Internal regulations must contain at least the following:
o Regulations on application filing, and procedures for opening an IIA;
o Regulations on agreements for opening and using an IIA;
o Regulations on use of an IIA;
o Regulations on processing inquiries, complaints, and request templates for inquiries and complaints;
o Regulations on risk management in opening and using IIAs;
l To comply with the laws on preventing and combating money laundering, terrorist financing, and financing the proliferation of weapons of mass destruction.-
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