Legal provisions on foreign loans

In the process of establishing a business as well as implementing an investment project, there will be times when capital will be needed to continue the project in Vietnam. Enterprises can choose in the form of domestic or foreign loans, in this article only foreign loans are mentioned.

1. Legal basis

Law on Credit Institutions 2024.

Decree 219/2013/ND-CP on management of enterprises’ borrowing of foreign loans and payment of foreign debts without government guarantee.

Circular No. 08/2023/TT-NHNN on prescribing eligibility requirements for foreign loans without Government’s guarantee

Circular No. 19/2024/TT-NHNN amending Circular 08/2023/TT-NHNN prescribing eligibility requirements for foreign loans without government’s guarantee.

Circular No. 12/2022/TT-NHNN on guidelines for foreign exchange administration in respect of enterprise’s foreign borrowing and foreign debt repayment of enterprises

2. What is a foreign loan?

According to the Clause 1, Article 3 of Decree 219/2013/ND-CP: “Borrowing of a foreign loan means a borrower receiving a credit amount from a non-resident through signing and implementing a foreign loan agreement in the form of loan contract, contract on goods purchase and sale on deferred payment, loan provision entrustment contract, financial leasing contract, or issuance by the borrower of debt instruments.”

Foreign loans not guaranteed by the Government: According to Clause 2, Article 3 of Decree 219/2013/ND-CP: “Borrowing of a foreign loan without government guarantee (below referred to as “borrowing a foreign loan by the mode of self-borrowing and self-payment”) means a borrower taking a foreign loan by the mode of self- borrowing and self-responsibility for payment to the foreign lender.”

Academic knowledge as a rule is. In simple terms, in the process of establishing a business as well as implementing an investment project, there will be a time when capital will be needed to continue the project in Vietnam. Enterprises can choose in the form of domestic or foreign loans, in this article only foreign loans are mentioned. In order to obtain foreign loans, enterprises and investors must meet the conditions as well as regulations on “Foreign loans” according to the State’s regulations. Thereby making it easier for the State to manage this issue.

3. Types of foreign loans:

According to Article 3 of Circular 08/2023/TT-NHNN, Foreign loans are divided into 02 categories including:

• Short-term loan: A loan with a loan term of less than 01 year.
• Medium and long-term loans: Loans with a loan term of more than 01 year.

According to each type of loan, the concepts, conditions as well as the purpose of borrowing are very different, based on Circular 08/2023/TT-NHNN and Circular 19/2024/TT-NHNN are compared as follows:

Content	Short-term loan	Medium and long-term loans
Form of loan contract	The foreign loan agreement must be in writing. In case the foreign loan agreement is made in the form of electronic messages, it must comply with provisions of law on electronic transactions. It must be signed before or on the day on which the foreign loan capital is withdrawn.
Loan currency	The borrowing and repayment of foreign debts must be carried out in foreign currency. The parties only agree to borrow and repay foreign debts in VND in some special cases. General conditions for allowing foreign loans / Purpose of use of the loan
Additional requirements for Credit Institutions and Foreign Bank branches	Enterprises may only borrow foreign loans for the following purposes: a) increasing the borrower’s funding for credit extension activities to meet its credit growth target; b) restructuring the borrower’s foreign debts c) paying the beneficiary via the reimbursing bank when issuing a deferred payment L/C containing a provision that the payment will be made at sight or in advance before the L/C due date in accordance with applicable regulations of law on L/C operations and other L/C-related business activities.
	A borrower may apply for a short-term foreign loan if it meets the limit on short-term foreign loans as at December 31 of the year preceding the year in which the loan application is submitted	Except the case specified in point c, when applying for a medium- or long-term foreign loan, the borrower shall be required to prove its loan purposes according to Clause 4, Article 1 of Circular 19/2024/TT-NHNN
Additional requirements for borrowers other than Credit Institutions and Foreign Bank branches	The borrower may only use the short-term foreign loan capital for restructuring its foreign debts and paying its short-term debts payable in cash (excluding outstanding principal amounts of domestic loans)	The borrower may only use a medium/long-term foreign loan for the following purposes: a) Executing its investment projects; b) Executing its business plans or other projects; c) Restructuring its foreign debts.

4. Foreign loan execution account:

According to Article 26 of Circular 12/2022/TT-NHNN, the borrower must open a loan account and repay foreign debts at an authorized bank in Vietnam to carry out money transfer transactions related to foreign loans.

In case the borrower has foreign direct investment capital, they may use a direct investment capital account or a foreign loan or repayment account to carry out relevant money transfer transactions.

Note: Each foreign loan can only be made through 01 bank and the borrower can use 01 account for many loans.

5. Registration of foreign loans with the State Bank:

As mentioned above, while the State Bank can easily control the foreign borrowing status of enterprises, the Law also provides for loans that are required to be registered with the State Bank. According to Article 11 of Circular 12/2022/TT-NHNN including:

1. Foreign medium and long-term loans, except foreign loans arising from issuance of L/C of credit institutions or foreign bank branches
2. Renewed short-term loans which have more than 01 (one) year of maturity term.
3. 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 withdrawal of loan proceeds in a full 01 year, except to the extent that borrowers have already paid their principal debt within a permitted duration of 30 days after the anniversary of the date of first withdrawal of loan proceeds in a full 01 year.

According to the above provisions, short-term loans (less than 01 year) will not have to be registered with the State Bank. In fact, the Bank to conduct a short-term loan procedure is also very simple.

6. Competence to certify foreign loan registration:

The competence to certify foreign loans is prescribed according to Article 20 of Circular 12/2022/TT-NHNN:

• The State Bank (Department of Foreign Exchange Management): in respect of loan proceeds of more than 10 million USD (or other equivalents);
• State Bank branches of provinces where borrowers’ head offices are located: in respect of loan proceeds of up to10 million (or other equivalents).

7. Time limit for submission of loan registration/loan change application:

The borrower must submit the application within 30 working days from the following time:

1. For foreign medium and long-term loans: The date of signing the medium or long-term foreign loan agreement
2. The Short-term loans whose principal repayment period is renewed which have more than 01 year of maturity term: The date of signing the agreement to renew the foreign loan agreement from short-term to medium- or long-term for these loans in which the signing date of extension is within 01 year from the date of first withdrawal of loan proceeds.
3. The foreign loans arising from the transfer of the investment preparation amount of the projects that have been granted an investment registration certificate into foreign loans: the date on which the borrower is granted the Certificate of Business Registration, the License for establishment and operation under special laws, the date of signing the public-private partnership (PPP) investment contract, the date on which the parties sign the foreign loan agreement to convert the investment preparation amount into loans (whichever is later)

The borrower must submit the application within 60 working days after the anniversary of the date of first withdrawal of loan proceeds in a full 01 (one) year:

• The loans specified in clause 2 Article 11 of Circular 12/2022/NHNN in which the signing date of renewal is after 01 years before the date of first withdrawal of loan proceeds;
• The loans stipulated in clause 3 Article 11 hereof.

8. The duration of the State Bank’s written loan confirmation:

• 12 working days of receipt of valid and sufficient dossiers from borrowers in the event that borrowers filled in the loan declaration form on the website;
• 15working days of receipt of valid and sufficient dossiers from borrowers in the event that borrowers failed to fill in the loan declaration form on the website;
• In the event of rejecting confirmation of loan registration, the State Bank must give written explanation for such rejection.

Foreign loan registration dossier/ Foreign loan change registration is detailed in Article 16 of Circular 12/2022/TT-NHNN

9. Foreign loan reporting regime

An important point of note regulating Foreign Loans is the borrower’s Loan reporting regime.

Acccording to Article 41 of  Circular 12/2022/TT-NHNN, the borrower must submit reports at the following intervals:

• On the monthly basis, no later than the 5th day of the month immediately after the reporting period, the borrower must prepare an online review report on short-term, medium-term and long-term loans on websites. Where any technical failure in websites arises that makes the reporting unfeasible, the borrower shall send a written report using the form in Appendix 05 hereto.
• Within a maximum period of 10 (ten) working days of receipt of online report from the borrower on websites (or inputting information from the written report as the websites have technical failure) for the purpose of storing information in the database. Where reporting information is accurate, the borrower shall be notified of completion of reporting by emails in accordance with regulations. Where there is inaccurate information or any information that need to be clarified, the State Bank branch shall send the notification email to the borrower to make data adjustments.Note: Although the regulations on loan registration are only required for foreign medium and long-term loans. As for loan reporting, it applies to both short, medium and long-term foreign countries. Short-term loans must still be reported quarterly and annually to the State Bank.

In addition to quarterly and annual reports, there are also unscheduled reports: In unexpected cases or when necessary, borrowers must make unscheduled reports at the request of the State Bank.

The above are the sharing of lawyers, providing information not for consulting purposes and not consulting opinions, Vo & Associates is not responsible in all cases.

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