Currently, investment projects are increasingly developing, the demand for the capital of enterprises also increases accordingly. However, because the capital used in business and investment projects is extremely large, businesses are forced to mobilize capital through borrowing from many different sources. In addition to borrowing capital from state banks, foreign loans are also prioritized by enterprises, especially foreign-invested enterprises in Vietnam.
For the purpose of foreign debt management, current Vietnamese law has separate and specific provisions for foreign loan activities. Accordingly, enterprises must comply with regulations on loan conditions, foreign debts repayment, registering loans, using foreign loan accounts, reporting on loan performance, etc. Although these activities have occurred quite popular, not all businesses understand the regulations related to the above. Therefore, this article will provide basic procedures and notes for making foreign loans to avoid legal risks.
1. What is a foreign loan not guaranteed by the government?
Foreign loans include foreign loans not guaranteed by the Government and foreign loans guaranteed by the Government.
According to the definition in Circular 03/2016/TT-NHNN, a foreign loan not guaranteed by the Government means that the borrower makes a foreign loan by the method of self-borrowing and is responsible for repaying the debt to the foreign party. Therefore, in case an enterprise established under Vietnamese law borrows from a foreign organization or individual, it will be considered to make a foreign loan that is not guaranteed by the government and must comply with regulations on borrowing, repayment of foreign loans.
2. Purpose and conditions for performing foreign loans
According to the provisions of Article 5 of Circular 12/2014/TT-NHNN, the borrower is only allowed to make the foreign loan for the purposes of (i) Implementation of production, business and investment projects using foreign loans; (ii) Restructure the borrower's foreign debts without increasing loan costs.
It should be noted that production, business and investment projects using foreign loans must be approved by competent authorities in accordance with relevant provisions of Vietnamese law and match with the scope of the establishment license, enterprise registration certificate (ERC), business registration certificate, investment registration certificate (IRC), etc of the borrower or of enterprises in which the borrower contributes capital directly.
In addition, when making a foreign loan, the borrower needs to meet the following conditions:
For short-term foreign loans
(i) Short-term loans are not allowed for the purposes of using medium and long-term capital;
(ii) Must be approved, appraised and approved by a competent authority in accordance with law (in case the borrower is a state-owned enterprise).
For medium and long-term foreign loans
(i) In case the borrower has an investment project using foreign loans and has been granted an IRC, the debt of medium and long-term loans (including debt of domestic loans) of the borrower shall use for that project must not exceed the difference between the total investment capital and the contributed capital recorded in the IRC;
(ii) In case the borrower borrows foreign loans to implement production and business plans, investment projects are not granted IRC, the debt of medium and long-term loans including debt of domestic loans) of the borrower does not exceed the total loan demand in the production, business plan, investment project approved by the competent authority in accordance with the law;
(iii) Must be approved, appraised and approved by a competent authority in accordance with law (in case the borrower is a state-owned enterprise).
3. Loan registration
Not all loans are required to be registered with the State Bank. According to Article 9 of Circular 03/2016/TT-NHNN, loans subject to registration with the State Bank include (i) Medium and long-term foreign loans; (ii) Extended short-term loan with a total term of more than 01 year; (iii) Short-term loans without an extension agreement with outstanding principal debt at the date of 01 year from the first capital withdrawal date (unless the borrower completes loan repayment within 10 days from the date of 1 year).
Note: Short-term foreign loans (with a term of up to 1 year) are not subject to loan registration.
Procedures for loan registration with the State Bank
To apply for a loan, the borrower prepares and sends a dossier as prescribed in Article 14 of Circular 03/2016/TT-NHNN to (i) the State Bank (Foreign Exchange Management Department) for loans with loan turnover over 10 million USD and foreign loans in Vietnam dong; (ii) The State Bank branch in the province or city under the central government where the borrower's head office is located for loans with a loan turnover up to 10 million USD.
The loan registration dossier must be submitted within 30 days from:
(i) The date of signing the medium- and long-term foreign loan agreement or the date of signing the capital withdrawal agreement in writing (where the parties agree on capital withdrawal based on the signed framework agreement and before the capital withdrawal is performed).
(ii) The date of signing the agreement to extend short-term foreign loans into medium and long-term.
(iii) Full 1 year from the date of first capital withdrawal for a short-term loan without an extension agreement but having outstanding principal debt at the time of full 01 year from the first capital withdrawal date.
The State Bank shall issue a written confirmation or refusal to confirm loan registration within 12 working days (in case the borrower chooses the online method); 15 working days (in case the borrower chooses the traditional method) from the date of receiving the full and valid dossier.
In case of delay in loan registration, the borrower being an organization may be fined from VND 20,000,000 to VND 40,000,000 according to the provisions of Article 23.3.g of Decree 88/2019/ND-CP.
4. Foreign loan and debt repayment accounts
According to the current law, transactions related to foreign loans must be done through foreign loan and debt repayment accounts. A foreign loan and debt repayment account is an account of the borrower opened at a bank providing account services to withdraw capital, repay foreign loans and other money transfer transactions related to borrowing, repaying foreign loans (Article 24.1 of Circular 03/2016/ND-CP).
In case the borrower is a foreign direct investment (FDI) enterprise, such enterprise shall use (i) the direct investment capital account (DICA) to make medium and long-term loans; (ii) DICA or other foreign loan and repayment account (not DICA) to make short-term loans. Each short-term foreign loan can only be made through 01 bank providing account services.
In case the borrower is not an FDI enterprise, such enterprise shall open a foreign loan and debt repayment account at the bank providing account services to conduct money transfer transactions related to foreign loans. Each foreign loan can only be made through 1 bank providing account services.
Enterprises failing to comply with the provisions of the law on opening, closing and using accounts in Vietnam to borrow and repay foreign debts may be fined from 60,000,000 – 100,000,000 VND.
ADK Vietnam Lawyers