Regulations on indirect investment capital account

Question: What are the key regulations of the Circular 05?

Answer: Circular 05 only applies to investors who as non-residents, perform indirect investment activities in Viet Nam, as well as the organizations and individuals involved in the indirect foreign investment in Viet Nam.

According to this Circular, all foreign indirect investment activities in Viet Nam by foreign investors must be done through one indirect investment account opened at one licensed bank and all indirect investment activities shall be made in VND.

In addition, foreign investors are not allowed to transfer the balance of an indirect capital account to a term deposits or savings deposits account to a term deposits or savings deposits account at a credit institution or foreign bank branch. Where the foreign investor has one indirect investment capital account in a licensed bank but wants to open an indirect investment capital account in another bank, the investor must close the previous account and transfer the entire balance from that previous account to the new account. In addition, Circular 05 also provides that the investor may only use the indirect investment capital account to conduct incoming and expenditure transactions relating to foreign indirect investment activities in Viet Nam.

Investors may use VND from an indirect investment account to buy foreign currency in order to transfer overseas any capital, profits and other legitimate incomes collected from indirect investment activities.

The conversion of investment form (from indirect form of investment to direct form of investment and vice versa) is carried out in accordance with the law on investment. However, in case the investor wants to convert from an indirect form of investment to the direct form of investment.

Within 90 days from the date of Circular 05 comes into force, foreign investors are responsible for implementing the conversion of account for indirect investment in order to continue their indirect investment operations in Viet Nam under the most recent provisions of the law. After this time limit, if foreign investors do not convert their account for indirect investment, they are not allowed to make indirect investments in Viet Nam through a capital contribution account, buying shares, demand specialized deposit accounts in foreign currency and in VND of the stock company opened at licensed banks.

Circular 05 takes effect from April 28, 2014 and replaces Circular 03/2014/TT-NHNN, dated May 25, 2004 of the State Bank guiding on the management of foreign exchange for the capital contribution for purchase shares of foreign investors in Vietnamese enterprises./.