Currently, some enterprises that are not credit institutions (“Non-credit-institution enterprises”, “enterprise”) in Vietnam engage in lending idle money to other enterprises, either to seek profit or to support their partners. Is this practice legal, and what should such enterprises be aware of when engaging in this activity?
In this article, BLawyers Vietnam provides an overview of basic legal regulations and important considerations regarding the lending of idle money by enterprises under Vietnamese law.
1. Can a non-credit-institution enterprise lend idle money?
Currently, Vietnamese enterprise law does not have any provisions prohibiting an enterprise from engaging in lending idle money.
The Law on Credit Institutions 2024 prohibits organizations and individuals that are not credit institutions or foreign bank branches from conducting banking activities, except for margin transactions and securities repurchase transactions of the securities company. Under this law, banking activities are understood as the regular business and provision of one or more services such as accepting deposits, granting credit, and providing payment services through accounts. Specifically, lending is considered a form of credit granting, where the lender provides or commits to provide a sum of money for the borrower to use for a specific purpose within a certain period, with the principle of full repayment of both principal and interest according to the agreement between the parties.
Additionally, Decree No. 222/2013/ND-CP stipulates: “Non-credit-institution enterprises must not use cash when lending or borrowing among themselves.” Circular No. 219/2013/TT-BTC also mentions: “Lending transactions that are not part of the regular business or service provision activities of non-credit-institution taxpayers are not considered as business activities.”
Thus, it can be seen that the factor of ‘regular/regularity’ will determine whether or not the lending of idle money by a non-credit-institution enterprise is allowed. If it is conducted regularly, such an enterprise must ensure compliance with the Law on Credit Institutions 2024 regarding the conditions, licenses and procedures for lending.
2. What should non-credit-institution enterprises be aware of when lending idle money to other enterprises?
Before lending, enterprises must comply with legal regulations and may consider the following points to minimize risks:
- Firstly, regarding loan repayment and payments: Enterprises are not allowed to use cash when lending to each other. Therefore, they are permitted to lend using payment methods such as checks, wire transfers, or other non-cash payment methods in accordance with current regulations.
- Secondly, regarding the loan interest rate: For cases where enterprises lend with interest, the interest rate will be governed by the Civil Code 2015. According to this, if the parties have agreed on an interest rate, it must not exceed 20% per year of the loan amount. In cases where the parties agree to pay interest but do not specify the interest rate, and a dispute arises over the rate, the interest rate will be set at 50% of the legal limit.
- Thirdly, regarding the loan agreement: The loan agreement between enterprises should be made in writing to clearly state the rights and obligations of the parties, serving as a basis for resolving disputes if they arise. Depending on the relationship and the level of risk, the parties may implement measures to secure the loan to protect the lender’s interests.
- Fourthly, regarding taxes: Enterprises are not subject to value-added tax (VAT) when engaging in individual lending activities that are not part of their regular business or service provision. However, when collecting interest, the enterprise must issue a VAT invoice, clearly indicating the interest on the loan, with the VAT amount marked as “not applicable” and crossed out. Additionally, the interest income from lending is offset against the interest expenses the enterprise pays on loans. If the income from loan interest exceeds the interest paid, the remaining difference will be considered other income when determining taxable income.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at info@blawyersvn.com. BLawyers Vietnam would love to hear from you.
Date: 11 February 2025
Writer: Giang Nguyen
