Vietnam _Portfolio Investment in Vietnam

1. Portfolio investment
By Oliver Massmann
Did you know? New framework for indirect investment activities in Vietnam!
On 12 March 2014, the State Bank of Vietnam issued Circular No. 05/2014/TT-NHNN guiding
the opening and use of foreign portfolio investment (FPI) accounts for indirect investment
activities in Vietnam. The nouveau Circular is effective from 28 April 2014 and replaces
Circular No. 03/2004/TT-NHNN dated 25 May 2004.
We briefly summarize the necessary key data of the recent law-update, and conclude by
providing critical remarks regarding the Circular No. 05/2014/TT-NHNN:
According to article 2 the Circular No. 05/2014/TT-NHNN applies to (i) foreign investors, who
are nonresidents conducting indirect activities in Vietnam and (ii) organizations and individuals,
who are related to indirect investment activities in Vietnam. However, this Circular does not
govern investors being residents.
The key-regulation of the Circular is that all indirect investment activities of foreign investors in
Vietnam must be conducted in Vietnam Dong. Further any related transaction must be conducted
through one indirectly invested capital account opened at one licensed bank (vide article 4).
The Circular is promoting legal certainty in the field of foreign portfolio investments (FPI).
However we note three uncertainties:
• Article 5 provides for different types of indirect investment activities in Vietnam. Article 5.1
and 5.2 also imposes an additional condition that foreign investors, who are non residents and
carry out foreign indirect investment activities in Vietnam (in short, foreign investors), must not
directly participate in management and administration of enterprises. The question is how to
determine whether or not such foreign investors directly participate in management and
administration of the enterprises.
• Article 9.2 (a) of Circular 05 allows foreign indirect investment accounts (FIIA) to be closed if
the foreign investors discontinue their indirect investment activities in Vietnam and the balances
of FIIA can be transferred to direct investment VND capital accounts to be opened (VND
FDIA). However there are no provisions on the receipts and payments of this VND FDIA for
the banks to follow. Also it is silent on whether or not the enterprises have to open capital

2. account in FCY in accordance with Article 11 of Decree 160 and whether or not the foreign
investors are allowed to sell VND in VND FDIA to buy FCY to make capital contribution to
such capital account in FCY.
• Article 9.2 (b) of Circular 05 provides that in addition to FIIA used for foreign indirect
investment activities in Vietnam, foreign investors may open and use direct investment capital
account for foreign direct investment activities in Vietnam in accordance with regulations on
foreign exchange control for foreign direct investment in Vietnam and other relevant
regulations. However, current regulations on foreign exchange control keep silent on this type
of account (there are only provisions on capital accounts of foreign direct investment enterprise
under Decree 160).
In conclusion, the State Bank of Vietnam should provide additional guidance on the application
and interpretation of Circular No. 05/2014/TT-NHNN in order to match its objective of ensuring
legal certainty.
Should you have any question, please contact Uomassmann@duanemorris.comU;