On 31 December 2015, Vietnam's government issued Decree 135/2015/ND-CP regulating offshore investment by Vietnamese natural and legal persons (Decree 135). This is the first time that Vietnam has provided clear procedures and conditions for offshore indirect investment. While individuals are covered by Decree 135, as a practical matter, this kind of investment remains available only to corporate entities established in Vietnam. Decree 135 took effect as of 15 February 2016.
As discussed in this legal update, in addition to providing additional investment opportunities for Vietnamese corporates, Decree 135 may also facilitate lending structures into Vietnam by providing international lenders with higher quality collateral that can be enforced offshore.
Who may invest?
Pursuant to Decree 135, offshore indirect investment means purchasing or selling securities offshore, or investing through securities investment funds or financial intermediaries in foreign countries.
Decree 135 permits Vietnamese individuals and corporate entities that are established in Vietnam (such as liability limited companies and shareholding companies) to participate in offshore indirect investment. This includes foreign invested companies with less than 51 percent foreign capital. Currently, there is no guidance permitting companies with levels of foreign investment above that threshold to participate in offshore indirect investment.
How may investors invest?
Corporate entities may invest offshore using either "self-trading" or "entrustment".
Self-trading allows a corporate entity to trade offshore securities and valuable papers for its own account or to make investments through offshore securities investment funds or financial intermediaries.
Alternatively, a corporate entity (the "Principal") may entrust capital in foreign currency to another (onshore) corporate entity (the "Entrusted Entity"). The Entrusted Entity conducts offshore indirect investment on behalf of the Principal through an investment trust contract.
Vietnamese individuals are only permitted to participate in a share awards scheme issued by an (offshore) foreign company. This means that Vietnamese individuals cannot engage in self-trading or entrustment. The State Bank of Vietnam (SBV) is expected to issue further guidance allowing Vietnamese individuals to participate in offshore share awards programs.
What types of offshore investments are permitted?