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Conversion of foreign loans into investment capital

In the course of business activities of investment projects, many investors need to mobilize capital from abroad through foreign loans. Due to the need to operate, investors want to convert the mobilized capital borrowed into the contributed capital of the enterprise. 

Loans in Vietnam

Some related questions about converting foreign loans into investment capital

Will foreign loans be converted into investment capital?

The law allows enterprises to convert legitimate foreign loans into investment capital.

What should be done to convert foreign loans into investment capital?

Enterprises need to carry out procedures related to investment (by the investment law) and procedures related to foreign exchange (under the ordinance on foreign exchange) to convert foreign loans into investment capital.

Legal grounds

· Investment Law 2020 and guiding documents.

· Circular No. 03/2016/TT-NHNN guiding several contents on foreign exchange management for foreign loans and repayment of enterprises.

· Circular No. 05/2016/TT-NHNN amending Circular No. 03/2016/TT-NHNN guiding the contents of foreign exchange management for foreign loans and repayment of enterprises issued by the Governor of the State Bank of Vietnam.

· Circular No. 05/2017/TT-NHNN amending Circular No. 03/2016/TT-NHNN guiding the management of foreign exchange for foreign loans and repayment of enterprises issued by the Governor of the State Bank of Vietnam.

· Circular No. 12/2014/TT-NHNN on conditions for foreign loans of enterprises not guaranteed by the Government issued by the Governor of the State Bank of Vietnam.

According to Clause 2, Article 34 of Circular No. 03/2016/TT-NHNN guiding several contents on foreign exchange management for the borrowing and repayment of foreign loans of enterprises, foreign investors can completely transfer the loans already borrowed into contributed capital in enterprises.

“Article 34. Cases of draw withdrawal or repayment of debts not made through foreign loan accounts or repayment

2.              Cases of non-payment through foreign loan accounts:

a) Repayment of debts in the form of provision of goods and services to the lender;

b) Repaying debts by shares or contributed capital of the borrower following the provisions of law;

c) Repayment of medium and long-term foreign loans through the clearing of removable directly with the lender;

d) Repayment through the borrower’s account opened overseas (in case the borrower is allowed to open an overseas account for the performance of the foreign loan).”

Order of conversion of loans into investment capital of enterprises

For short-term foreign loans

Step 1: Change of investment capital, investors on investment registration certificates/charter capital, members/shareholders contributing capital on the enterprise registration certificate

Enterprises shall adjust investment registration certificates and enterprise registration certificates on increasing investment capital and charter capital from foreign short-term loans by the Law on Investment and the Law on Enterprises.

 Step 2: Notify the State Bank of the repayment of debts by shares/ contributed capital

Enterprises shall report to the State Bank managing units on the conversion of loans into investment capital through traditional or electronic forms as prescribed.

For medium and long-term foreign loans

Step 1: Change of investment capital, investors on investment registration certificates/charter capital, members/shareholders contributing capital on the enterprise registration certificate

Enterprises shall adjust investment registration certificates and enterprise registration certificates on increasing investment capital and charter capital from foreign short-term loans by the Law on Investment and the Law on Enterprises.

Step 2: Apply for loan change registration at the State Bank

Enterprises shall carry out procedures for registration of loan changes at the State Bank according to the detailed process at https://luatvietan.vn/thu-tuc-thay-doi-dang-ky-khoan-vay-nuoc-ngoai.html.

Note on medium and long-term foreign loans converted into investment capital

· The loan must comply with the provisions of Circular 03/2016/TT-NHNN. In case of medium and long-term loans, they must be registered and reported to the State Bank, in case of short-term loans, they must report them to the State Bank.

· The loan must be transferred correctly to the direct investment capital account of the enterprise as the basis for the recognition of the capital contribution of the lender.

Customers wishing to consult on registration of foreign loans, conversion of foreign loans into investment capital of enterprises, please contact Viet An Law Firm for detailed support and provide package services.

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