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Client Update: Asia - Banking & Finance - 14 January 2009

Foreign investment in Vietnam's securities market

In brief: After close to two years of deliberation, the Ministry of Finance has issued a new decision to regulate the activities of foreign investors in Vietnam. Partner Nigel Russell and Lawyer Minh Duong look at some of the key issues for foreign investors.


Over the past two years, the Ministry of Finance (MOF) and the State Securities Commission (SSC) have been trying to determine how best to regulate foreign investment in listed and unlisted securities, taking into account inflation, currency and economic growth objectives. 

Decision 121/2008/QD-BTC Regulating the Activities of Foreign Investors in Vietnam's Securities Market dated 24 December 2008 (Decision 121) has removed much of the redtape that had been proposed in earlier drafts, including additional SSC registration and disclosure requirements.  Decision 121 limits the role of the SSC in monitoring foreign securities investment but has elevated the role of the Vietnam Securities Depository (VSD) in this regard.  In summary, Decision 121 removes some of obstacles to foreign investment in the securities market and should therefore encourage more investment in this sector. Decision 121 will be effective 15 days from the date it is published in the Official Gazette.

Who are foreign investors?

Foreign investors include the following persons: foreign citizens, including Viet Kieu (ie overseas Vietnamese); entities established offshore, including their branch offices in Vietnam; 100 per cent foreign-owned enterprises incorporated in Vietnam; offshore investment funds; and Vietnam domiciled investment funds with 100 per cent foreign ownership.

What must a foreign investor do?

Foreign investors who invest in listed and unlisted securities or participate in securities auctions in Vietnam must:

  • Obtain and register a securities trading code (the Code) with the VSD – a foreign investor may have only one Code; and
  • Open an indirect investment capital account at any bank that is authorised to provide custody and foreign exchange services.

No foreign securities investor may transact without a Code.  The good news is that this is nothing new for many foreign investors as many would already have met the above requirements.  Decision 121 does not require existing foreign investors who have a Code to re-register.

New foreign securities investors will need to register for the Code and this process involves lodging an application containing various prescribed documents in respect of the foreign investor.  This is simply a tick-the-box exercise.  The time-consuming part of the process is in relation to the notarisation and legalisation of the required overseas documents.

If a foreign investor chooses to invest using a local fund manager then that fund manager will apply and register the Code for the investor.

A foreign investor who currently does not have a Code must obtain one within three months after the effective date of Decision 121.

What must a foreign investor not do?

A foreign investor's Code may be suspended or terminated if the investor:

  • Provides inaccurate or deceptive information in relation to the application for the Code or other information as required by the SSC;
  • Engages in illegal practices such as collusion, market manipulation or money laundering; or
  • Breaches foreign exchange regulations.

Making the investment

Decision 121 sets out three ways for a foreign investor to make a securities investment in Vietnam:

  • The foreign investor directly carries out the transaction by instructing a securities company to place the order pursuant to a standard form investment authorisation agreement annexed to Decision 121;
  • The foreign investor appoints a transaction representative to place the order for the foreign investor; or
  • The foreign investor engages a local fund manager to manage the foreign investor's securities investment.

The last two methods are briefly discussed below.

Decision 121 also sets out obligations on local securities companies and fund managers in respect of the services they provide to a foreign investor. These obligations relate to such matters as resolution of conflict of interest, carrying out of trading orders, investor reporting and compliance with foreign ownership restrictions.

Appointment of a transaction representative

A foreign investor may appoint only one individual in Vietnam under a power of attorney in the form annexed to Decision 121 to carry out permitted securities transactions.  The attorney may be a foreign individual. The attorney must hold a securities business practising certificate issued by the SSC and must not be an employee of any local securities company, fund management company or custodian bank.  Additionally, the attorney may only place orders for the foreign investor and must not make any investment decisions or manage the investment for the foreign investor.  The power of attorney must be lodged with the SSC. The attorney must report to the SSC on a periodic basis on the securities
transaction of the foreign investor and failure to report may result in the suspension or termination of the investor's Code.

Engaging a local fund manager

A foreign investor may choose to engage a local fund manager under an investment management agreement to carry out portfolio and asset management and make investment decisions for the foreign investor (including decisions in relation to the type of securities, volume, price and trading date) based on agreed investment scope and policies.  Decision 121 states that a foreign investor may not engage any other individual or entity to carry out such management activities for the investor.  An implication of this provision is that the Vietnam representative offices of offshore funds which are currently carrying out these functions are doing so illegally. 

In addition, there is a question as to whether offshore fund managers are permitted to carry out management activities for offshore funds that invest in Vietnamese securities.  Our view is that offshore management arrangements are extra-territorial and offshore fund managers are making the securities investments in Vietnam on a direct basis.  However, this an issue which will need to be clarified by the MOF and SSC.


Securities companies, fund managers and transaction representatives are required to report periodically to the SSC on the securities transactions of the foreign investor using a standard form annexed to Decision 121.

What's missing?

Foreign ownership

Decision 121 indicates that foreign investors must comply with the foreign ownership limit set by the Prime Minister.  The current general foreign ownership limit of 49 per cent for listed companies is based on Decision 238/2005/QD-TTg of the Prime Minister dated 29 September 2005 (note, that banks and other listed companies may have sector specific limits).  However, Decision 238 was based on an old securities law regime.  The fact that such regime has been replaced raises questions about the effectiveness of Decision 238.  Additionally, the prime Minister has not yet stipulated any foreign ownership level for unlisted companies although there has been some broad legislation on this subject.

100 per cent foreign-owned funds management companies and branches

In April 2008, media reports suggested that the Government is willing to approve 100 per cent foreign-owned funds management companies and branches of offshore fund managers.  However, it now appears that this was only speculation and the Government is not willing to allow this form of commercial presence earlier than agreed under Vietnam's commitments to the World Trade Organisation.  We can therefore expect that this will not be permitted until January 2012.

Other securities law changes

This update is also a good opportunity for us to highlight two other key changes to the securities laws.

Personal income tax

Local newspapers have recently reported proposals that the application of the new personal income tax regime on securities transfers should be deferred until next year.  However, the MOF has recently issued Official Letter 22/UBCK-PTTT dated 6 January 2009 requiring securities companies to withhold tax equivalent to 0.1 per cent of the value of the securities transfer which is payable by the seller.  This is applicable for securities transfers occurring from 2 January 2009.  Under the Law on Personal Income Tax, the tax rate applicable in respect of a securities transfer is 20 per cent of the net gain or 0.1 per cent of the value of the securities transfer if it is difficult to calculate the net gain.  Reportedly, this Official Letter is a temporary measure until the National Assembly deliberates on whether to postpone the application of this tax on securities transfer.

Hanoi Stock Exchange

The Prime Minster announced on 2 January 2009 in Decision 01/2009/QD-TTg that the Hanoi Securities Trading Centre will be converted to a fully fledged stock exchange and corporatised as a single-member limited-liability company.  The Hanoi Securities Trading Centre has traditionally been Vietnam's secondary market and trades listed and unlisted securities.  Conversion to a stock exchange would mean that the listing criteria will be stricter and match that of the Ho Chi Minh City Stock Exchange pursuant to Decree 14/2007/ND-CP of the Government dated 19 January 2007.  However, we understand that Decree 14 is due to be replaced and that the new listing criteria will probably make it easier to list in the Hanoi Stock Exchange than in the Ho Chi Minh City Stock Exchange.

For further information, please contact:

Bill Magennis
International Partner, Hanoi
Ph: +84 4 3936 0990


Nigel Russell
Partner, Ho Chi Minh City
Ph: +84 8 3822 1717


Gavin MacLaren
International Partner, Singapore
Ph: +65 6535 6622


Robert Fish
Partner, Singapore
Ph: +65 6535 6622


Matthew Barnard
Partner, Hong Kong
Ph: +852 2903 6212