Vietnam’s young bourses are a work in progress, with rules and
regulations subject to frequent fine-tuning.
As such, it behoves foreign
business entities and investors to understand the latest revisions that will
come into effect in February, as described in this article, written by Luu Tien
Ngoc, Partner of Vision & Associates law firm.
To implement the development
strategy for the Vietnamese securities market during 2011-2020, attached to the
prime minister’s Decision No.252/QD-TTg, dated March 1, 2012, a large number of
legal documents implementing the Securities Law 2006 and its Amendment 2010
were issued by the government and the Ministry of Finance.
These include the Ministry of Finance’s (MoF) Circular No.213/2012/TT-BTC, dated December 6, 2012, guiding the operations by foreigners in the Vietnamese securities market (Circular 213). Circular 213 will be effective on February 15, 2013, and replace the MoF’s Decision No.121/2008/QD-BTC, dated December 24, 2008, on the same subject (Decision 121).
On the occasion of issuance of Circular 213, we brief some key notes of which foreigners should be updated in relation to their indirect investment in Vietnam, with necessary comparisons between investment in non-public companies and the same in public companies. For the purpose hereof, indirect investment means “a form of investment by way of purchase of shares, share certificates, bonds, other valuable papers or a securities investment fund and by way of intermediary financial institutions, whereby foreigners do not participate directly in the management of the investment activity,” and direct investment by foreigners is excluded.
Governing law.
Different specific legal documents apply differently to indirect investment by foreigners in public and non-public companies in Vietnam. In general, if investment is made in non-public companies (including both joint stock and limited liability companies), it is governed by the prime minister’s Decision No.88/2009/QD-TTg, dated June 18, 2009, issuing the regulations on capital contribution, share purchase by foreigners in Vietnamese companies (Decision 88). If investment is made in public companies (including only listed and unlisted joint stock companies), it is alternatively governed by Decision 121, at this moment, and by Circular 213, from February 15, 2013.
Investment vehicle.
In general, foreigners are free to select the most appropriate vehicle for their indirect investment in Vietnam. However, with respect to investment in non-public companies, it seems that the investment must be made directly by foreigners themselves, in accordance with Decision 88, which is silent on investment indirectly by foreigners through fund managers, securities companies or transaction representatives appointed by them in Vietnam.
With respect to investment in public companies, though Decision 121 is not so clear on this point, it is clear under Circular 213 that foreigners can invest either directly by themselves or indirectly through fund managers, securities companies or transaction representatives appointed by them in Vietnam.
Investment capital account.
In general, an investment capital account (CCA) is required for any new foreigner first entering into Vietnam. In principle, the CCA opening must be in compliance with the Ordinance on Foreign Exchange Control, dated December 13, 2005 (FX Ordinance), and Decree No.160/2006/ND-CP, dated December 28, 2006, guiding the implementation of the FX Ordinance (Decree 160).
However, in practice, the CCA opening is made in compliance with Circular No.03/2004/TT-NHNN, dated May 25, 2004, of the State Bank of Vietnam (SBV), guiding on the foreign exchange control in relation to the share purchase and capital contribution by foreigners in Vietnamese companies (Circular 03).
As far as we understand, Circular 03 originally provides the legal basis for opening by foreigners the CCA for their indirect investment in non-public companies in Vietnam, while Decision No.1550/2004/QD-NHNN, dated December 6, 2004, of the SBV’s governor, on foreign exchange control in relation to the sale and purchase by foreigners of securities on stock transaction centres (now stock exchanges) (Decision 1550), provided legal basis for opening by foreigners the CCA for their in-direct investment in public companies in Vietnam and other securities on the stock exchanges.
However, as the validity of Decision 1550 was repealed by the SBV, from October 20, 2012, under Circular No.25/2012/TT-NHNN, dated September 6, 2012, on abolishment of a number of legal documents recently issued by the governor of the SBV (Circular 25/2012), we assume that Circular 03 would continue serving as the legal reference for foreigners to open the CCA for their indirect investment (both in public and non-public companies) in Vietnam. Circular 213 seems reflecting this change.
Investment capital account registration.
Before October 14, 2011, any CCA immediately after its opening must be registered by foreigners with the SBV, in accordance with Circular 03 and Decision 1550. However, after October 14, 2011, the effective date of Circular No.25/2011/TT-NHNN, dated August 31, 2011, of the SBV, simplifying some administrative procedures managed by the SBV (“Circular 25/2011”), no registration of the CCA by foreigners with the SBV is required. Circular 213 is silent on requiring the registration by foreigners of the CCA with the SBV.
Securities trading code.
With respect to investment in non-public companies, Decision 88 is silent on requiring the application by foreigners for securities trading code (STC) from the Vietnam Securities Depository (VSD). Because of that, we assume that no STC is required by the laws if foreigners invest in buying shares or capital contributions in non-public companies in Vietnam. With respect to investment in public companies, though Decision 121 is not so clear on this point, it is clear under Circular 213 that foreigners are required to apply for the STC before making their investment, directly by themselves, in public companies in Vietnam.
These include the Ministry of Finance’s (MoF) Circular No.213/2012/TT-BTC, dated December 6, 2012, guiding the operations by foreigners in the Vietnamese securities market (Circular 213). Circular 213 will be effective on February 15, 2013, and replace the MoF’s Decision No.121/2008/QD-BTC, dated December 24, 2008, on the same subject (Decision 121).
On the occasion of issuance of Circular 213, we brief some key notes of which foreigners should be updated in relation to their indirect investment in Vietnam, with necessary comparisons between investment in non-public companies and the same in public companies. For the purpose hereof, indirect investment means “a form of investment by way of purchase of shares, share certificates, bonds, other valuable papers or a securities investment fund and by way of intermediary financial institutions, whereby foreigners do not participate directly in the management of the investment activity,” and direct investment by foreigners is excluded.
Governing law.
Different specific legal documents apply differently to indirect investment by foreigners in public and non-public companies in Vietnam. In general, if investment is made in non-public companies (including both joint stock and limited liability companies), it is governed by the prime minister’s Decision No.88/2009/QD-TTg, dated June 18, 2009, issuing the regulations on capital contribution, share purchase by foreigners in Vietnamese companies (Decision 88). If investment is made in public companies (including only listed and unlisted joint stock companies), it is alternatively governed by Decision 121, at this moment, and by Circular 213, from February 15, 2013.
Investment vehicle.
In general, foreigners are free to select the most appropriate vehicle for their indirect investment in Vietnam. However, with respect to investment in non-public companies, it seems that the investment must be made directly by foreigners themselves, in accordance with Decision 88, which is silent on investment indirectly by foreigners through fund managers, securities companies or transaction representatives appointed by them in Vietnam.
With respect to investment in public companies, though Decision 121 is not so clear on this point, it is clear under Circular 213 that foreigners can invest either directly by themselves or indirectly through fund managers, securities companies or transaction representatives appointed by them in Vietnam.
Investment capital account.
In general, an investment capital account (CCA) is required for any new foreigner first entering into Vietnam. In principle, the CCA opening must be in compliance with the Ordinance on Foreign Exchange Control, dated December 13, 2005 (FX Ordinance), and Decree No.160/2006/ND-CP, dated December 28, 2006, guiding the implementation of the FX Ordinance (Decree 160).
However, in practice, the CCA opening is made in compliance with Circular No.03/2004/TT-NHNN, dated May 25, 2004, of the State Bank of Vietnam (SBV), guiding on the foreign exchange control in relation to the share purchase and capital contribution by foreigners in Vietnamese companies (Circular 03).
As far as we understand, Circular 03 originally provides the legal basis for opening by foreigners the CCA for their indirect investment in non-public companies in Vietnam, while Decision No.1550/2004/QD-NHNN, dated December 6, 2004, of the SBV’s governor, on foreign exchange control in relation to the sale and purchase by foreigners of securities on stock transaction centres (now stock exchanges) (Decision 1550), provided legal basis for opening by foreigners the CCA for their in-direct investment in public companies in Vietnam and other securities on the stock exchanges.
However, as the validity of Decision 1550 was repealed by the SBV, from October 20, 2012, under Circular No.25/2012/TT-NHNN, dated September 6, 2012, on abolishment of a number of legal documents recently issued by the governor of the SBV (Circular 25/2012), we assume that Circular 03 would continue serving as the legal reference for foreigners to open the CCA for their indirect investment (both in public and non-public companies) in Vietnam. Circular 213 seems reflecting this change.
Investment capital account registration.
Before October 14, 2011, any CCA immediately after its opening must be registered by foreigners with the SBV, in accordance with Circular 03 and Decision 1550. However, after October 14, 2011, the effective date of Circular No.25/2011/TT-NHNN, dated August 31, 2011, of the SBV, simplifying some administrative procedures managed by the SBV (“Circular 25/2011”), no registration of the CCA by foreigners with the SBV is required. Circular 213 is silent on requiring the registration by foreigners of the CCA with the SBV.
Securities trading code.
With respect to investment in non-public companies, Decision 88 is silent on requiring the application by foreigners for securities trading code (STC) from the Vietnam Securities Depository (VSD). Because of that, we assume that no STC is required by the laws if foreigners invest in buying shares or capital contributions in non-public companies in Vietnam. With respect to investment in public companies, though Decision 121 is not so clear on this point, it is clear under Circular 213 that foreigners are required to apply for the STC before making their investment, directly by themselves, in public companies in Vietnam.
It is noted that STC is not
required if foreigners make their investment indirectly through fund managers,
and that if compared with Decision 121, Circular 213 is flexible on the
legalisation of relevant legal documents by foreigners for the STC. Instead of
insisting on the legalisation at the beginning for the STC as it does under
Decision 121, Circular 213 provides that foreigners may submit certified copies
at the beginning for the STC, and then have up to nine months to arrange and
submit the required legalisations to the VSD.
Securities trading and depository accounts.
With respect to investment in non-public companies, no requirement of either securities trading account (“STA”) or securities depository account (“SDA”) is found under Decision 88. It seems that neither STA nor SDA are required by the laws if foreigners invest in buying shares or capital contributions in non-public companies in Vietnam. With respect to investment in public companies, both Decision 121 and Circular 213 require the STA and SDA when foreigners making their investment in public companies in Vietnam.
Reporting.
In general, foreigners are required to report to the business registrars or licensing authorities in case of any change of their major shareholder status (i.e. change of over 5 per cent of the charter capital) in joint stock companies (regardless of they are public or non-public companies). In particular, with respect to investment in non-public companies, no requirement of any other reports by foreign investors to any other authorities is found under Decision 88.
Securities trading and depository accounts.
With respect to investment in non-public companies, no requirement of either securities trading account (“STA”) or securities depository account (“SDA”) is found under Decision 88. It seems that neither STA nor SDA are required by the laws if foreigners invest in buying shares or capital contributions in non-public companies in Vietnam. With respect to investment in public companies, both Decision 121 and Circular 213 require the STA and SDA when foreigners making their investment in public companies in Vietnam.
Reporting.
In general, foreigners are required to report to the business registrars or licensing authorities in case of any change of their major shareholder status (i.e. change of over 5 per cent of the charter capital) in joint stock companies (regardless of they are public or non-public companies). In particular, with respect to investment in non-public companies, no requirement of any other reports by foreign investors to any other authorities is found under Decision 88.
With respect to investment in
public companies, both Decision 121 and Circular 213 require reports by foreign
investors and by many other relevant parties (including fund managers,
securities companies, custodian banks, securities depository center, stock
exchanges) on the investment activities by foreigners in Vietnam, to the State
Securities Commission. Reports must be made in the appropriate forms as
provided by Decision 121 at this moment and by Circular 213, from February 15,
2013.
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