Conversion of foreign loans into investment capital in Vietnam

Conversion of foreign loans into investment capital in Vietnam is popular when a subsidiary falls into a shortage of capital. To inform and prevent legal risks related to this issue, Viet An Law Firm will provide the clients with some information about the conversion of foreign loans into investment capital in Vietnam in this article below.

Legal basis

• Law on Investment 2020.
• Law on Enterprise 2020.
• Decree 31/2021/ND-CP detailing and guiding the implementation of several articles of the Law on Investment.
• Circular 12/2022/TT-NHNN of the State Bank guiding foreign exchange management for foreign loans and repayment of enterprises, as amended and supplemented by Circular 21/2023/TT-NHNN.

What is the conversion of foreign loans into investment capital in Vietnam?

The popular way to raise capital chosen by many businesses is borrowing from foreign loans. When repayment is due, there are some options including:

• The borrowers repay the principal repayment and interest as agreed in the loan contract.
• The borrowers and creditors agree to extend the loan term.
• The borrowers and creditors agree to convert part or all of the debt into contributed capital in the company while increasing the charter capital. In this case, the creditors will increase their ownership in the company.

Therefore, if the enterprise chooses the third option, the subsidiary company’s payment will be converted into contributed capital of the parent company.

Noted legal issues before carrying out procedures for loans conversion

• Check the legality of the loan contracts signed by the parties;
• Check the foreign loan contracts registered with the State Bank (loans with a term of 12 months or more) or notify the State Bank;
• Check the loans have been transferred into the company’s capital account (borrowing company).
• Check the ratio of the foreign investors’ contributed capital in the company after increasing capital to ensure the ratio for conditional investment fields (limit the rate of the foreign investors’ contributed capital in the company);
• Check other commitments of the company to ensure that the implementation of procedures by competent authorities is carried out smoothly.

Procedure conversion of loans into investment capital, charter capital

In case foreign loans

Step 1: In case the parent company is a foreign company, it is necessary to carry out a procedure for repurchasing stakes contributed capital/additional capital contribution to the Vietnamese company.

According to Article 63 of Law on Investment, Article 36 of Decree 31/2021/ND-CP, enterprises carry out procedures for the adjustment of Investment Registration Certificates based on adjustment of investment capital structure as follows:

Dossier components:

• An application form for adjustment of the outward Investment Registration Certificate;
• A report on operation of the investment project up to the date of project adjustment;
• A decision on adjustments to the investment project based on adjustment of investment capital from loan;
• A decision of loan company on adjustments of investment capital from loan;
• An agreement on adjustments of investment capital from loan between two companies.
• A financial statement on the nearest year of the company;
• Explanation document with documents related to the loan;
• Other documents related to activities of the company.

Registration state authority:

• Foreign Economic Relations Department of the Department of Planning and Investment where the company is headquartered; or
• Management board of industrial zones (for enterprises with headquarters in industrial zones).

Processing time: within 15 working days from the day of receipt of complete documents.

Step 2: Notification of changes to enterprise registration information

According to Article 30 Law on Enterprise, Article 51 of Decree 01/2021/ND-CP, enterprises carry out procedures for adjustment charter capital of based on adjustment of loan capital into charter capital with the procedure as follows:

Dossier components:

• Notification of changes to enterprise registration information;
• Decision of the general meeting of shareholders/members council/owners;
• Notice of change in business registration;
• Additional update notifications;
• List of shareholders/members who are foreign investors;
• Documents proving that the loan amount has been transferred to the enterprise’s capital account, accompanied by a loan contract liquidation record containing the content of converting the loan into capital contribution of members/shareholders.

Registration state authority: Business Registration Department of the Department of Planning and Investment where the company is headquartered.

Processing time: within 03 working days from the date of receipt of legal documents.

Step 3: Register changes of loans in the State Bank

According to Article 19 of Circular 12/2022/TT-NHNN, enterprises carry out procedures for notice about changes to loans to the State Bank having authority.

Dossier components:

• The registration form for changes to loans stipulated in Clause 1 Article 18 of Circular 12/2022/TT-NHNN.
• Copies and Vietnamese translations of agreements on changes to loans which have been registered.
• Copies (certified by the borrowers) of the guarantor’s approval of the loan change content in case 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 if 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.

Time to apply:

Enterprises have to apply for the State Bank within 30 working days from the day the parties sign the change agreement or before the time to carry out the changes (in case the changes in case no need to sign the change agreement but still ensure compliance with foreign loan agreements).

Registration state authority:

• The State Bank (Foreign Exchange Management Department) carries out registration confirmation and change registration for loans with a loan turnover of over 10 million USD (or other foreign currency of equivalent value) and other foreign loans in Vietnamese dong.
• The State Bank branch in the province or centrally run city where the borrower’s head office is located confirms registration and change registration for loans with a loan turnover of up to 10 million USD (or other foreign currencies of equivalent value).

Processing time:

• 12 working days from the day of receipt valid and sufficient application by the borrowers (if they choose online form);
• 15 working days from the day of receipt valid and sufficient application by the borrowers (if they choose traditional form).

Results of implementing administrative procedures: Document confirming registration of changes to foreign loans or document refusing to confirm registration of changes to foreign loans.

In case domestic loans

In the case of domestic loans, the creditors are Vietnamese enterprises, procedures for conversion of foreign loans into investment capital only need to carry out procedures for notification of changes to enterprise registration information (increase the charter capital). Then, the owner of contributed capital in the subsidiary company is the parent company, with capital as the parent company’s loans.

According to Article 30 of Law on Enterprise and Article 51 of Decree 01/2021/NĐ-CP, enterprises carry out procedures for adjustment charter capital of basing on the adjustment of loan capital into charter capital with the procedure as follows:

Dossier components:

• Notification of changes to enterprise registration information;
• Minutes of the general meeting of shareholders/member council;
• Decision of the general meeting of shareholders/members council/owners
• Notice of change in business registration;
• Additional update notifications;
• List of shareholders/members who are foreign investors;
• Documents proving that the loan amount has been transferred to the enterprise’s capital account, accompanied by a loan contract liquidation record containing the content of converting the loan into capital contribution of members/shareholders.

Registration state authority: Business Registration Department of the Department of Planning and Investment where the company is headquartered.

Processing time: within 03 working days from the date of receipt of legal documents.

Legal services related to foreign loans by Viet An Law Firm

• Advise clients about the conditions, documents, and procedures for license/adjustment/termination of documents confirming registration and registration of loan changes;
• Drafting legal documents for businesses related to the content of license/adjustment/termination of documents confirming registration and registration of loan changes;
• Authorized representative of the clients carries out procedures to license/adjust/terminate documents confirming registration and registration of loan changes;
• Carry out procedures related to registration/notification of changes in foreign exchange transactions related to overseas investment activities;
• Monitor the application processing process of competent state agencies, explain to state agencies issues related to dossiers for license/adjustment/termination of registration confirmation documents, and register to change loans.

Clients who have related questions or need legal support regarding the conversion of foreign loans into investment capital in Vietnam, please contact Viet An Law Firm for the best support!

Disclaimer: This article was last updated in May 2024. Laws may have changed since then. Please contact Viet An Law to confirm the information in this article is current and for any legal assistance.