The State Bank of Vietnam (SBV) has recently released a draft Circular outlining proposed regulations for the opening and use of Vietnam Dong bank accounts by foreign investors engaging in indirect investment activities (“Draft Circular”). This initiative aims to streamline and standardize the management of foreign indirect investment in Vietnam.

The Draft Circular is open for public consultation for the next 60 days, during which it may undergo revisions prior to its official issuance. Once effective, it will replace Circular No. 05/2014/TT-NHNN (“Circular 05”), which has governed the use of indirect investment capital accounts (“IICA”) since its issuance on12 March 2014. 

Key Provisions Under Circular 05

Circular 05 currently regulates several critical aspects of indirect investment in Vietnam, including:

• Eligibility of investors to open IICAs.
• Various forms of foreign indirect investment in Vietnam.
• Authorized usage of IICAs.
• Rights and obligations of credit institutions permitted to open IICAs and the investors.
• Reporting obligations, supervision and inspection regime, and sanctions.

Addressing Existing Gaps

One significant discrepancy in Circular 05 lies in its terminology, which differs from the Ordinance on Foreign Exchange Control No. 28/2005/PL-UBTVQH11 (“OFEC”). The OFEC refers to these accounts as indirect investment accounts (IIAs) instead of IICAs. The Draft Circular seeks to resolve this inconsistency while supporting the growth of Vietnam’s stock exchange market by introducing several key improvements.

Highlights of the Draft Circular

1. Simplified Procedures for Opening IIAs

Under Circular 05, opening and closing IICAs required strict compliance with regulations set by permitted banks. This process was often complicated by inconsistent guidance and the need for foreign investors to consularize or legalize documents issued abroad. The Draft Circular introduces a more straightforward process for opening IIAs, as specified in Article 4, eliminating the requirements for consularization and legalization of foreign-issued documents.

2. Permission for Multiple IIAs at the same bank

The Draft Circular allows foreign investors to open multiple IIAs within the same licensed bank in specific scenarios:

• Foreign securities companies can open two IIAs corresponding to their two issued securities transaction codes.
• Foreign investment funds, foreign institutions managed by many foreign fund management companies can open multiple IIAs corresponding to the securities transaction codes of different investment funds.
• Foreign state-owned investment organizations or investment and finance organizations owned by international finance organizations that Vietnam is a member of can open multiple IIAs corresponding to their issued securities transaction codes.

This flexibility accommodates diverse investment needs and enhances operational efficiency for foreign investors.

3. Enhanced Guidance on IIA Usage

The Draft Circular mandates that all foreign indirect investment transactions must be conducted through an IIA. Importantly:

• Funds in IIAs cannot be transferred to term or savings deposits;
• When opening a new IIA at a different bank, all funds must be transferred from the existing IIA to the new account; and
• The existing IIA must be closed within five business days of the new account’s opening – a stipulation absent in Circular 05.

Expected Enactment

The Draft Circular is expected to undergo the final appraisals before the end of 2024. If the foregoing timing is met, the Draft Circular will come into effect in early 2025. 

The information provided is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.

Phong Anh Hoang, Partner, Vietnam

Phong Anh Hoang is a fully qualified lawyer, based in Hanoi.