Vietnam: 24 frequently questions and answers on enterprises’ foreign loans not guaranteed by the Government

Foreign loan

This article presents 24 questions and answers related to foreign loans that are not guaranteed by the Government of Vietnam, also known as self-borrowing loans or self-repaying loans of enterprises established and operating under the laws of Vietnam (“Enterprises”). Note that the scope of this article does not include foreign loans from credit institutions or foreign bank branches in Vietnam.

1. How do Enterprises report their foreign loans?

After incurring foreign loans, Enterprises need to register an account to access the website on management of foreign loans and repayments not guaranteed by the Government via www.sbv.gov.vn or www.qlnh-sbv.cic.org.vn.

During the loan application process, the Enterprises must use the provided account to access the Website and report online the status of foreign loans.

2. How can Enterprises borrow foreign loans?

Currently, Vietnam-based Enterprises can borrow foreign loans from non-residents in Vietnam through the following forms:

  1. Loan contract;
  2. Goods import contract on deferred payment;
  3. Entrustment contract;
  4. Financial leasing contract;
  5. Issuance of debt instruments (T-bills, promissory notes, bonds) on the international market.
3. What conditions must Enterprises meet to borrow a foreign loan?

To borrow foreign loans that are not guaranteed by the Government, Enterprises must meet the following conditions:

Regarding borrowing purposes: Enterprises must take out foreign loans for one of the following purposes:

  1. Implementing production, business and investment projects using loans of their own Enterprises;
  2. Implementing production and business plans and investment projects using loans from other Enterprises to which their Enterprises contribute capital for direct investment (applicable only to medium and long-term foreign loans);
  3. Restructuring foreign debt without increasing borrowing costs.

Regarding the loan agreement: The foreign loan agreement must be signed in writing before disbursing the loan and it cannot be contrary to the provisions of Vietnam.

Regarding foreign loan currency: The loan currency is in foreign currency. Foreign loans in Vietnam Dong may only be made in the following cases: (1) The borrower is a microfinance institution; or (2) The borrower is a foreign direct investment enterprise borrowing from the profit distributed in Vietnam dong from the direct investment activities of the Lender who is a foreign investor contributing capital to the Borrower; (3) Other cases when considered and approved by the Governor of the State Bank.

Regarding the secured transaction for a loan: Secured transactions for foreign loans cannot be contrary to relevant current provisions of Vietnam. The use of shares, stocks or capital contributions of Enterprises or convertible bonds issued by Enterprises as collateral for non-residents who are foreign Lenders or related parties must be in compliance with securities regulations, the foreign investors’ permitted holding ratio in Vietnamese Enterprises, and other relevant laws.

Regarding foreign borrowing costs: The parties agree on the borrowing costs, except for other regulations in laws.

In addition, enterprises must meet additional conditions applicable to short term loans, medium-term loans and long-term loans.

Of note, the above conditions do not apply to foreign loans made through the issuance of international bonds. This activity complies with the Vietnamese Government’s regulations on corporate bond issuance.

4. Which foreign loans must be registered with the State Bank of Vietnam?

Loans that must be registered with the State Bank of Vietnam (the “SBV”) include:

  1. Medium and long term loans;
  2. Short term loans with extended principal repayment period whose total term is over 01 year; and
  3. Short term loans without an extension agreement but with outstanding principal balance (including principally entered interest) at the full date of 01 year from the date of the first capital withdrawal, unless the Borrower completes the payment of the above principal balance within 30 working days from the full date of 01 year from the date of first capital withdrawal.

Accordingly, a short term loan is a loan with a term of up to one (01) year. Medium and long term loans are loans with a term of more than one (01) year.

5. How is the loan term determined?
  1. Regarding medium term and long-term loans: The loan term is determined from the expected date of the first capital withdrawal to the expected final repayment date on the basis of the provisions of the foreign loan agreement.
  2. Regarding short-term loans with extended principal repayment period but with total term of the loan over 01 year: The loan term is determined from the date of the first capital withdrawal to the expected date of final repayment of the principal on the basis of the provisions of the foreign loan agreement or the foreign loan extension agreement.
  3. Regarding short-term loans without an extension agreement but with outstanding principal balance (including principally entered interest) at the full date of 01 year from the date of first capital withdrawal: The loan term is determined from the date of first capital withdrawal to the expected date of final repayment of the principal.
6. Who must apply for a loan registration?

Subjects who must apply for a loan registration include:

  1. A borrower who signs a foreign loan agreement with a lender who is a non-resident in Vietnam;
  2. Organizations responsible for paying debts directly to the entrusting party if the credit institution or foreign bank branch signs a contract to receive entrustment for on-lending with the entrusting party being a non-resident;
  3. The party obligated to repay the debt under the debt instrument issued outside the territory of Vietnam to the non-resident;
  4. A lessee in the financial leasing contract with a lessor who is a non-resident; or
  5. Organizations inheriting foreign loan repayment obligations subject to registration or registration on behalf of the borrower if the borrower who is making foreign loans being divided, split, consolidated or merged.
7. What is the time limit for a loan registration?
  1. Medium and long term loans: 30 working days from the date of signing the loan agreement.
  2. Short term foreign loans are extended into medium and long term, the date of signing the agreement to extend within 01 year from the date of first capital withdrawal: 30 working days from the date of signing the extension agreement.
  3. Short term foreign loans may be extended to medium and long term terms, to which the date of signing the agreement will extend after 01 year from the date of first capital withdrawal; or Short term loans without extension agreement but with outstanding principal balance (including principally entered interest) at the full date of 01 year from the date of first capital withdrawal: 60 working days from the full date of 01 year from the date of the first withdrawal.
8. What is a loan registration dossier?

A loan registration mainly includes the following documents:

  1. Foreign loan application form;
  2. Borrower’s legal documents such as establishment license, business registration certificate, etc.;
  3. Document proving the loan purpose such as: Investment Registration Certificates or Decision on approval of investment policy; Plan for using foreign loans approved by competent authorities; Plan on restructuring foreign debts approved by competent authorities;
  4. Report the initial use of short term foreign loans;
  5. Foreign loan agreement and extension agreement of short term loans to medium and long term (if any);
  6. Written guarantee commitment (letter of guarantee, guarantee contract or other form of guarantee commitment) if the loan is guaranteed;
  7. Confirmation of the account service provider on the situation of capital withdrawal and repayment (principal, interest) up to the time of loan registration in a number of cases;
  8. In the case of foreign loans in Vietnam dong: the dossier also includes paper works and documents proving the satisfaction of conditions for foreign loans in Vietnam dong or written explanation of the need for foreign loans in Vietnam dong.
9. How long is a loan registration dossier considered?

The SBV shall consider and issue a written confirmation or refusal of the loan registration within the following time limit:

  1. 12 working days from the date of receipt of complete and valid dossiers if the Enterprises declared the loan information on the Website;
  2. 15 working days from the date of receipt of complete and valid dossiers if the Enterprises do not declare loan information on the Website;
  3. 45 working days from the date of receipt of complete and valid dossiers for a loan in Vietnam dong, which must be considered and approved by the Governor of the SBV.
10. When must Enterprises register for loan changes with the SBV?

Except for cases where the law requires Enterprises to notify changes on the Website, Enterprises must register for loan changes with the SBV if there is any change to contents related to the loans as stated in the written confirmation of foreign loan registration or the written confirmation of registration for changes of foreign loan issued by the SBV.

11. Which cases involving changes that Enterprises have notified on the Website do not require registration of loan changes to the SBV?

Enterprises that notify changes on the Website do not need to register for changes to foreign loans in the following cases:

  1. Changing the time of capital withdrawal and repayment of principal within 10 working days compared to the plan approved by the SBV;
  2. Changing the Enterprises’ address without change of the city or province where the head office of the borrower is located;
  3. Changing the lender or related information of the lender in syndicated loan that designates the representatives for the lenders, except when the lender is concurrently the representative for the lenders in the syndicated loan and the change of the lender causing the role change of representative of the lenders;
  4. Changing the commercial transaction name of the bank providing account services, the bank serving security transactions;
  5. Changing the plan for payment of interest and fees on foreign loans compared to the plan confirmed by the SBV in the written confirmation of registration or registration for changes in foreign loans, but the method of determination of foreign loans does not change the method of determining interest and fees specified in the foreign loan agreement;
  6. Changing (increasing or decreasing) the amount of capital withdrawal, repayment of principal, interest and fees within 100 currency units of the foreign loan currency compared with the amount stated in the written registration confirmation document, or the written confirmation of registration of changes to foreign loans;
  7. Changing the actual amount of capital withdrawal or principal repayment of a specific period less than the amount stated on the written registration confirmation document, or the written confirmation of registration of changes to foreign loans.
12. What is the time limit to apply for the loan change?

The time limit for registration for the loan change is within 30 working days from the date as follow:

  1. The parties sign the change agreement. If the parties do not sign the change agreement, it must be done within 30 days before the time of implementation of the change;
  2. The organization inheriting the loan repayment obligation is granted the enterprise registration certificate or the parties sign the agreement on the change of the borrower if the original borrower is divided, split or consolidated, merger (whichever comes later) and before continuing to withdraw capital, repay the foreign loans;
  3. The Enterprises complete the name change and/or address change of the head office on the National Business Registration Database;
  4. The lender (or the organization representing the lenders in the syndicated loan – if any), the securing party, the grantor or other related parties mentioned in the written confirmation of registration or the written confirmation of the loan change registration sends a written notice to the borrower of the name change and before making related money transfers to these parties.
13. What is the current sanction level for the act of not conducting foreign loan registration or registration of changes?

For each act of not conducting the loan registration, loan change registration or not complying with regulations of laws when registering, or registering for change the loan such as the violation of timeline, an individual shall be fined from VND20,000,000 to VND30,000,000; an organization shall be fined double an individual’s fine.

14. How do Enterprises determine the competent authority for loan registration confirmation or loan change registration confirmation when applying for its foreign loan?

Subject to a loan of more than USD10 million or up to USD10 million, Enterprises shall determine the authority as SBV or SBV’s provincial branch in which the Enterprise’s head office is located.

15. How do regulations on the USD exchange rate determine the competent authority for confirmation of loan registration or registration of changes?

To determine the competent authority for loan registration confirmation or loan change registration confirmation, Enterprises must convert the loan amount into USD. In this case, the USD exchange rate to be used will be the accounting exchange rate that the Ministry of Finance has announced to apply at the time of signing foreign loan agreements or foreign loan change agreements related to the loan amount.

16. Under which circumstances will the validity of the SBV’s written loan registration confirmation or loan change registration confirmation be terminated?

The validity of the written confirmation of foreign loan registration or foreign loan change registration issued by the SBV shall be automatically terminated if Enterprises fail to withdraw the loan capital and do not register for changing the capital withdrawal plan beyond 06 months from the last date of the withdrawal term confirmed by the SBV. If Enterprises wish to continue to implement the foreign loan, they must re-implement the procedure for foreign loan registration within 30 days from the date the parties agreed in writing to continue to implement the loan.

The validity of the written confirmation of foreign loan registration or foreign loan change registration issued by the SBV may be terminated under a competent authority’s decision if the application dossier for registration or registration for changes of foreign loan contains fraudulent information or forged documents supporting the eligibility for registration and registration for change of foreign loan. In this case, Enterprises must use a payment account in Vietnam Dong to refund the outstanding debts of foreign loan and indebtedness amount (if any).

17. Which account is used to withdraw capital, pay foreign debt and other money transfer transactions related to the activities of foreign loans and debt payment?

Enterprises must open a payment account at a Bank providing an account service in Vietnam to withdraw the capital and pay the debt of foreign loan (“Account For Foreign Loan and Debt Payment”). Enterprises must comply with prevailing laws.

18. How are guarantee obligations for the foreign loan carried out?

For guaranteed foreign loans, the guarantor shall perform guarantee obligations to the foreign lender as requested according to the commitments in the loan agreement and written guarantee commitments (letter of guarantee, guarantee contract, or other guarantee commitments) signed between the involved parties.

The guarantee obligation can be carried out in cash or by assets.

  • The guarantor residing in Vietnam must transfer money to fulfill guarantee obligations through the bank serving secured transactions.
  • If the guarantor is the credit institution or a branch of foreign bank in Vietnam, it is not mandatory to transfer guarantee money through the bank serving secured transactions.
  • If the guarantee is made by assets, the money obtained after handling guarantee assets in Vietnam to perform the guarantee obligation to the lender shall be transferred through the bank serving secured transactions.
  • If the lender receives the guarantee assets instead of the guarantee’s performance of guarantee obligation, the borrower is responsible for notifying the bank providing account service of the completion of debt payment.
19. What receipt and expenditure transactions are allowed to be carried out on the Account For Foreign Loan and Debt Payment?
  1. Regarding the Account For Foreign Loan and Debt Payment in foreign currency:
    • Receiving the foreign loan;
    • Receiving the amount transferred from the borrower’s payment account in foreign currency;
    • Receiving the permitted payments from derivative transactions related to the foreign loan;
    • Transferring money to pay debts (principal and interest) of the foreign loan;
    • Buying foreign currency to pay debts (principal, interest) of the foreign loan;
    • Transferring money to the borrower’s payment account in foreign currency;
    • Selling foreign currency to authorized credit institutions.
  2. Regarding the Account For Foreign Loan and Debt Payment in Vietnam Dong:
    • Receiving the foreign loan transferred from the lender using the payment account in Vietnam dong;
    • Receiving the loan amount after selling the foreign currency to permitted credit institutions in Vietnam;
    • Receiving the amount transferred from the borrower’s payment account in Vietnam dong;
    • Buying foreign currency to pay debts (principal, interest) incurred from foreign loans;
    • Transferring money to the borrower s payment accounts in Vietnam dong;
    • Transferring money to the lender’s payment accounts in Vietnam dong to pay the debt (principal, interest).
20. How are the regulations on the money transfer to perform the foreign loan?
  1. For the foreign loan required to register with the SBV, Enterprises are only allowed to withdraw or pay debts (principal, interest) for foreign loan after the SBV confirms the registration, change registration, unless otherwise specified by the laws.
  2. Enterprises are only allowed to receive the disbursement amount and pay debt (principal, interest) for foreign loan through the account of the lender, the representative of lenders, or through the payment agent bank of the lenders if the syndicated loans or the loans use a payment agent bank.

Except for the case mentioned above, if the Enterprises receive the disbursement amount and pay debt (principal, interest) for a foreign loan with foreign currency through an account of the third party who is not residing in Vietnam, this content must be clearly mentioned in the loan agreement (or loan change agreement).

21. Is there any case in which the Enterprises are allowed to withdraw capital and pay debts without carrying it out through the Account For Foreign Loan and Debt Payment?

Yes, there are some cases in which the withdrawal of loan capital shall not be carried out through Account For Foreign Loan and Debt Payment are as follows:

  1. Withdrawing foreign loan amount from the lender in the form that the borrower directly pays the amount to a non-resident beneficiary who provides goods or services under the sale and purchase contract of goods and services with the Enterprise;
  2. Withdrawing a foreign loan in the form of a finance lease;
  3. Withdrawing loan amount through the borrower’s account opened abroad if the borrower is allowed to open account abroad for the implementation of foreign loans;
  4. Withdrawing the mid-term or long-term foreign loans through clearing against direct payment obligations to the lender, including: payment obligation under the goods import contract, loan debt payment obligation, or obligation to repay directly the indebtedness amount to the lender;
  5. Withdrawing loan amount if the amount for investment preparation is converted into a foreign loan as agreed between the parties.

Some cases in which the debt payment shall not be carried out through Account For Foreign Loan and Debt Payment:

  1. Paying debts by means of providing goods or services to the lender;
  2. Paying debts in the form that the lender and the borrower agree to convert the outstanding debt into shares or contributed capital of the borrower;
  3. Paying debts in the form that the lender and the borrower agree to swap the outstanding debt with shares or contributed capital owned by the borrower;
  4. Paying debts incurred from mid-term or long-term loans through clearing against direct receivables with the lender;
  5. Paying debts through the borrower’s account opened abroad (in case the borrower is allowed to open accounts abroad for the implementation of foreign loans).
22. What is the current sanction level for withdrawing capital or paying foreign debts in contravention of Vietnamese law?

For each act of capital withdrawal or payment of foreign debts in contravention of prevailing regulations of laws, an individual shall be fined from VND30,000,000 to VND50,000,000; an organization shall be fined double an individual’s fine.

23. What are the reporting regimes needed by Enterprises whose foreign loans are not guaranteed by the Government?

a. Monthly report: Enterprises must report online the loan implementation status on the Website no later than the 5th day of the next month of the reporting period. If failing to report due to any technical errors on the Website, Enterprises shall submit a written report.

b. Unexpected report: In some unexpected events or when necessary, Enterprises must submit the report per the SBV’s request.

24. Should Enterprises (the borrowers) note the practice of the loan purpose?

The purpose of the foreign loan is clearly stated above in Question No. 3. An administrative sanction is imposed on enterprises that do not use the loan for the proper purpose (the SBV requests Enterprises to provide a copy of Enterprise’s bank account statement to check the loan purpose). The SBV applies provisions of Decree No. 88/2019/ND-CP to fine Enterprises up to VND400,000,000.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 05 April 2023

Writers: Trinh Nguyen & Tram Nguyen

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