Loans from overseas organizations are considered an option to help businesses solve financial problems in addition to loans from credit institutions in Vietnam. However, the State Bank now strictly manages the activities of taking loans from abroad, from the purpose of loan, terms, and procedures and reporting obligations within the term of the loan contract. Thus, understanding the regulations will assist businesses in anticipating the necessary actions, the documents to prepare, and managing the risks associated with foreign loans. Our article below will assist you in summarizing the information you need to know before making any foreign loans in Vietnam.

1. What is a Foreign Loan?

Foreign Loan is a broad term that encompasses (i) loans made between a Vietnamese borrower and a lender as a foreign individual or organization that are not guaranteed by the government, also known as self-borrowing and self-paying loans, and (ii) Government-guaranteed foreign loans in all forms of foreign loans through loan contracts, goods import contracts with deferred payment, loan entrustment contracts, etc., financial leasing or international market issuance of debt instruments by the borrower. Within the scope of this article, we will only refer to the loans that are not guaranteed by the government between Vietnamese and foreign individuals and organizations.

2. Which foreign loan is required to meet the registration requirement?

In order to manage the cash flow into Vietnam as well as the debt repayment obligations and interest of the Vietnamese borrower to the foreign lender, the law requires the following enumerated foreign loans to undergo registration procedures at the State Bank of Vietnam:

• Foreign loan of medium to long term, which are understood to have a loan period of over 01 year, in which the loan term is determined from the expected date of the first capital withdrawal to the expected date of final repayment, based on the provisions of the foreign loan agreement;
• Short-term foreign loans that are extended, with a total loan term of over 01 (one) year. The loan term is determined from the date of the first capital withdrawal to the expected date of final repayment, based on the provisions of the foreign loan agreement and the agreement to extend the foreign loan;
• Short-term foreign loans without extension contracts but still have outstanding debts at the end of 01 (one) year from the date of the first capital withdrawal, except for cases that the borrower has fully repaid the loan within 10 (ten) days from the end of 01 (one) year from the date of the first capital The loan term is determined from the first capital withdrawal date until the expected date of final repayment.

Note that the parties need to accurately determine the date of the first capital withdrawal to determine the loan term and the repayment term. Accordingly, the date of the first capital withdrawal is the date of disbursement of the borrowed funds for foreign loans disbursed in cash or the date of customs clearance for imported goods under deferred payment foreign loans and financial leasing agreements in accordance with relevant laws and regulations.

3. Which individuals and organizations are required to complete the formalities for registering foreign loan?

To manage the cash flow of foreign into Vietnam and the compliance of the Vietnamese parties with the laws related to loan, interest payment, and loan repayment, the law requires that the borrowing party is responsible for registering the foreign loan. Therefore, the following entities are required to fulfill the registration obligation as listed below:

• The borrower who signs a foreign loan agreement and directly disbursement money with a non-resident lender;
• Credit institutions and branches of foreign banks entrusted to lend by the non-resident lender;
• Parties obligated to repay the debt through debt instruments issued to non-residents;
• Lessee in financial leasing contracts with non-residents;
• Importers of goods with deferred payment.

4. The mandatory reporting obligation of the borrower for foreign loan.

On a monthly basis, no later than the 5th day of the following month of the reporting period, the borrower is required to submit an online report on the implementation of short-term, medium-term, and long-term foreign loans on the website of the State Bank of Vietnam. If the Website has technical errors preventing the borrower from submitting the report online, the borrower shall submit a written report in the prescribed form.

In case the report information is accurate, the borrower  shall be notified by email of the completion of the reporting in accordance with regulations. If the information is inaccurate or requires clarification, the State Bank of Vietnam branch shall notify the borrower by email to adjust the data.

The reporting activity is a mandatory obligation of the borrower , however, in reality, the borrower often forgets or delay the reporting, which leads to some risks for the borrower such as penalties for violations or impacts on the process of extension, new registration or adjustment of foreign loan. Therefore, as mentioned above, foreign borrowing activities are strictly managed by the State Bank of Vietnam, and the lender needs to pay attention to maintain compliance.

Time of writing: 28/03/2023

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