Procedures for converting foreign loans into investment capital 

In the process of doing business in the implementation of investment projects, many investors need to mobilize capital from abroad through foreign loans. Due to operational needs, investors want to convert borrowed capital into corporate capital contributions.

Legal basis

• Investment Law 2020 and guiding documents.
• Circular No. 03/2016/TT-NHNN guides a number of contents on foreign exchange management for borrowing and repayment of foreign debts of business.
• Circular No. 05/2016/TT-NHNN amending Circular No. 03/2016/TT-NHNN guiding the contents of foreign exchange management for borrowing and repayment of foreign debts of business issued by the Governor of the State Bank of Vietnam.
• Circular No. 05/2017/TT-NHNN amending Circular No. 03/2016/TT-NHNN guiding foreign exchange management for borrowing and repayment of foreign debts of business issued by the Governor of the State Bank of Vietnam.
• Circular No. 12/2014/TT-NHNN on foreign loan conditions of business not guaranteed by the Government shall be issued by the Governor of the State Bank of Vietnam.

According to Clause 2, Article 34 of Circular No. 03/2016/TT-NHNN guiding some contents on foreign exchange management for borrowing and repayment of foreign debts of business, foreign investors can fully transfer loans borrowed as capital contributions in business.

“Article 34. Cases of withdrawal and repayment of debts not made through foreign loans and repayments

Cases of non-payment of debts through foreign loans or repayment accounts:

1. a) Repayment of debts in the form of provision of goods and services to the lender;
2. b) Repayment of debts by shares or capital contributions of the borrower in accordance with the provisions of law;
3. c) Repayment of medium and long-term foreign loans through clearing of receivables directly with the Lender;
4. d) Repayment through the borrower’s account opened abroad (in case the Borrower is allowed to open an overseas account to make a foreign loan).”

Order of loan conversion into investment capital of business

For short-term foreign loans

Step 1: Make changes to investment capital, investors on investment registration certificate /charter capital, members/shareholders contributing capital on the business registration certificate

Business shall adjust investment registration certificates and business registration certificate on the increase of investment capital and charter capital from capital sources which are foreign short-term loans in accordance with the Law on Investment and business law.

Step 2: Make a notification to the State Bank of Vietnam on the repayment of debts with shares/ capital contributed

The business shall report to the State Bank of Management of the unit on the transfer of loans into investment capital through traditional or electronic forms as prescribed.

For medium and long-term foreign loans

Step 1: Make changes to investment capital, investors on investment registration certificate / charter capital, members / shareholders contributing capital on the business registration certificate

Business shall adjust investment registration certificates and certificates of business registration on the increase of investment capital and charter capital from capital sources which are foreign short-term loans in accordance with the Law on Investment and business law.

Step 2: Carry out procedures for registration of loan changes at the State Bank

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

Order of loan transfer into charter capital of the business

For Vietnamese capital companies

Step 1: Carry out procedures for registration of capital contribution/purchase of capital shares contributed by foreign investors at the business.

Business shall carry out procedures for registration of capital contribution/purchase of shares of foreign investors in business of the Investment Law.

Step 2: Notify or register loan changes with the State Bank on the repayment of debts with shares/ contributed capital

• Short-term loans: Business shall report to the State Bank of Vietnam managing the unit on the transfer of loans into investment capital through traditional or electronic forms as prescribed.
• Medium and long-term loans: Business carry out procedures for registration of loan changes at the State Bank according to the detailed process at the https://luatvietan.vn/thu-tuc-thay-doi-dang-ky-khoan-vay-nuoc-ngoai.html.

Step 3: Change your business registration

Business shall carry out procedures for increasing charter capital in accordance with the Law on Business.

For foreign-owned companies

Step 1: Make changes to investment capital, investors on investment registration certificate/charter capital, members/shareholders contributing capital on the business registration certificate

Business shall adjust investment registration certificates and certificates of business registration on the increase of investment capital and charter capital from capital sources which are foreign short-term loans in accordance with the Law on Investment and business law.

Step 2: Carry out procedures for registration of loan changes at the State Bank

Business shall carry out procedures for registration of loan changes at the State Bank according to the detailed process at the 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/charter capital

• The loan must comply with the provisions of Circular No.03/2016/TT-NHNN. In case medium and long-term loans must be registered and reported to the State Bank, in case the short-term loan must be reported to the State Bank.
• The loan must be properly transferred to the direct investment capital account of the business as the basis for the recognition of the lender’s capital contribution.

Some related questions about converting foreign loans into investment capital 

Can foreign loans be converted into investment?

The law allows business to convert legal foreign loans into investment capital.

What can be done to convert a foreign loan into investment?

Business need to carry out procedures related to investment (in accordance with the investment law) and procedures related to foreign exchange (according to foreign exchange ordinances) to convert foreign loans into investment capital.

Customers wishing to advise on foreign loan registration, converting foreign loans into investment capital of business please contact Viet An Law Firm for detailed support and provide package services.