FDI and FII are two common forms of foreign investment, each governed by its own legal framework and characterized by distinct legal features. This article analyzes the core legal differences between FDI and FII, thereby assisting investors and regulatory authorities in accurately identifying and effectively applying these distinctions in practice.
1. Legal Frameworks
- Law on Investment 2020
Clause 19, Article 3 provides: A foreign investor is an individual holding foreign nationality or an organization established under foreign laws that conducts business investment activities in Vietnam. - Circular No. 03/2025/TT-NHNN, regulating the opening and use of VND accounts for the purpose of conducting foreign indirect investment in Vietnam.
- Circular No. 17/2024/TT-NHNN, regulating the opening and use of payment accounts at institutions providing payment services.
- Circular No. 06/2019/TT-NHNN, providing guidance on foreign exchange management for foreign direct investment activities in Vietnam.
- Decree No. 70/2014/ND-CP, detailing the implementation of several articles of the Ordinance on Foreign Exchange and the Ordinance amending and supplementing a number of articles of the Ordinance on Foreign Exchange.
2. Similarities
- The entities involved are foreign investors (individuals or organizations with foreign nationality) participating in investment activities in Vietnam.
- Both are forms of foreign investment and are subject to the laws of Vietnam as well as relevant international treaties.
- Both must comply with Vietnamese legal regulations on taxation, investment, capital transfer, and foreign exchange.
- Profits and legal risks are dependent on the operations of the recipient organization.
- Both are subject to the supervision of competent State authorities in Vietnam.
3. Key Differences
| Criteria | Foreign Direct Investment (FDI) | Foreign Indirect Investment (FII) |
|---|---|---|
| Definition | A form of investment whereby foreign investors establish economic organizations, contribute capital, or acquire shares in enterprises to carry out investment activities in Vietnam. | Foreign investors trade securities (e.g., stocks, bonds, fund certificates) without directly participating in the management of enterprises in Vietnam. |
| Legal Framework | Governed by the Law on Investment, the Law on Enterprises, and related regulations on foreign investment. | Governed by the Law on Securities, the Law on Investment, and capital market regulations. |
| Investment Forms | – Establishing wholly foreign-owned economic organizations. – Contributing capital, acquiring shares or capital contributions, or merging with Vietnamese enterprises. – Business Cooperation Contracts (BCC). – Investment under PPP forms such as BOT, BTO, BT. | – Trading securities and other valuable papers in the Vietnamese market. – Contributing capital or acquiring shares in unlisted enterprises that do not require direct investment accounts under Circular No. 06/2019/TT-NHNN. – Entrusting investment in VND through fund management companies and other authorized institutions. – Buying and selling other types of securities as permitted by securities law. |
| Enterprise Control Rights | Foreign investors may have control and directly manage the enterprise or investment project. | Investors have no control or management rights, merely acting as shareholders or bondholders. |
| Payment Methods | Capital and assets may be contributed in foreign currencies or Vietnamese dong. | Transactions must be conducted in Vietnamese dong. |
| Legal Procedures | – Investment projects must be registered. – Prepare and submit an application for an Investment Registration Certificate (IRC). – Obtain an Enterprise Registration Certificate (ERC). – Open a direct investment capital account at a commercial bank to remit capital into Vietnam. – Complete post-establishment procedures such as tax registration, digital signature purchase, and issuance of electronic invoices. – Comply with sectoral conditions (prohibited/restricted lines), environmental, and labor laws. | – Open and use an indirect investment account in VND at an authorized bank for transactions. – Register for a securities trading code. – Conduct investment transactions such as buying stocks or bonds. – Manage capital flows, repatriate investment profits, dividends, etc. – If switching banks, transfer the entire balance to the new account and close the old one. – Comply with foreign ownership limits and payment account regulations. |
| Investment Horizon | Long-term, associated with strategic and sustainable development. | Short- to medium-term, allowing easy withdrawal of capital. |
| Authorities in Charge | Ministry of Planning and Investment, Provincial People’s Committees, Department of Planning and Investment. | State Securities Commission, State Bank of Vietnam, its regional branches; credit institutions; insurance companies, etc. |
| Obligations | – Submit periodic financial reports and annual statements. – Comply with sectoral, tax, labor, and environmental regulations. | – Truthfully declare all FII-related income and expenditure transactions. – Provide required information and documentation to banks when opening and using accounts. – Comply with Circular No. 03/2025/TT-NHNN and Vietnamese laws on investment, securities, anti-money laundering, etc. – Bear legal responsibility for the accuracy, validity, and legality of submitted documentation. |
| Risks and Returns | – Higher legal and operational risk due to involvement in production, technology transfer, etc. – Returns depend on ownership ratio and business performance. | – Lower legal risk, but more sensitive to financial market fluctuations and monetary policy changes. – Returns from dividends or trading gains. |
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