As we have just celebrated the 25th anniversary of diplomatic relations between the United States and Vietnam, I thought it would be a good opportunity to review the procedures and requirements for Vietnamese investors seeking to invest overseas. This is more complicated than one might expect—particularly in light of the need to obtain FOREX to make such investments—and Vietnam’s government seeks to at least monitor, if not control, foreign outward investment.
Managing Partner Duc Dang was kind enough to share with me a memo he prepared recently for a client on this issue. I have largely based this post on that memo though I added a few additional requirements that fell outside the original’s ambit. I have also not referred to the original client.
Overview of outward-investment
“Outward-investment” means a transfer of capital overseas by a resident (either individual or entity) for investment in a form stipulated by laws. Generally, outward investment activities are categorized into direct outward-investment (“DOI”) and indirect outward-investment (“IOI”). The difference between these two forms is the participation of the investor in management of investment activities, which is not always clear in many cases.
DOI occurs when an investor remits capital overseas to implement investment activities and participate directly in the management of her target investment.
IOI occurs during the purchase or sale of securities, stocks and bonds, or other valuable papers or investments via securities investment funds or other intermediate financial institutions in a foreign country.
The following citizens in Vietnam may conduct DOI activities: (i) organization established and operating in accordance with the law of Vietnam, including enterprises, co-operatives and unions of cooperatives and other organizations conducting business investment activities; and (ii) business households and individuals of Vietnamese nationality.
DOI can be implemented by:
- establishment of an economic organization in accordance with the law of the country receiving the investment;
- performance of an outward business cooperation contract;
- purchase of all or part of the charter capital of an outward economic organization to participate in management and conduct business investment activities in a foreign country; and
- other investment forms in accordance with the law of the country receiving the investment.
An investor seeking to conduct DOI needs to obtain an outward investment registration certificate (“OIRC”) from the Ministry of Planning and Investment (“MPI”), and, depending on the scale of the project, may need to seek prior approval from the Prime Minister or the National Assembly of Vietnam if the amount of the proposed project exceeds VND20 billion or falls under certain legally defined categories.
If the investment capital of the proposed investment is less than VND20 billion (equivalent to less than approx. US$870,000), the investment project will be subject to a registration procedure or, in other words, issuance of the OIRC. If the investment capital of the project is VND20 billion or more, the project will be subject to an evaluation procedure for issuance of the OIRC. The registration procedure is less complicated and time-consuming than the evaluation procedure.
The MPI is the licensing authority and they are responsible for reviewing application dossiers and issue OIRCs.
For projects of less than VND20 billion, the application dossier must be made in three sets. The MPI has 15 working days from the date of submission of the proper application dossier to issue an OIRC. In practice, however, this time may extend from one to one and a half months.
For projects with capital from VND20 billion and over, the MPI will seek opinions from the State Bank of Vietnam (“SBV”) and other ministries as may be necessary, including from the National Assembly or the Prime Minister, if required. Within seven working days from receipt of a written request from the MPI, the SBV will return its opinion to the MPI. If after seven days, no opinions are provided, the application is deemed approved by the SBV with respect to issues within the competence of the State administration. In practice, the actual time for obtaining the OIRC may range from two to three months.
In addition to obtaining the OIRC, the Vietnamese investor must also open a direct investment capital account in an authorized financial institution in Vietnam through which the direct investment will be made. Finally, they must obtain must also obtain an authorization from the SBV regarding FOREX transactions for DOI.
The following citizens in Vietnam may conduct IOI activities: organizations established and operating in accordance with the law of Vietnam, including enterprises, co-operatives and unions of cooperatives and other organizations conducting business investment activities (after referred to as the corporate entities); and (ii) individuals of Vietnamese nationality who are eligible to participate in outward issued bonus share plans, a.k.a. employee share ownership programs (“ESOPs”).
Forms of Corporate IOI
Certain corporate entities may make outward-investment using either “self-trading” or “entrustment” schemes. Self-trading allows a corporate entity to trade outward securities and valuable papers for its own account or to make investments through outward securities investment funds or financial intermediaries. Only the following types of corporate entities are permitted to conduct self-trading: securities companies, fund management companies; securities investment funds via fund management companies, and securities investment companies; insurance business enterprises; commercial banks; general financial companies; and the State Capital Investment Corporation (SCIC).
Otherwise, the corporate entity must “entrust” capital in foreign currency to another (onshore) corporate entity (the “Entrusted Entity”). The Entrusted Entity conducts outward indirect investment on behalf of the Principal through an investment trust contract. Only fund management companies or commercial banks are permitted to act as the Entrusted Entity and accept entrustments from Principals.
Procedures for Corporate IOI
Corporate entities seeking to conduct IOI through self-trading must obtain an Indirect Outward Investment Registration Certificate (“IOIRC”) from the Ministry of Finance, the State Securities Commission, or the SBV. Once they have obtained an IOIRC, the corporate entity must open a capital account for indirect outward investment at an authorized credit institution in Vietnam. In addition, before the corporate entity can start self-trading, they must obtain a certificate outlining trading limits for the entity from the SBV. Only then are they allowed to begin IOI in foreign securities or valuable papers.
Vietnamese individuals cannot engage in self-trading or entrustment. Only employees having Vietnamese nationality currently working at foreign-invested companies, representative offices and other Vietnam-based units of foreign companies in Vietnam may make IOI in the form of participation in outward ESOPs.
In order to institute an ESOP for Vietnamese employees to hold foreign securities, the corporate entity must be a foreign-invested company, representative office or other Vietnam based unit of foreign companies and must register with, and obtain approval from, the SBV for the ESOPs prior to implementation.
All transactions in relation to the registered ESOPs (e.g. overseas fund remittance or transfer of proceeds back to Vietnam) must be conducted via a bank account opened by the Vietnamese entity with a bank in Vietnam.
While this article outlines the basics of outward investment for Vietnamese citizens, there are many more specifics. For help in making outward investments please feel free to contact your lawyer, or visit Indochine Counsel’s website, here, to contact a lawyer to discuss the procedures and requirements for investing overseas.