1. Introduction
Foreign borrowing is a vital channel for Foreign-Invested Enterprises (FIEs) in Vietnam to finance operations, project expansion, and machinery imports. However, cross-border capital flows are strictly regulated under Vietnam’s foreign exchange management regime. Strict compliance with registration and reporting requirements is mandatory. Failure to register medium and long-term loans with the State Bank of Vietnam (SBV) can result in administrative penalties, the inability to remit principal/interest abroad, and adverse tax consequences.
2. Legal Framework
The current regulatory framework governing foreign loans (non-government guaranteed) includes:
- Circular No. 12/2022/TT-NHNN (effective from November 15, 2022): The primary regulation detailing administrative procedures for registration, amendment, and reporting of foreign loans.
- Circular No. 08/2023/TT-NHNN (effective from August 15, 2023, as amended by Circular No. 19/2024/TT-NHNN): The substantive regulation setting out conditions for borrowing eligibility, limits, and permissible uses of loan proceeds.
Note: Circular 19/2024/TT-NHNN (effective July 01, 2024) introduced amendments to align foreign exchange operations with the new Law on Credit Institutions 2024.
- Decree No. 219/2013/ND-CP: The overarching decree on the management of enterprises’ foreign borrowing and repayment.
- Ordinance on Foreign Exchange No. 28/2005/PL-UBTVQH11 (as amended).
3. Registration Requirement
Not all foreign loans require registration. Under Article 11 of Circular 12/2022/TT-NHNN, registration with the SBV is mandatory for:
- Medium- and long-term loans: Loans with a tenor exceeding 01 year.
- Short-term loans extended: Short-term loans (tenor ≤ 1 year) that are extended via an agreement to a term exceeding 01 year.
- Overdue short-term loans: Short-term loans that are not fully repaid within 01 year from the date of the first withdrawal, and the borrower continues to use the fund (unless fully repaid within a 10-day grace period after the 1-year mark).
Note: Short-term loans (≤ 1 year) fully repaid on time are exempt from registration but must still be reported via the SBV’s online system.
4. Competent Authority (Jurisdiction)
Unlike previous regulations which divided jurisdiction based on loan value (e.g., above/below USD 10 million), Circular 12/2022 simplifies the jurisdiction based on the borrower entity type:
- SBV Provincial Branches: The competent authority for most enterprises (including FIEs). Borrowers must register with the SBV branch in the province/city where their head office is located.
- SBV Head Office (Department of Foreign Exchange Management): Primarily handles registration for credit institutions, foreign bank branches, and loans guaranteed by the Government.
5. Key Conditions for Borrowing (Circular 08/2023/TT-NHNN)
Before registering, FIEs must ensure the loan satisfies the “Borrowing Limits” to be eligible:
- For Investment Projects: The total outstanding balance of medium/long-term foreign loans + the enterprise’s equity (charter capital) must not exceed the Total Investment Capital registered in the Investment Registration Certificate (IRC).
- For Business Operations: If borrowing for general business operations (not a specific investment project), the loan limit is based on the demand for borrowing capital as per the borrower’s capital use plan.
- Use of Proceeds: Foreign loans must be used for lawful purposes as defined in the loan plan. Notably, Circular 08 strictly prohibits using short-term foreign loans for medium/long-term purposes or for trading securities/real estate (unless authorized).
6. Registration Procedure
Step 1: Online Declaration The borrower declares the loan information on the SBV’s portal
Step 2: Submission of Physical Dossier Within 10 working days of the online declaration, the borrower must submit the physical dossier to the competent SBV branch. Key documents include:
- Application form (standard template).
- Copy of the Loan Agreement.
- Copy of the IRC, ERC (Enterprise Registration Certificate).
- Copy of the Board Resolution/Owner’s Approval regarding the loan.
- Confirmation from the Account Service Bank (where the loan account is opened).
Step 3: Processing Time Statutory timeline: 12–15 working days from the receipt of a complete and valid dossier. Result: The SBV issues a Loan Registration Certificate (LRC). This document is required by the servicing bank to process any drawdown or repayment transaction.
7. Post-Registration Compliance
- Monthly Reporting: Borrowers must submit online reports on the implementation of the loan (drawdown, repayment) on the SBV portal no later than the 5th day of the following month.
- Amendment Registration: Any change to the registered loan content (increase in amount, change of tenor, change of creditor, change of fees/interest resulting in a stricter repayment plan) requires amendment registration before execution.
8. Practical Considerations for FIEs
- Thin Capitalization & Tax Deductibility: While Vietnam does not have a strict “thin cap” rule in the Investment Law, tax laws (Decree 132/2020/ND-CP) cap the deductibility of interest expenses at 30% of EBITDA for enterprises with related-party transactions.
- Transfer Pricing: Interest rates paid to offshore parent companies must reflect arm’s length principles. Excessive interest rates may be challenged by tax authorities during audits.
- IRC Adjustment: If an FIE plans to borrow a sum that, when combined with equity, exceeds the Total Investment Capital in its IRC, it must apply to amend the IRC (to increase Total Investment Capital) before registering the loan with the SBV.
9. Conclusion
Foreign loan registration is a critical compliance step for FIEs in Vietnam. It serves as the “passport” for cross-border fund transfers. Enterprises should conduct a thorough pre-assessment of their IRC limits and financial capability before entering into foreign loan agreements to ensure smooth registration and avoid costly penalties.
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Nguyen Hien Mai