The demand for foreign loans for enterprises (including foreign enterprises in Vietnam) has increased rapidly in recent years. This is an inevitable trend for businesses to recover from the economic difficulties of the recent past. To ensure that the law can timely regulate the practical issues arising from enterprises, Circular 08/2023/TT-NHNN was issued and took effect on August 15, 2023, replacing the previous regulations of 12/2014/TT-NHNN. Circular 08 has more clearly defined some terms related to foreign loans, and this article will share with you the notable regulations.

1. Loans in Vietnamese dong

The new circular has provided a clearer explanation for the case where the currency chosen by the parties when establishing the loan contract is the Vietnamese dong. Accordingly, foreign loans in Vietnamese dong are foreign loans that are withdrawn into the loan account, and foreign debt repayment or debt repayment obligations are determined by the parties in Vietnamese dong. In particular, the debt obligation of the loan will be understood as the loan being withdrawn from the loan in foreign currency, but the debt value according to the foreign loan agreement is recorded in Vietnamese dong according to the foreign currency buying and selling rate listed by the credit institution that the parties agree to in the loan contract.

2. Foreign loans in the form of deferred payment for imported goods

This is a new content of Circular 08, according to which Circular 08 stipulates that the foreign borrowing party is allowed to borrow in the form of deferred payment for imported goods and will not have to comply with the conditions for foreign loans in foreign currency or Vietnamese dong. The foreign borrowing party will be responsible for complying with the regulations guiding foreign exchange management for the borrowing, foreign debt repayment of enterprises, the regulations of the law on commerce, foreign trade management, and other relevant legal regulations.

3. Plan for the use of foreign loans

The old regulations generally referred to the business production plan to justify the purpose of borrowing as well as the borrowing and debt repayment plan of the borrower, based on this plan, the State Bank considers approving or rejecting the loan registration dossier of the enterprise for medium and long-term loans. The new circular now clearly stipulates that the borrower must prepare a document called the Plan for the use of foreign loans. Accordingly, the plan for the use of foreign loans is a business production plan using foreign loans, which proves the legal and reasonable purpose and demand for foreign loans of the borrower. The plan for the use of foreign loans by the borrower must be approved by the competent authority in accordance with the provisions of the Investment Law, Enterprise Law, Credit Institutions Law, Cooperative Law, the charter of the borrower, and other relevant legal regulations.

The basic content of the plan for the use of foreign loans will include:

• Name of the borrower, type of enterprise, charter capital, address, Establishment License, Business Registration Certificate. Cooperative Registration Certificate, Cooperative Union and amendments and supplements (if any) or other equivalent documents, scope of legal business lines related to the purpose of using foreign loans by the borrower;
• Information about the expected foreign loan to be implemented;
• Purpose and scale of foreign borrowing;
• Information about other production and business activities and projects using foreign loans within the legal scope of the borrower activities:
• For short-term foreign loans: The table of demand for the use of short-term foreign loans (hereinafter referred to as the table of demand for the use of capital) is prepared according to the prescribed form. For medium and long-term foreign loans: The total capital scale of production and business activities; the capital structure; scale of foreign loans; the expected costs to be paid from the source of medium and long-term foreign loans;
• Risk management measures arising from foreign loans (if any);
• Authority to approve the plan for the use of foreign loans: competent level of approval, the basis for determining the authority to approve; Other contents (if any).

4. Plan for restructuring foreign debt

The plan for restructuring foreign debt (hereinafter referred to as the “Debt Restructuring Plan”) is a synthesis of information on the use of new foreign loans to repay existing legal foreign loans. The Debt Restructuring Plan of the borrower must be approved by the competent authority as prescribed by law. The Debt Restructuring Plan includes the following basic contents:

• Information about the foreign borrower;
• Information about the loan and outstanding balance of the existing foreign loan: lender, loan amount, loan currency, loan term, loan cost, loan purpose, situation of capital withdrawal, debt repayment, loan balance at the time of making the Debt Restructuring Plan, expected value of the structure, loan code (applied to the existing foreign loan is a medium and long-term loan), table of short-term loan use of the existing foreign loan (applied to the existing foreign loan is a short-term loan);
• Information about the new foreign loan: lender, loan amount, loan currency, loan term, loan cost, capital withdrawal plan, plan to pay the outstanding balance of the existing foreign loan;
• Authority to approve the Debt Restructuring Plan: competent level of approval, basis for determining the authority to approve.

5. Foreign borrowing limit

Previously, the contents related to the borrowing limit of the foreign borrower were scattered in many documents and were not clearly explained, causing difficulties for the borrower. To solve this problem, Circular 08 has specifically stipulated how much the borrower is allowed to borrow from abroad, specifically:

In case of borrowing abroad to implement an investment project, the borrower will be allowed to borrow within the following limits:

• The outstanding principal balance of medium and long-term loans at home and abroad of the borrower (including short-term loans that are extended and overdue to become medium and long-term) serving the investment project must not exceed the borrowing limit of the investment project;
• In that, the borrowing limit of the investment project is the difference between the total investment capital of the investment project and the investor’s contributed capital recorded in the Investment Registration Certificate, Investment Registration Certificate, and Investment Policy Approval Document

In case of borrowing abroad to implement the borrower’s business production plan, other projects, the borrower will be allowed to borrow within the following limits:

The balance of medium and long-term loans at home and abroad of the borrower (including short-term loans that are extended and overdue to become medium and long-term) serving this purpose must not exceed the total demand for loans in the Plan for the use of foreign loans that have been approved by the competent authority as prescribed by law.

In case of borrowing abroad to implement the restructuring of the borrower’s foreign debt, the amount of foreign loan serving the purpose of restructuring foreign debt must not exceed the total value of the outstanding principal, unpaid interest, fees of the existing foreign debt and fees of the new loan determined at the time of restructuring.

Understanding each type of loan and the purpose of borrowing correctly will help businesses accurately identify the procedures to be followed and the steps to be implemented, avoiding wasting a lot of time implementing the procedure to register foreign loans. For short-term loans, the borrower needs to monitor to fulfil the obligation to repay on time or carry out procedures to convert into medium and long-term loans. Besides, one thing that most borrowers will not pay attention to is the obligation to report loans, and this is a mandatory obligation, therefore, to avoid being subjected to penalties for violations as well as facilitate extending or registering new loans, the borrower needs to comply with the reporting obligation to the State Bank.

Time of writing: 30/10/2023

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:

• Key terms in the Franchise Agreement (Part 1)
• Key terms in the Franchise Agreement (Part 2)
• Guidelines for holding the General Meeting of Shareholders in accordance with the law (Part 1)
• 8 important new points regarding Work Permit which take effect from September 18, 2023
• Labor contract or personal consulting service contract
• Termination of the operation of foreign traders’ representative offices
• What should enterprises keep in mind when dismissing employees?
• Conditions that foreign investors must meet when making investments in Vietnam
• Parent company, subsidiaries, and things to note