Requirements for taking foreign loans of enterprises in Vietnam
According to the provisions of Vietnamese law on requirements for taking foreign loans applied to companies not guaranteed by the Government issued by the Governor of the State Bank of Vietnam, company established in Vietnam can borrow foreign capital under the following conditions:
General requirements
Borrower is allowed to borrow from abroad for the following purposes:
- Implementing the business plans or investment projects funded by foreign loans of the borrower or any company to which the borrower makes a direct capital contribution (only applied to mid-term and long-term foreign loans).
In the second case, the ratio of the loan serving the business plan or investment project to the total loan taken by the borrower must not exceed the proportion of contribution to the aforesaid company by the borrower.
The business plan or investment project funded by foreign plan mentioned in above must be approved by a competent authority in accordance with law and the license for establishment, Certificate of Business registration, Certificate of Investment registration of the borrower or the company to which the borrower makes a direct capital contribution.
- Restructuring the foreign debts incurred by the borrower without increasing the loan expense.
A foreign loan agreement must be made in writing before the loan is released in accordance with Vietnam’s law.
In addition, currencies of foreign loans are foreign currencies. Enterprises can only borrow in VND in the following cases:
- The borrower is a microfinance institution;
- The borrower is a foreign-invested company that takes the loan from the distributed profit in Vietnamese currency from the direct investment by the creditor being a foreign investor that contributes capital to the borrower;
- Other cases approved by the Governor of the State bank considering the situation and necessity of the loans.
The pledge of shares, capital contributions of Vietnamese companies, or convertible bonds issued by Vietnamese companies as security for the foreign loans granted by non-resident creditors or relevant must comply with the regulations on securities and holdings of foreign investors in Vietnamese companies and/or relevant laws.
Foreign loan expense is agreed by the borrower, the creditor and relevant parties. If necessary, the Governor of the State bank shall decide the application of foreign loan expense requirements, decide and announce the ceiling level of foreign loan expense in order to regulate the limits on foreign loans without guarantor.
Additional requirements:
- Requirements for taking short-term foreign loans: Creditors must not take short-term loans to serve mid-term and long-term purposes;
- Requirements for taking mid-term and long-term foreign loans:
+ If the creditor has a project of investment funded by foreign capital that has a certificate of investment, the total midterm or long-term loan (including the domestic loans) taken by the creditor to serve the project must not exceed the difference between the total capital and the contributed capital in the certificate of investment;
+ If the creditor takes the foreign loan to execute a business plan or project of investment that does not have a certificate of investment, the total midterm or long-term loan (including the domestic loans) taken by the creditor must not exceed the need for loan serving business plan or project of investment, which has been approved by a competent authority.
In addition, enterprises should pay attention to the loan required to register with the state bank, includes:
- Mid-term and long-term foreign loans;
- Renewed short-term loans which have more than 01 (one) year of maturity term;
- Short-term loans which are not covered by any loan renewal contract but remain the outstanding principal owed on the anniversary of the date of first fund withdrawal in a full 01 (one) calendar year, except to the extent that borrowers have already fulfilled their debt obligations within a permitted duration of 10 (ten) days after the anniversary of the date of first fund withdrawal in a full 01 (one) year.
Borrowers must send their dossiers within a maximum duration of 30 (thirty) days starting after:
- The date on which the mid-term or long-term agreement is concluded, or the written guarantee is signed in respect of secured loans, or the date on which written fund withdrawal arrangements are concluded in the event that contracting parties have agreed upon such fund withdrawal under signed framework agreements and before such fund withdrawal takes place;
- The date on which the agreement on renewal of a short-term foreign loan into a mid-term or long-term loan is effected in respect of conventional loans;
- The anniversary of the date of first fund withdrawal in full 01 (one) year in respect of conventional loan, Short-term loans which are not covered by any loan renewal contract but remain the outstanding principal owed on the anniversary of the date of first fund withdrawal in a full 01 (one) calendar year
If violating regulations on registration of loans, enterprises may be subject to a fine of 40 million VND to 80 million VND.