Vietnamese enterprises obtain short-term foreign loans

Currently, Apolat Legal has received numerous requests for consultation regarding legal issues related to foreign loans, particularly short-term loans. We have observed that many enterprises do not fully understand the regulations concerning short-term foreign loans, which can easily lead to legal violations. To assist our Readers in better understanding the legal provisions in this field, we provide the following information: 

1. Purpose of use for short-term foreign loans

Pursuant to Clause 1, Article 3 of Decree 219/2013, a foreign loan is defined as “the Borrower receiving credit from a Non-resident through the signing and execution of foreign loan agreements in the form of loan contracts, deferred payment sales contracts, entrusted lending contracts, financial leasing contracts, or the issuance of debt instruments by the Borrower.” 

According to the definition in Circular 12/2014, a short-term foreign loan is a foreign loan with a loan term of up to 01 year. This definition remains unchanged in Circular 08/2023. 

However, the purposes for using short-term foreign loans were adjusted in Circular 08/2023, differing from those prescribed in Circular 12/2014, specifically: 

Note: Please be aware that the Borrower shall be responsible for fully archiving receipts, documents proving the use of foreign loans in accordance with the aforementioned loan purposes, as well as documents related to the change of the list of capital use needs (if any) as prrscribed by Circular 08/2023. The Borrower must present all these documents upon request for inspection and examination of the loan purpose by competent authorities. 

2. Sanctions for improper use of short-term foreign loans

Currently, administrative sanctions for violations related to the use of foreign loans and foreign exchange activities are prescribed in Decree 88/2019. However, Decree 88/2019 does not explicitly and specifically regulate sanctions for the improper use of foreign loans. 

Essentially, using a foreign loan for an improper purpose constitutes non-compliance with the regulations on foreign loan borrowing and repayment prescribed in Circular 12/2014 and Circular 08/2023. Pursuant to Article 3.3(b) and Article 23.7(a) of Decree 88/2019, for acts of non-compliance with legal regulations on foreign loan borrowing and repayment, excluding the violations listed below, the administrative fine applicable to violating individuals ranges from VND 150,000,000 to VND 200,000,000, and for violating organizations ranges from VND 300,000,000 to VND 400,000,000:  

• Failure to correctly implement legal regulations on administrative procedures for registering foreign loans or registering changes to foreign loans;  
• Failure to correctly comply with legal regulations on opening, closing, and using accounts in Vietnam for foreign loan borrowing and repayment; 
• Conducting drawdowns or repayments for foreign loans contrary to legal regulations; 

Thus, a Borrower violating regulations on the proper use of foreign loans may be fined from VND 300,000,000 to VND 400,000,000 for non-compliance with lgal regulations on foreign eloan borrowing and repayment, including the act of using a Foreign Loan for an improper purpose. 

3. Statute of limitations for handling violations regarding improper use of short-term foreign loans

Pursuant to Decree 88/2019, any organization or individual committing an administrative violation in the monetary and banking sector may be subject to administrative sanctions prescribed therein by state authorities, regardless of whether the violation is ongoing or has concluded.  

Based on the Law on Handling of Administrative Violations, the statute of limitations for administrative violations in the monetary and banking sector is 01 year. The point in time for calculating the statute of limitations shall be determined as follows:  

• For a completed administrative violation, the statute of limitations shall be calculated from the time the violation ends.  A completed administrative violation is an act performed once or multiple times where there is evidence establishing the act was finished before the competent authority detected the violation.  

• For an ongoing administrative violation, the statute of limitations shall be calculated from the time the violation is detected. An ongoing administrative violation is an act occurring at the time the competent authority detects the violation, and the act is still infringing upon state management order. 

4. Cases where the registration of a short-term foreign loan with the State Bank of Vietnam is required

The following short-term foreign loans must be registered with the State Bank of Vietnam (SBV): 

• A short-term loan whose principal repayment period is extended, resulting in a total loan term exceeding 01 year; 

• A short-term loan with no extension agreement but which still has an outstanding loan principal (including loan interests aggregated in loan principals) on the date which is full 1 year from the first drawdown date, unless the borrower fully repays outstanding loan principal within 30 working days from the date which is full 1 year from the first drawdown date. 

5. Opening and using foreign loan and repayment accounts for short-term foreign loans 

For enterprises without foreign direct investment: The Borrower must open a specific foreign loan and repayment account, which is a payment account opened by the Borrower at an account service-providing bank, for drawdowns and repayments related to the foreign loan. Borrowers that are not foreign-invested enterprises must open this foreign loan and repayment account (separate from the company’s regular payment account) at a bank to conduct fund transfer transactions related to the foreign loan (drawdowns, repayment of principal and interest).  

For foreign-invested enterprises: For short-term foreign loans, the Borrower may use either its direct investment capital account (direct investment capital account) as prescribed at Point a of this Clause or another foreign loan and repayment account (other than the direct investment capital account) to perform collection and payment transactions related to the foreign loan. Each loan under this Clause may only be processed through 01 account service-providing bank. The Borrower may use one account for one or multiple short-term foreign loans. The Collection and payment transactions on this account are prescribed in Articles 28 and 29 of Circular 12/2022.  

6. Consequences for reporting incorrect data in periodic reports submitted to the State Bank of Vietnam

Pursuant to Article 41 of Circular 12/2022, the SBV Branch shall be responsible for reviewing the reported data within 10 days from the date the Borrower submits the periodic report and notifying the Borrower of any erroneous data for correction. Concurrently, the Borrower shall be also responsible for resubmitting the report with the corrected data within 03 days from discovering the error and notifying the SBV Branch for review. 

If the Borrower submits reports with inaccurate data 02 or more times within a fiscal year, the Borrower may be fined from VND 10,000,000 to VND 20,000,000. 

The specific administrative fine applied may follow similar sanctioning principles as those for the improper use of Short-Term Foreign Loans mentioned above. If the Borrower proactively detects and corrects the erroneous data, it may be considered a mitigating factor according to Article 9 of the Law on Handling of Administrative Violations 2012. 

7. Consequences for the cases where the Borrower changes the repayment schedule for a short-term foreign loan compared to the plan declared in periodic reports 

Referring to Appendix 5 – Template for reporting the status of implementation of short-term foreign loan borrowing and repayment, attached to Circular 12/2022, the Borrower is obligated to report data related to the planned drawdown, principal, and interest repayment for the subsequent period. Currently, the legal regulations on foreign loan borrowing and repayment do not specify whether the Borrower is permitted to change or notify adjustments to the repayment plan compared to the data reported in the previous period’s report. 

However, essentially, the Borrower shall be responsible for adhering to the reported repayment plan and accurately declaring the information and data recorded in the periodic reports.  If a submitted report contains erroneous data, the Borrower must make corrections as requested by the SBV Branch or proactively detect errors and voluntarily make adjustments, depending on the circumstances. 

If the Borrower changes the repayment plan compared to the plan submitted in periodic reports, this act could be considered submitting a report with incorrect information. Therefore, the Borrower may be subject to a fine ranging from VND 10,000,000 to VND 20,000,000 if the reported data is inaccurate 02 or more times within a fiscal year. 

Based on our practical observations of similar cases, competent authorities have not typically imposed administrative fines for failure to report or reporting inaccurate data thus far. However, we have no basis to determine whether competent authorities will impose fines for this violation in the future. Therefore, we recommend that Borrowers pay close attention to submitting reports with accurate data and adhere to the reported repayment plan to avoid repeated errors. 

See more:

1/ Trends to stricter control for short-term foreign loan purposes

2/ Noteworthy issues regarding foreign loans

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