Procedures for converting foreign loans into the investment capital in Vietnam

In the process of business to implement investment projects, many investors need to mobilize capital from abroad through foreign loans. Due to operational demands, investors want to convert borrowed capital into contributed capital of enterprises.

Legal basis

• Law on Investment 2020.
• Circular No. 12/2022/TT-NHNN on guidelines for foreign exchange administration in respect of enterprise’s foreign borrowing and foreign debt repayment of enterprises.
• Circular No. 12/2014/TT-NHNN on conditions for borrowing foreign of enterprises not guaranteed by the Government which is issued by the Governor of the State Bank of Vietnam.

According to Clause 2, Article 34 of Circular No. 12/2022/TT-NHNN, foreign investors can completely transfer the borrowed debt into the contributed capital in the enterprise. Cases in which debt repayment is not carried out through foreign borrowing and foreign debt repayment accounts include:

1. a) Paying debts by means of providing goods or services for the borrower;
2. b) Paying debts in the form that the creditor and the borrower agree to convert the outstanding debt into shares or contributed capital of the borrower;
3. c) 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;
4. d) Paying debts incurred from medium-term or long-term loans through settling or clearing against direct receivables with the borrower;
5. dd) Paying debts through the account that the borrower opens abroad (in case the borrower is allowed to open accounts abroad for arrangement of foreign loans).

Procedures for converting foreign loans into the investment capital in Vietnam

For short-term foreign loans

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

Enterprises carry out adjustments to the Investment Registration Certificate, the Enterprise Registration Certificate regarding the increase of the investment capital or charter capital from capital sources being foreign short-term loans in accordance with the Law on Investment and the Law on Enterprises.

Step 2: Perform a notice to the State Bank of the debt repayment by shares/ contributed capital

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

For medium and long-term foreign loans

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

Enterprises carry out adjustments to the investment registration certificate, the business registration certificate regarding the increase of the investment capital, charter capital from capital sources being foreign short-term loans in accordance with the Law on Investment, the Law on Enterprises.

Step 2: Carry out the procedure to register for the loan change at the State Bank

Enterprises carry out procedures to register for loan changes at the State Bank according to the detailed process at  article Procedures for changing registration of foreign loans in Vietnam of Viet An Law website.

Procedures for converting foreign loans into the investment capital in Vietnam

For Vietnamese capital companies

Step 1: Carry out the procedure for registration of contributing capital /purchasing of shares, contributed capital of foreign investors in the enterprise.

Enterprises carry out procedure for registration of contributing capital /purchasing of shares, contributed capital of foreign investors in the enterprise under the Law on Investment.

Step 2: Make a notice or registration for loan changes with the State Bank about the debt repayment by shares/contributed capital

• Short-term loans: Enterprises shall notice to the State Bank to manage the conversion of loans into the investment capital through traditional or electronic forms according to regulations.
• Medium and long-term loans: Enterprises carry out procedures to register for loan changes at the State Bank.

Step 3: Change the enterprise registration

Enterprises shall carry out procedures to increase the charter capital in accordance with the Law on Enterprises.

For foreign capital companies

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

Enterprises carry out adjustments to the investment registration certificate, the enterprise registration certificate regarding the increase of the investment capital, charter capital from capital sources being foreign short-term loans in accordance with the Law on Investment, the Law on Enterprises.

Step 2: Carry out the procedure to register for the loan change at the State Bank

Enterprises carry out procedures to register for loan changes at the State Bank.

Notes on medium and long-term foreign loans converted into the investment capital/charter capital

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

Some related questions about converting foreign loans into the investment capital

Can foreign loans be converted into the investment capital?

Legal regulations allow enterprises to convert legal foreign loans into the investment capital.

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

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

Clients wish to consulting on registering foreign loans, converting foreign loans into the investment capital of enterprises, please contact Viet An Law for detailed support and provide a full service package.