Account for transfer of loans into capital of FDI company in Vietnam

An FDI company (Foreign Direct Investment) is a company that has foreign direct investment capital. To alleviate the financial burden of loan repayment, one of the methods that FDI companies or borrowers often negotiate is to transfer the loan into contributed capital or shares from the creditor into the FDI company after the loan term expires. So, how do we account for the transfer of loans into contributed capital of FDI companies? In the article below, Viet An Law Firm will provide clients with some information to account for transfer of loans into capital of FDI company in Vietnam.

Can FDI companies transfer loans into contributed capital?

According to Clause 2, Article 34 of Circular 12/2022/TT-NHNN, FDI companies are allowed to transfer loans into contributed capital through the following methods:

• Paying debts in the form that the creditor and the borrower agree to transfer the outstanding debt into shares or contributed capital of the borrower;
• Paying debts in the form that the creditor and the borrower agree to swap the outstanding debt into shares or contributed capital owned by the borrower.

Account for transfer of loans into capital of FDI company in Vietnam

When transferring loans and debts into contributed capital, FDI companies record:

Debit accounts 331, 338, 341

• Credit account 4111 – Owner’s contributed capital
• Credit accounts 4112, and 4118 (The difference between the value of assets and liabilities transferred into capital greater than the value of the portion considered as the owner’s contributed capital).

Procedure to transfer loans into contributed capital of FDI company

According to Official Dispatch 2974/BKHDT-DTNN of the Ministry of Planning and Investment, the procedures to transfer loans into contributed capital of FDI companies are as follows:

Step 1: Carry out internal procedures in the FDI company

• The parties sign an agreement to transfer loans into contributed capital.
• The members and shareholders of the company agree to transfer loans into contributed capital;
• A meeting is organized to vote on and approve the inclusion of new members or shareholders, and to change the ownership ratios of contributed capital in the FDI company.

Step 2: Carry out procedures for registering to contribute capital, purchase shares, or purchase stakes applicable to foreign investors  

The FDI company applies 01 dossier for registering to contribute capital, purchase shares or purchase stakes to the Department of Planning and Investment where the business organization’s headquarters is located. The dossier includes:

• A registration form to contribute capital, purchase shares/stakes as regulated form;
• Copies of legal documents of the individual or organization that contributes capital or purchases shares/stakes and of the business organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors;
• A principal agreement on contributed capital or purchase of shares/stakes between the foreign investors and the business organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors or between the foreign investors and the shareholders or members of such business organization;

Step 3: Adjust the Investment Registration Certificate  

The investor applies a dossier to adjust the Investment Registration Certificate to the investment registration authority. For projects not subject to approval for the investment guidelines, the dossier includes:

• An application form for adjustment of the Investment Registration Certificate:
• A report on the investment project’s progress by the time of adjustment:
• The investor’s decision on investment project adjustment;
• A copy of the national ID card, citizen ID card, or passport for individual investors; a copy of the Certificate of Establishment or other equivalent document certifying the legal status of organizational investors;
• Original Investment Registration Certificate;
• Proposal for the investment project including the following main contents: Investor or method of investor selection, investment objectives, investment scale, investment capital, and plan for raising capital, location, duration and schedule of the investment project, demand for labor, proposal for investment incentives, impact and socio–economic efficiency of the project;
• A copy of one of the following documents: The investor’s financial statements for the last two years; commitment of a parent company to provide financial support; commitment of a financial institution to provide financial support; guarantee for the investor’s financial capacity; documentation explaining the investor’s financial capacity;
• Explanation of the content adjustments;
• The business cooperation contract (BCC) if the investment project is executed under a business cooperation contract (BCC);
• Other documents relating to the investment project, and requirements on the eligibility and capacity of the investor in accordance with regulations (if any);
• Loan agreement;
• Agreement on transferring the loans into contributed capital.

Step 4: Register changes in charter capital and contributed capital ratios  

The procedure to register changes in the charter capital of FDI companies is carried out according to Article 51 of Decree 01/2021/ND-CP.

• The competent authority receiving dossier: The Business Registration Office of the province where the company is headquartered
• The dossier of change in the charter capital includes:
  • Notification of changes to enterprise registration information;
  • The resolution or decision and the copy of the minutes of the meeting of the Board of Members of the multi-member limited liability company or partnership, or of the General Meeting of Shareholders of the joint-stock company on change in charter capital;
  • The charter appendix contains the content on change in charter capital;
  • Loan agreement;
  • An agreement on transferring the loans into contributed capital;
  • The list of new members and new shareholders;
  • A written approval given by the investment registration authority for capital contribution or purchase of shares/stakes by foreign investors/foreign-invested business entities in case procedures for registration of capital contribution or purchase of shares/stakes must be followed;
  • An agreement between the parties to transfer the loans into contributed capital.

Step 5: Carry out the procedure for registering the change of loan at the State Bank (applicable for converted loans that are medium and long-term loans)

• Prepare the Application for loan change:
• If a borrower fills in the loan change declaration form on the website before applying for the dossier: The borrower prints out that form from the website, and gives their signature and stamp;
• If a borrower failes to fill in the loan change declaration form on the website before applying the dossier: The borrower shall complete the application form for registration for change the foreign loan.
• The borrower applies the dossier for the change of loan to the State Bank, including:
  • The registration form for changes to loans;
  • Loan agreement;
  • Copies and Vietnamese translations of agreements to transfer the loans into contributed capital;
  • A written approval from the guarantor regarding the changes to the loan in cases where the borrower’s loan is guaranteed;
  • Document issued by the account service provider regarding confirmation of withdrawal of loan proceeds and debt (principal and interest) repayment till the date of registration for changes of loans in the event of registration for changes of the loan proceeds, or the plan for withdrawal of loan proceeds or debt repayment, or the date on which the commercial bank provides account services.
  • A copy of the Investment Registration Certificate and the Enterprise Registration Certificate after adjustment.
• Time limit to apply: Within 30 working days from the date on which the parties sign an agreement to change the loans into contributed capital or before the time the change is made.
• Time limit to process the dossier: Within 15 working days from the date of receipt of the dossier.

Competent authorities to process the procedure to transfer loans into contributed capital

• For the investment project executed in an industrial zone, export-processing zone, hi-tech zone or economic zone: The Management Board of the industrial zone, export processing zone, high-tech zone, or economic zone;
• For investment projects outside industrial zones, export-processing zones, high-tech zones, or economic zones: The Department of Planning and Investment;
• For investment projects executed in 02 provinces or more; investment projects in and outside industrial zones, export-processing zones, high-tech zones, and economic zones; investment projects executed inside industrial parks, export-processing zones, hi-tech zones and economic zones where management boards of such industrial parks, export-processing zones, hi-tech zones and economic zones have yet to be established or not under the management of the management boards of industrial parks, export-processing zones, hi-tech zones and economic zones: The investment registration authority of where investment projects are executed.

Agreement to transfer the loans into contributed capital of FDI companies

The content of the agreement to transfer the loans into contributed capital of FDI companies must specify:

• The parties voluntarily carry out the procedures and the timing for transferring loans into contributed capital;
• The amount of loan to be transferred into contributed capital;
• The method of handling interest, principal, or late payment interest;
• The percentage of investment capital and charter capital that the creditor will own in the FDI company after completing the loan transfer process.

Clients who have related questions or need legal support to account for transfer of loans into capital of FDI company in Vietnam, please contact Viet An Law Firm for the best support!

Update: 8/2024