On 30th September 2022, the State Bank of Vietnam issued Circular No. 12/2022/TT-NHNN guiding foreign exchange control of foreign loans borrowed, repaid by enterprises (“Circular 12”). Circular 12 takes effect from 15th November 2022 and will replace Circular 03/2016/TT-NHNN (“Circular 03”). With the principle of inheritance, the content of Circular 12 is not too different from Circular 03; most of the amendments and supplements focus on groups of issues such as (i) reporting regime, (ii) supplementing guidance on foreign exchange control for a guarantee of assets for foreign loans, (iii) reforming administrative procedures, expanding cases in which do not need to register loans, etc. Within the scope of this article, the author will focus on analyzing issues related to accounts for the foreign loan of enterprises in accordance with Circular 12 to give useful advice to enterprises.
1. Principles of currency transparency
Foreign loan is a general term used to describe a non-Government guaranteed foreign loan (hereinafter referred to as a self-borrowed foreign loan) and also to describe a Government guaranteed foreign loan in any form namely via a loan contract, contract for import of goods on deferred payment, loan entrustment contract, finance lease contract or issuance by the Borrower of debt instruments on the international market.
To guarantee principles of currency transparency, all monetary remittance transactions (drawdowns and repayments) relevant to the foreign loan of the Borrower that is not the commercial bank or foreign bank branch are carried out via the loan account of the Borrower, except in the following cases:
1.1. For cases of drawdowns
– Capital drawdowns from a lender to make payment to a non-resident beneficiary providing goods and services in accordance with a contract for the sale and purchase of such goods and services with a resident;
– Capital drawdown of a foreign loan in the form of finance leasing;
– Capital drawdown via the account of the borrower opened overseas where the Borrower is permitted to open an account overseas to implement the foreign loan;
– Capital drawdown of a foreign medium or long-term loan via payment to offset the obligation to make direct payment to the lender which includes: the obligation of payment in accordance with the goods import contract, the obligation of foreign loan repayment, the obligation of refunding compulsory loan debt to the Lender;
– Capital drawdowns in case the amount of money made for investment preparation is converted into a foreign loan as agreed between the parties in accordance with the law on foreign exchange control for foreign direct investment activities in Vietnam.
1.2. For the case of debt repayments
– Repayment in the form of provision of goods and services to the lender;
– Repayment through the agreement between the lender and the borrower to convert the debt into shares or contributed capital of the borrower;
– Repayment through the agreement between the lender and the borrower to convert the debt into shares or stakes owned by the borrower;
– Repayment of a foreign medium or long-term loan via payment off-setting receivables, made directly to the Lender;
– Repayment via the account of the lender opened overseas (in a case where the lender is permitted to open an account overseas to implement the foreign loan).
In case of capital drawdowns or debt repayment not via the account for the foreign loan, it is necessary to notify and send proving vouchers related to the transaction to the bank providing account services within 05 days from the execution date of the transaction.
2. Account for the foreign loan
The foreign loan account is the payment account of the borrower opened at the bank providing account services in order to drawdown capital, repay the foreign loan; execute derivative transactions to prevent risks for foreign loans and other money transfer transactions related to the activities of foreign loan, repayment and their guarantee.
2.1. Account for the foreign loan of foreign-invested enterprises
Account for the foreign medium and long-term loan will be the direct investment capital account (“DICA”) and this account may be used for single or multiple foreign loans. If the borrowing currency and DICA’s currency are different, the borrower is entitled to open another foreign loan account to make a foreign loan at the bank opening DICA.
The account used for foreign short-term loans can be DICA or other foreign loan and repayment accounts. In this case, each loan can only be made through one bank providing account services, and one account can be used for one or more different short-term loans.
If the short-term loan has principal outstanding at the first anniversary of the capital drawdown and the enterprise will make repayment within 30 working days from the first-anniversary date of capital drawdown, the debt repayment will be done through the foreign loan account which is being used for this loan. In this case, the enterprise is not obliged to conduct registration for a foreign loan with the State Bank and must ensure that the completion of the repayment of the principal outstanding within 30 working days from the anniversary date of capital drawdown. If the enterprise fails to repay the principal outstanding by the aforementioned time limit, the enterprise must register the foreign loan with the State Bank. In case of failure to conduct registration, an administrative penalty from VND 40.000.000 to VND 60.000.000 will impose.
In case the obligation to repay foreign loans is a joint liability arising after the division, separation, consolidation or merger, the enterprise is not obliged to use DICA to repay this debt. In this case, jointly responsible enterprises for the implementation of offshore loan repayment obligations shall co-open a payment account as an offshore loan borrowing and repayment account. In case the enterprises do not co-open the aforementioned payment account, these organizations shall open offshore loan borrowing and repayment accounts at the same banks providing account services to continue repayment of the offshore loan.
2.2. Account for the foreign loan of enterprises without foreign direct investment
The borrowing and repayment of foreign loans of enterprises under this case must be executed through foreign loan accounts opened at the bank providing account services. Each foreign loan can only be made through one bank providing account services and one account can be used for one or more foreign loans.
3. What should we do if the loan is transferred to the wrong account
In many cases, due to carelessness or lack of knowledge related to the borrowing and payment of foreign loans, some enterprises have encountered an unfortunate situation when receiving loans via payment account instead of DICA or foreign loan accounts. For this case, there are two situations with different consequences as follows:
– Situation 1: If the enterprise has not yet withdrawn the loan, the enterprise or the lender can send a trace request to the receiving bank with the content clearly stating that the loan has been transferred to the wrong account and requesting cancellation of the transfer order. After the order is canceled, the lender will transfer the loan back to the correct foreign loan account of the enterprise.
– Situation 2: If the enterprise has withdrawn the loan, the bank receiving the loan cannot repay the loan to the lender and the enterprise needs to report this violation to the State Bank for guidance on how to handle it. In this case, because the enterprise has violated the capital drawdown regulations and use of foreign loan accounts, it is highly likely that the State Bank will impose administrative sanctions on the enterprise, simultaneously providing guidance on handling plans.
So, the enterprise must be aware of regulations governing the use of an account for foreign loans to avoid the occurrence of Situation 2 above and being imposed administrative penalties.
This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to Investment. Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email firstname.lastname@example.org.