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Foreign indirect investment (FPI) is similar to the acquisition of key assets between countries to control interests in multinational corporations. International FPI capital flows which can be transferred such as cash, bonds, and stocks between countries for the main goal of profit. In this article, Siglaw would like to share the basic knowledge of FPI in Vietnam as follows.
What is FPI?
FPI stands for Foreign Portfolio Investment. This is a form of investment in which investors invest capital but do not directly hold the right to manage and operate the business, but through a third party to control and carry out investment activities.
What are the characteristics of FPI?
Firstly, this is a passive investment of businesses through financial assets. It is different from direct investment FDI which is an investment by foreign investors to earn profits through businesses in other countries;
Secondly, the role of investors is a passive role in foreign companies. They do not directly participate in business management; Unlike FDI investment, investors has active roles, directly managing the investing enterprise;
Thirdly, FPI’s investment time is short-term, while FDI’s is long-term;
Fourthly, FPI investors invest through financial assets; Different from FDI, investors invest through financial or non-financial assets: resources, technical know-how, securities,…;
Fifth, the form of FPI is that investors will transfer capital, and investors can transfer finances easily because investments are only financial assets; For FDI investment, it will be the transfer of money, technology and other resources.
The role of FPI investment activities
- The financial resources will be a useful factor to develop businesses while the receiver still retaining the right to operate; And these businesses still have opportunities to access management skills, improve transparency and business efficiency in the process of attracting investment sources.
- Along with FDI, FPI capital plays an important role in the economy, especially in developing countries, contributing to stimulating consumption and increasing workers’ income, thereby improving living standards of society;
- FPI activities help the financial market of the receiving country improve positively, to meet the requirements of foreign investors; International standards are also popularized and widely applied in many areas of the economy; Through this, the state’s management capacity is also improved to fulfill the needs of the economy.
- FPI resources help compensate for capital shortages of private businesses, when domestic banks’ capital sources are hard to get.
Subjects of the FPI
- Foreign investors who are non-residents;
- Individuals and organizations involved in FPI activities in Vietnam.
Principles of doing FPI in Vietnam
- FPI activities must be carried out in VND;
- Investment transactions must be made through indirect investment capital accounts at licensed banks;
- FPI investors must comply with Vietnamese law;
- The amount of money in the investor’s investment capital account cannot be transferred to term deposits and savings at credit institutions or foreign bank branches;
Forms of FPI in Vietnam
- Contributing capital, buying and selling shares and capital contributions of foreign investors is not regulated by law; or enter an enterprise with shares listed or registered for trading on a stock exchange;
- Buy and sell bonds and other securities on the Vietnamese stock market.
- Sales and purchase of bonds and other types of stocks on the securities market of Vietnam.
- Sale and purchase of other valuable papers in Vietnam Dong which are permitted to issue within the territory of Vietnam by organizational residents.
- Investment trusts in Vietnam Dong through fund management companies, securities companies and organizations are permitted to conduct the investment trust operation under the legal provisions on securities; investment trusts in Vietnam Dong through credit institutions and branches of foreign banks are allowed to conduct the investment trust operation under the provisions of the State Bank.
- Contribute capital and transfer capital contributions of foreign investors in securities investment funds and fund management companies in accordance with the provisions of securities law.
- Other forms of indirect investment as prescribed by law.
Above are the basic knowledge about foreign indirect investment in Vietnam. If there is anything unclear, readers should contact Siglaw firm for the most detailed consulting support.
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