In an increasingly globalized economy, seeking capital from abroad to serve the enterprise development needs in Vietnam is becoming a popular trend. In this case, borrowing foreign capital includes borrowing from investors who are owners or members of the company and borrowing from other enterprises and individuals abroad. This is considered a method of calling for short-term capital for businesses and is also a way for investors to explore the effectiveness of business operations in Vietnam before deciding to increase capital for investment projects by converting loan capital into contributed capital. However, before choosing to borrow capital from abroad, enterprises as lenders must consider and clearly understand the important factors related to the loan.

In this article, we will look at four particularly important notes that should be considered by businesses planning to borrow capital from abroad. This information helps you understand the loan process better and protects you from potential risks.

1. Determine the correct type of foreign loans

First, we need to understand what a foreign loan is.

“Foreign loan” is a general term used to refer to loans from foreign origins that are not guaranteed by the Government (hereinafter referred to as self-borrowed and self-paid loans). The Government guarantees foreign loans in all forms, such as through loan contracts, deferred payment import contracts, loan entrustment contracts, financial leasing contracts, or issuance of debt instruments on the international market by the borrower.

In this article, we want to focus on self-borrowed and self-paid foreign loans where the borrowers are enterprises. Determining the correct type of loan is one of the especially important notes that lenders or borrowers must pay attention to because, corresponding to each type of loan, there will be regulations that separately affect the process of using the loan. Accordingly, foreign loans will be divided into:

• Self-borrowed and self-paid short-term foreign loans (hereinafter referred to as foreign short-term loans) are foreign loans not guaranteed by the Government with a loan term of up to one year.
• Self-borrowed and self-paid long-term and medium-term foreign loans (hereinafter referred to as long-term and medium-term foreign loans) are foreign loans not guaranteed by the Government with a loan term of more than one year.

2. Time to register a foreign loan

In some cases, foreign loan registration is a mandatory procedure for specific types of loans but is not mandatory for all. Failure to register or delay in registering a loan will push enterprises to face many risks in using the loan, such as fines for administrative violations and difficulties in repaying the loan. In order not to violate regulations on loan registration deadlines, enterprises need to submit loan registration documents within the following time period:

• 30 working days from the date of signing the medium and long-term foreign loan agreement;
• 30 working days from the date of signing the agreement to extend short-term foreign loans to medium-term or long-term for short-term loans whose date of signing the extension agreement is within one year from the date of first capital withdrawal;
• 30 working days from the date the borrower is granted an Enterprises Registration Certificate, License for establishment and operation according to specialized laws, and date of signing an investment contract according to the public-private partnership method (PPP contract). The date the parties sign a foreign loan agreement (to convert the amount of investment preparation into loan capital – depending on which day comes later) applies to foreign loans arising from transferring the amount of preparation investment of projects that have been granted Investment Registration Certificates into foreign loans.
• 60 working days from the date of one year from the first capital withdrawal for: (i) Short-term loans with an extended principal repayment period where the total loan term is over one year (ii) Short-term loans without extension agreement but the outstanding principal (including debt interest and principal amount) at the time of a year from the date of first capital withdrawal, unless the borrower completes payment of the outstanding debt above mentioned principal within 30 working days from the date of first capital withdrawal.

3. Loan reporting obligations

Loan reporting is a mandatory obligation of the borrower. The report content is not too complicated and does not take up much of the enterprise’s time. However, we recognize that many enterprises have forgotten to fulfil their reporting obligations, resulting in them paying administrative fines. In addition, implementing other loan registration procedures at the state bank will also have to stop until the enterprise completes its reporting obligations.

Monthly, no later than the 5th of the month following the reporting period, the borrower must report online on the implementation of short, medium and long-term loans on the website. If the website has a technical error and cannot send the report, the borrower sends a written report according to the prescribed form.

4. Manage foreign loan accounts

For borrowers, the foreign loan and debt repayment account is the payment account opened at the bank that provides account services to withdraw capital and repay foreign loans; carry out derivative transactions to prevent risks on foreign loans and other money transfer transactions related to foreign borrowing and debt repayment activities; and a guarantee for foreign loans.

For the borrower who has an enterprise with foreign direct investment:

For medium and long-term foreign loans (excluding short-term loans with outstanding principal at the end of a year), the borrower uses the direct investment capital account to perform revenue and expense transactions related to foreign loans. If the loan currency is not the currency of the direct investment capital account, the borrower can open a loan account and repay other foreign debt to make the foreign loan at the bank where the borrower opens the account with direct investment capital.

With short-term foreign loans, the borrower can use a direct investment capital account or another foreign loan or debt repayment account (not a direct investment capital account) to perform revenues and expenditures transactions related to foreign loans. Each loan prescribed in this clause can only be made through one bank providing account services. The borrower can use one account for one or more short-term foreign loans.

For short-term loans with an outstanding principal balance at the time of one year from the date of capital withdrawal and the borrower will repay the debt within 30 working days from the date of one year from the date of capital withdrawal, the borrower makes debt repayments through the foreign loan and debt accounts being used for this loan.

The borrower is not an enterprise with foreign direct investment:

Enterprises must open foreign loan and debt repayment accounts at banks providing account services to perform money transfer transactions related to foreign loans (withdrawal of capital, repayment of principal and interest). Each foreign loan can only be made through one bank providing account services.

As mentioned above, foreign loan registration and management issues are not complicated for enterprises if they clearly understand the nature of each foreign loan they are borrowing, the time of capital withdrawal, reporting obligations, and cash flow. This is also more convenient for enterprises when they want to convert loans into contributed capital.

Time of writing: 15/12/2023

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn

You can refer for more information:

• The latest procedures for trademark registration
• Guidance for Foreign Investors on Identifying Business Sectors According to the WTO Schedule
• 8 important new points regarding Work Permit which take effect from September 18, 2023
• Control risks when unilaterally terminating economic contracts
• Some reports that investors and enterprises must submit at the end of the year