Changes considered positive by the State Security Commission in the last few months of last year show the SSC’s determination to encourage further involvement by foreign investors in the equities market in 2004, market analysts say. However, a key matter troubling foreigners is the issue of taxation, which they say should be more transparent according to Vu Bang, vice chairman of the SSC.
Bang said that a series of talks have been held between the SSC and Ministry of Finance to clean up the problems related to tax that hinder foreigners to become involved in Vietnam’s equities markets. Under current rules, foreigners as individuals are free from tax imposed on income from securities sales. However, foreign investors that are financial companies, investment funds or foreign custodian banks have to pay corporate income tax at the new rate of 28%. Therefore, foreign investors hoped the tax should be cut to zero, which would ensure their long-term investment strategies in Vietnam.
Besides tax issues, Bang added the SSC is working with the State Bank of Vietnam to allow foreign investors to open trading accounts and receive trading codes at any of the country’s thirteen or so security companies the same as is allowed for local investors. Current rules oblige foreigners to open accounts only at three foreign banks that have custodian licenses: HSBC, Citibank and Deutsche Bank. Such complicated rules are discriminatory say foreign investors.
The SSC has shown keen interest in life insurance companies, who are sitting on large amounts of idle capital and are continuing to post high revenue growth. “Several life insurance companies have invested in corporate shares and bonds in a direct manner or via investment funds. They are planning to set up professional investment funds in Vietnam, which would obviously enable them to become the dominant players in Vietnam’s security market” Bang assessed. However, Bang pointed out that the new Decree No 144 on security market issued late November 2003 does not refer to investment funds owned by insurance firms while regulations on insurance allow these firms to found their own investment funds. Clearing this contradiction, in Bang’s view, would help pump in trillions of dong from insurance premiums into the securities market.
For the last two years there has been a lot of talk and wait and see about allowing foreign invested companies to list on the stock exchange. The SSC, so it says, all for it but does not yet have the legal authority to do so. In the meantime the SSC would focus on simplifying procedures to register trading codes for foreign investors with a view to attracting more cash from them into the securities market.