With these 19 frequently asked questions and answers, BLawyers Vietnam would like to provide an overview of offshore indirect investment (“OII”). We present the conditions and principles for transferring capital for offshore indirect investment, and profit remittance when carrying out an offshore indirect investment pursuant to the prevailing law of Vietnam.

1. What is OII?

Offshore indirect investment means offshore investment in the form of the purchase and sale of securities or other valuable papers or via securities investment funds or other intermediary financial institutions abroad.

2. Who is eligible for OII?

There are 8 subjects as follows:

1. Securities companies, fund management companies;
2. Funds investing in securities via fund management companies, securities investment companies;
3. Insurance businesses;
4. Commercial banks;
5. General financial companies;
6. The State Capital Investment Corporation;
7. Individuals with Vietnamese nationality; and
8. Other economic institutions.

3. How could an individual Vietnamese investor conduct OII?

Individual investors who have Vietnamese citizenship may only make an OII in the form of participating in programs of a stock ownership plan issued overseas.

4. Can foreign-invested economic organizations conduct OII?

Currently, under law, foreign-invested economic organizations cannot conduct OII in the following cases:

1. There is any foreign investor holding more than 50% of the charter capital, or the majority of general partners are foreign individuals OF an economic organization that is a partnership;
2. There is an economic organization specified at Point (i) above holding more than 50% of charter capital;
3. There is any foreign investor and economic organization specified at Point (i) above holding more than 50% of the charter capital.

5. How many methods of OII are there?

OII activities of economic institutions shall be carried out by 2 following methods:

1. Offshore indirect investment self-dealing; and
2. Offshore indirect investment trust.

6. What are the types of OII?

Organizational dealers and organizational trustees may conduct OII in 2 following types:

1. Direct purchase and sale of securities and other valuable papers overseas; and
2. Investment through overseas purchase and sale of securities investment fund certificates or entrustment to other overseas intermediary financial institutions.

7. Do investors need to ensure capital for OII?

1. Organizational dealers (except for commercial banks and general financial companies) may use the core foreign-currency balance of their accounts and foreign-currency amounts purchased from credit institutions or foreign bank branches licensed to provide foreign exchange services in Vietnam within their registered dealing limits certified by the State Bank of Vietnam (“SBV”) for OII.
2. Organizational trustors (except for commercial banks and general financial companies) may only use the core foreign-currency balance of their accounts for offshore indirect investment in the form of trusting organizational trustees.
3. Commercial banks and general financial companies shall seek by themselves foreign-currency sources for OII while abiding by regulations on foreign-currency status, limits, and prudential ratios in banking activities.
4. Investors may not use Vietnam-dong loans from credit institutions or foreign bank branches to purchase foreign currencies for OII.
5. Investors may not use domestic and overseas foreign-currency loans for OII.

8. What is OII self-dealing?

Offshore indirect investment self-dealing means overseas purchase and sale of securities or other valuable papers or investments via securities investment funds or other intermediary financial institutions abroad by institutions licensed to deal for themselves.

9. What subjects are eligible for OII self-dealing?

6 organizations eligible for offshore indirect investment self-dealing include:

1. Securities companies, fund management companies;
2. Funds investing in securities via fund management companies (below referred to as securities investment funds), securities investment companies;
3. Insurance businesses;
4. Commercial banks;
5. General financial companies; and
6. The State Capital Investment Corporation.

10. What are the conditions for OII self-dealing?

To be eligible for OII self-dealing, investors must:

1. Except for the State Capital Investment Corporation, a securities investment fund, or a securities investment company, other organizational dealers must obtain an OII registration certificate (“OIIRC”) from the competent authority to conduct OII;
2. Securities investment funds and securities investment companies must obtain permission for OII.

11. Which authority is competent to issue an OII registration certificate and written approval for OII registration?

1. For securities companies and fund management companies: Investors need to carry out the procedures for applying for OIIRC with the State Securities Commission of Vietnam (“SSC”);
2. For securities investment funds and securities investment companies: Investors need to carry out the procedures for registration of approval for OII with the SSC;
3. For insurance businesses: Investors need to carry out procedures to apply for the OIIRC with the Ministry of Finance;
4. For commercial banks, general financial companies shall carry out the procedures for applying for OIIRC with the State Bank.

12. What are the procedures for conducting OII?

Organizational dealers can refer to the following OII procedures:

1. Step 1: Apply for approval for offshore investment if you are subject to the approval of an investment policy;
2. Step 2: Conducting procedures for obtaining an OIIRC or the written approval of the OII;
3. Step 3:  Conducting procedures for registration of dealing limit with the SBV;
4. Step 4: Open a foreign currency account for OII dealing; and
5. Step 5: Transfer capital to OII.

13. What is an OII trust?

Offshore indirect investment trust means entrustment by an economic organization of foreign-currency capital to a domestic organization licensed to undertake investment trust for conducting offshore indirect investment under an investment trust contract.

14. Who can conduct an OII trust?

Economic organizations that entrust OII to an economic organization licensed to receive investment trusts, except for organizational dealers that have been granted OIIRC by competent authorities, and if this certificate is still valid, organizational dealers are not allowed to entrust OII to investment trusts.

15. Who is eligible to undertake an OII trust?

The following entities may undertake an OII trust:

1. Fund management companies; and
2. Commercial banks.

16. What are the conditions for an organization to entrust OII?

To entrust offshore indirect investment, an economic organization must satisfy the following conditions:

1. Having earned profits for 3 consecutive years before the year of offshore indirect investment trust as shown in financial statements audited by an independent audit firm without any material exceptional opinions under regulations of the Ministry of Finance (this condition does not apply to securities investment funds and securities investment companies).
2. Having fulfilled financial obligations toward the State and owing no tax arrears to the State budget.
3. Having documents to prove that the foreign-currency amount in its account for offshore indirect investment trust is the core foreign-currency balance.
4. Having an offshore indirect investment plan approved by its competent body (the Shareholders’ General Meeting, Board of Directors, Members’ Council, or the equivalent) or another competent authority under the law.
5. Complying with regulations on management and use of State capital (if the institutional trustors is an organizational economic with State capital).

17. What is the order and procedures for grant of OII trust undertaking registration certificates?

1. For fund management companies, they must prepare an application dossier which shall include the following main documents:
   • The internal process of offshore indirect investment entrustment undertaking;
   • A tax agency’s written certification of the fulfillment of the financial obligation toward the Vietnamese State and no tax debt owed to the state budget by the time of submission of the dossier;
   • A written description of the physical and technical foundation of the securities trading institution, describing in detail the order transmission system and archive system serving offshore indirect investment activities;
   • Copies of the chartered financial analyst (CFA) certificate, labor contract, financial analysis practice certificate (for securities companies), or fund management practice certificate (for fund management companies) of at least one employee of the securities trading institution.

Then, fund management companies shall submit such application dossier to the SSC.

1. For commercial banks, they must prepare an application dossier including the main documents as follows:
   • Financial statements that have been audited for 3 consecutive years preceding the year of dossier submission;
   • Tax finalization document or a written certification by the tax agency proving the fulfillment of the financial obligation toward the Vietnamese state and owing of no tax debts to the state budget;
   • Internal regulations on management of offshore indirect investment entrustment undertaking activities, including those on identification and management of risks related to such activities; and
   • Report on the compliance with regulations on limits and prudential ratios in entrustment undertaking activities of the commercial bank in the year before the year of dossier submission.

Then, commercial banks shall submit such application dossier to the SBV.

18. What reporting regime must OIIRC-granted investors adhere to?

When conducting OII, investors must comply with the reporting regime to the competent agency as follows:

1. Organizational dealers and organizational trustees shall report on the implementation of their dealing limits and trust undertaking limits under the regulations of the SBV.
2. Commercial banks and foreign bank branches licensed to provide foreign exchange services (where investors open their offshore indirect investment capital accounts or offshore indirect investment trust undertaking capital accounts) shall report on the opening and use of these accounts under the regulations of the SBV.
3. Organizational dealers and trustees shall report on offshore indirect investment dealing or offshore indirect investment trust undertaking under regulations of the SBV and Ministry of Finance.

19. What if an investor fails to make an outward investment according to the OIIRC?

A fine of up to VND 100,000,000 shall be imposed for failure to make an outward investment according to the outward investment registration certificate.

This article is for information sharing only, it is not official advice from our lawyers. Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 16 May 2023

Writers: Tinh Nguyen, Tuyen Pham & Minh Truong