Indirect investment advisory services for foreign investors

Indirect investment advisory services for foreign investors provide comprehensive solutions regarding legal procedures, risks, and opportunities when investing in the Vietnamese market. This is a solution for foreign investors seeking professional support to execute investment transactions efficiently, ensure legal compliance, and optimize profits in their Foreign Portfolio Investment (FPI) activities in Vietnam.

Types of Foreign Investment in Vietnam and Associated Risks

According to Vietnamese law, foreign investors can invest in Vietnam through various forms:

Establishing an Economic Organization

Establishing a 100% foreign-owned economic organization is a common form for FDI projects in Vietnam. This allows foreign investors full control over business operations, applying advanced science, technology, and management experience for optimal efficiency. As per Article 22 of the Investment Law 2020, foreign investors can choose to establish an economic organization through:

• Establishing a 100% foreign-owned company.
• Establishing a company jointly between domestic investors or the Vietnamese government and foreign investors.

However, establishing an economic organization in Vietnam may pose several risks for foreigners:

• Certain business sectors are restricted or prohibited for foreign investment.
• Complex administrative procedures can be very time-consuming.
• Legal policies and incentive policies may be adjusted, affecting long-term business plans.
• Differences in culture and corporate governance can lead to disputes or lower business efficiency.
• Risks related to profit repatriation.

Establishing an economic organization in Vietnam is a popular choice for investors aiming for long-term business in Vietnam with sufficient financial capacity, but it also carries inherent risks.

Capital Contribution, Purchase of Shares/Equity

Investment through capital contribution, purchasing shares, or equity in Vietnamese economic organizations has become increasingly popular. However, investors should consider these risks:

• Restrictions on ownership ratios and investment forms.
• Risk of investing in enterprises entangled in disputes, tax debts, or under operational suspension.
• Need to meet specific conditions and special administrative procedures.

This form is particularly suitable for foreign investors wanting to participate in established, stable businesses in Vietnam without setting up a new entity.

Implementing Investment Projects

Foreign investors can implement direct investment projects in Vietnam as per Article 29 of the Investment Law 2020. Depending on the scale and investment sector, projects will require investment policy approval from the National Assembly, the Prime Minister, or the Provincial People’s Committee.

Risks to consider:

• Changes in legal policies or local political situations can affect the project.
• Fluctuations in exchange rates, interest rates, and liquidity can impact project efficiency.
• Complex and potentially lengthy approval processes.
• Limitations on the operational duration of investment projects.
• Restrictions on investment sectors and time-bound business lines.

This outlines some information about direct investment projects by foreigners and associated risks to consider before investing.

Business Cooperation Contracts (BCC)

A Business Cooperation Contract (BCC) is an investment form signed between investors to cooperate in business, share profits, or divide products without establishing a new legal entity.

Risks to consider:

• Lack of transfer of management experience.
• Transferred technology is often not state-of-the-art.
• Suitable only for a few highly profitable sectors.
• Difficulty in controlling operational efficiency due to the absence of a separate legal entity.

If foreign investors do not wish to establish a new legal entity in Vietnam, they can consider a BCC with a domestic organization.

Mergers & Acquisitions (M&A)

M&A is an increasingly popular investment form in Vietnam, especially with the development of the stock market and the opening of Foreign Portfolio Investment (FPI) channels. M&A activities feature:

• Foreign investors acquiring part or all of an operating enterprise in Vietnam.
• Saving start-up time and costs, enabling quick market access.
• Leveraging existing brands, business networks, and human resources.

However, M&A also carries significant risks:

• Difficulty in accurately determining the target enterprise’s true value.
• Risks of unforeseen debts and contingent liabilities.
• Post-merger corporate culture clashes.
• Complex legal procedures.

Thus, foreign investors must comply with the Investment Law, Enterprise Law, Competition Law, and specialized legal documents when conducting M&A in Vietnam.

Current Forms of Foreign Indirect Investment (FPI) in Vietnam

According to Article 5 of Circular 05/2014/TT-NHNN and Circular 06/2019/TT-NHNN (issued by the State Bank of Vietnam), foreign investors can choose from various FPI forms to participate in the Vietnamese market:

1. Contributing capital, buying, selling shares: Investors can contribute capital or trade shares in unlisted companies or those listed on Vietnam’s stock exchanges. However, ownership ratios may be limited depending on sector-specific regulations (Foreign Ownership Limits – FOL).
2. Buying, selling bonds and other securities: On the Vietnamese securities market, investors can buy and sell bonds, stocks, and other types of securities, adhering to securities laws.
3. Entrusted investment through fund management companies or securities companies: Indirect investment can be made by entrusting funds, allowing foreign investors to access the Vietnamese market without direct participation.
4. Contributing capital to investment funds and fund management companies: Foreign investors can also contribute capital to, or transfer capital in, investment funds or fund management companies according to securities laws.

These forms diversify investment channels, enabling foreign investors to participate flexibly and effectively in the Vietnamese market.

Indirect Investment Advisory Services for Foreign Investors at Long Phan Consulting

Long Phan Consulting provides comprehensive indirect investment advisory services for foreign investors, ensuring compliance with Vietnamese legal regulations and optimizing investment benefits as follows:

Content of Indirect Investment Advisory Services for Foreign Investors

As Vietnam increasingly opens its capital markets, indirect investment is becoming a strategic choice for many foreign investors wishing to access the Vietnamese market without a direct legal presence. Long Phan Consulting offers comprehensive and flexible solutions in this field, specifically including:

• Strategic Indirect Investment Advisory tailored to investor objectives:
  • Analyzing opportunities and risks of each investment form: share purchase, bonds, fund certificates, capital contribution to investment funds, entrusted investment, etc.
  • Devising investment structures to optimize ownership, voting rights, and comply with Foreign Ownership Limits (FOL) by sector.
  • Guiding selection of investment models compliant with Vietnamese regulations.
• Legal Support during Investment Implementation:
  • Guidance on opening an Indirect Investment Capital Account (IICA) at a commercial bank.
  • Advising on necessary procedures with the State Securities Commission (SSC) of Vietnam, Vietnam Securities Depository and Clearing Corporation (VSDC), and stock exchanges.
  • Consulting on fund transfers, capital recording, transaction reporting, securities depository, etc., in accordance with foreign exchange and capital market regulations.
• Transaction Review and Support:
  • Reviewing legal dossiers of target enterprises or assets (stock codes, bonds, funds, etc.).
  • Assisting with due diligence and negotiations with sellers or intermediaries.
  • Advising on legal risk control in securities purchase agreements, entrustment contracts, etc.
• Post-Investment Advisory and Compliance:
  • Guiding on reporting obligations and tax liabilities arising from indirect investments.
  • Advising on divestment steps, transfers, and profit repatriation in compliance with regulations.
  • Providing timely updates on changes in laws regarding foreign ownership, securities transfers, investment fund regulations, etc.

The above lists some of the items Long Phan Consulting will provide to you when you use our indirect investment advisory services.

Process for Providing Indirect Investment Advisory Services to Foreign Investors

The process at Long Phan Consulting is designed to be professional, transparent, and in strict compliance with current legal regulations:

1. Initial Stage: Information Reception and Preliminary Consultation: After receiving information from foreign investors about their indirect investment needs, our team of experts will provide preliminary advice on suitable investment solutions, processes, procedures, and analyze the investor’s ability to meet investment conditions under Vietnamese law.
2. Service Proposal and Fee Quotation: Long Phan Consulting will then send a detailed service proposal and fee quotation based on the client’s specific information and needs. The fee schedule is provided transparently for each work item, including necessary state fees and charges.
3. Contract Signing and Planning: After signing the service contract, Long Phan Consulting will draft a specific work implementation plan for each client’s case. Upon agreement on the plan, we will receive authorization from the client and commence work.

Confidentiality Commitment for Indirect Investment Advisory Services

Long Phan Consulting is absolutely committed to the confidentiality of personal information and transaction details of organizations as follows:

• Absolute Information Security: Applying high security standards and the highest level of protection for client information.
• Objective and Honest Advice: Always prioritizing the client’s interests in all recommendations.
• Long-Term Partnership: Supporting you throughout your engagement with our services.

With our absolute confidentiality commitment, you will not have to worry when using our services.

Contact Information for Indirect Investment Advisory Services for Foreign Investors

If you require consultation on indirect investment in Vietnam, you can contact us through various modern and convenient communication channels:

• Consultation Hotline: 1900.63.63.89
• Zalo: 0906.735.386 – Long Phan
• Email: info@longphanpmt.com
• Facebook: Long Phan Investment Consulting and Legal Services Co., Ltd.
• Head Office Address: 17 Street No. 3, Truong Tho Ward, Thu Duc City, Ho Chi Minh City.

Frequently Asked Questions (FAQ) about Indirect Investment Advisory for Foreign Investors

We provide answers to some common questions regarding indirect investment advisory for foreign investors. Please refer below!

How does indirect investment differ from direct investment?

Indirect investment is a form of investment through purchasing stocks, bonds, or fund certificates without directly participating in the enterprise’s management. Direct investment, on the other hand, involves the investor participating in the establishment, operation, and management of the enterprise.

What documents do foreign investors need for indirect investment in Vietnam?

Foreign investors need to prepare passports/personal identification, business registration certificates (for organizations), Securities Trading Codes (STC), an Indirect Investment Capital Account (IICA), and documents proving the legal source of funds.

What is the maximum foreign ownership limit (FOL) in Vietnamese listed companies?

The maximum FOL depends on the specific business sector. For unrestricted sectors, it can be up to 100%. However, many sectors have FOLs, such as banking (30%), insurance (often 49%-100% depending on specific commitments), telecommunications with network infrastructure (49%), or sectors affecting national security and defense.

How long does it take to open an Indirect Investment Capital Account (IICA)?

Opening an IICA typically takes 3-5 working days from submitting a complete and valid application to an authorized bank. The process may take longer if additional information or clarification is required.

What types of taxes are foreign investors subject to for indirect investments in Vietnam?

Foreign investors are subject to Personal Income Tax (PIT) or Corporate Income Tax (CIT) at 0.1% on the transaction value when selling shares, 5% on dividends received, and 5% on bond interest. Tax rates may vary under Double Taxation Agreements (DTAs).

How can profits from indirect investment be repatriated?

Foreign investors can repatriate profits through their IICA after fulfilling tax obligations. This process requires documents such as securities transaction confirmations, tax payment receipts, and proof of profit origin.

Is there a minimum investment amount for indirect investment in Vietnam?

Vietnamese law does not stipulate a minimum amount for foreign indirect investment. However, some investment funds may set their own minimum investment levels, ranging from USD 5,000 to USD 100,000 or more, depending on their policies.

Can foreign investors participate in the Board of Directors through indirect investment?

When the ownership percentage reaches a significant level (typically 5% or more), foreign investors may nominate representatives to the Board of Directors according to the company’s charter and enterprise law. However, this is not a characteristic of purely passive indirect investment.

The above are some questions surrounding indirect investment advisory services for foreign investors. We hope these answers have addressed some of your queries and help you feel more confident when using our services. Thank you!

Conclusion

Indirect investment advisory services for foreign investors play a crucial role in supporting legal compliance, optimizing investment strategies, and minimizing risks. If you have any questions related to this service or using our investment services, please contact Long Phan Consulting immediately via hotline 1900.63.63.89 to receive in-depth consultation and support from our team of experts.