Set up a financial leasing company in Vietnam

Financial leasing is a field of financial activities, supporting businesses in business, capital rotation, investment, etc. Because of its importance, there are currently many investors. at home and abroad want to establish a company doing business in this field. The article below from Viet An Law will provide client with some information about how to set up a financial leasing company in Vietnam.

Legal basis

• Vietnam’s Commitment Schedule in the WTO;
• Law on Credit Institutions 2010, amended in 2017;
• Decree 39/2014/ND-CP on operations of finance companies and financial leasing companies, amended by Decree 16/2019/ND-CP;
• Decree 86/2019/ND-CP regulating the legal capital levels of credit institutions and foreign bank branches;
• Circular 30/2015/TT-NHNN regulates the licensing, organization and operation of non-bank credit institutions, as amended and supplemented by Circular 05/2023/TT-NHNN.

What is financial leasing?

According to Clause 7, Article 3 of Decree 39/2014/ND-CP , financial leasing is a medium- and long-term credit granting activity on the basis of a financial leasing contract between a financial lessor (specialized finance company) with the financial lessee (business or individual). In there:

• The financial lessor (finance leasing company or finance company) commits to purchase the financial leased asset at the request of the financial lessee and hold ownership of the financial leased asset within throughout the rental term. Specifically, financial lease assets are machinery, equipment or other assets according to regulations of the State Bank and specific instructions on types of leased assets in each period.
• The financial lessee uses the financial leased asset and pays rent throughout the lease term specified in the financial leasing contract.

According to Article 3.5 of Decree 29/2014/ND-CP, a financial leasing company is a specialized financial company, a non-bank credit institution whose main activity is financial leasinng. Financial lease balance must account for at least 70% of total credit balance.

Conditions for setting up a financial leasing company in Vietnam

General conditions

Finance companies are allowed to carry out financial leasing activities when they fully meet the following conditions:

• Have a team of qualified staff, professional capacity, facilities, technology, vehicles, equipment and internal regulations according to the provisions of law to carry out banking activities recorded in the License.
• Fully meet the professional conditions for banking activities prescribed by the State Bank.

In case a finance company is established and operating before the effective date of this Decree, it may supplement financial leasing activities when it fully meets the conditions specified in Clause 1 of this Article and the following conditions:

• Comply with regulations on safety ratios in banking operations, debt classification and risk provisioning continuously in all quarters of the year immediately preceding the year in which additional operations are requested;
• Bad debt ratio is below the level prescribed by the State Bank;
• Not be sanctioned for administrative violations in the field of currency and banking within 01 consecutive year from the time of request for additional activities retroactively.
• Continuously profitable business activities for at least 02 years immediately preceding the year in which additional operations are requested;

Specific conditions

Regulations in Article 20 of the Law on Credit Institutions, Decree 86/2019/ND-CP on conditions for granting licenses to establish credit institutions, domestic credit institutions that want to establish service business companies financial leasing services need to meet the following conditions:

• Have charter capital, minimum allocated capital is 150 billion VND;
• The owner of the financial leasing company is a single-member limited liability company, the founding shareholders and founding members are legal entities that are legally operating and have sufficient financial capacity to contribute capital; A founding shareholder or founding member is an individual with full civil capacity and sufficient financial capacity to contribute capital;
• Managers, executives, and members of the Supervisory Board who meet the standards and conditions specified in Article 50 of the Law on Credit Institutions 2010, amended in 2017;
• Have a charter consistent with the provisions of the Law on Credit Institutions and other relevant provisions of law;
• Have an establishment project and a feasible business plan; does not affect the safety and stability of the credit institution system; Do not create a monopoly or restrict unfair competition in the credit institution system.

In addition to the above general conditions, each investor of different nationality also needs to meet individual conditions, specifically:

For foreign investors

When foreign investors or specifically foreign credit institutions want to establish a financial leasing service company in Vietnam, client need to check the conditions in Vietnam’s Commitment Schedule in WTO as well as Vietnamese law to determine conditions. These conditions include:

• Foreign investors must have citizenship of countries that are members of the WTO to be allowed to establish a commercial presence in Vietnam;
• Profitable business for 3 consecutive fiscal years preceding the year of submitting the application for a License and up to the time of submitting additional applications to be considered for a License;
• Have total assets of over 10 billion USD at the end of the year immediately preceding the year of submitting the license application;
• Not seriously violate regulations on banking activities and other legal regulations of the home country in the 05 years immediately preceding the year of submitting the application for License and up to the time of submitting additional documents for granting a License;
• Have experience in international operations, ranked from stable level or higher by international credit rating agencies, a level capable of fulfilling financial commitments and operating normally even when the situation, economic conditions change in an unfavorable direction;
• Assessed by the competent authority of the home country to ensure capital adequacy ratio, other safety ratios, full compliance with regulations on risk management and full provisioning according to regulations. regulations of the country of origin in the year immediately preceding the year of submitting the application for a License and at the time of submitting additional documents to be considered for issuance of the License;
• Not a strategic shareholder, owner, founding member of another credit institution established and operating in Vietnam;
• In case a foreign credit institution is a leasing company, the financial lease and loan balance must account for at least 70% of the company’s total assets.

Conditions on the business form

Credit institutions are only allowed to establish financial leasing companies in Vietnam in the following forms:

• Representative office;
• Joint venture financial leasing company;
• Financial leasing company with 100% foreign investment capital.

Conditions for participating in shares:

• Vietnam can limit the equity participation of foreign credit institutions in equitized Vietnamese state-owned commercial banks to the same level of equity participation of Vietnamese banks;
• For capital contribution in the form of buying shares, the total number of shares held by foreign natural persons and legal entities in each Vietnamese joint stock commercial bank must not exceed 30% of the charter capital of the bank. banks, unless otherwise prescribed by Vietnamese law or permitted by Vietnamese competent authorities.

For domestic investors

Conditions for founding shareholders

Pursuant to Clause 3, Article 1 of Circular 05/2023/TT-NHNN, founding shareholders of a financial leasing company need to:

• Not a strategic shareholder, founding shareholder, owner, founding member of another credit institution established and operating in Vietnam;
• Do not use capital mobilized or borrowed from other organizations or individuals to contribute capital;
• Have Vietnamese nationality;
• Not belonging to the subjects prohibited from establishing a business according to the provisions of the Enterprise Law and the Law on Cadres and Civil Servants;

In case the founding shareholder is an organization, the following regulations must be complied with:

• Established under Vietnamese law;
• Profitable business for 3 consecutive fiscal years preceding the year of submitting the application for a License and up to the time of submitting additional applications to be considered for a License;
• Fulfill all tax and social insurance obligations according to the provisions of law up to the time of submitting the application for a License;

In case the founding shareholder is a Vietnamese enterprise (except Vietnamese commercial banks), it must meet:

• Have a minimum equity of 500 billion VND, and minimum total assets of 1,000 billion VND in 03 consecutive fiscal years preceding the year of submitting the application for License. In case an enterprise operates in a business line that requires legal capital, it must ensure equity according to the audited financial statements of the year immediately preceding the time of submitting the application for a License minus the minimum legal capital equal to the committed capital contribution;
• In case an enterprise is granted a License to establish and operate in the field of securities and insurance, it must comply with capital contributions according to regulations of relevant laws;

In case the founding shareholder is a Vietnamese Commercial Bank, it must satisfy the following conditions:

• Have total assets of at least 100,000 billion VND, fully comply with regulations on risk management and full provisioning as prescribed at the time of application for License and up to the time of additional application to be considered for a License;
• Do not violate the limits and safety ratios in operations according to the regulations of the State Bank in the year immediately preceding the year of submitting the application for License and at the time of submitting additional documents for licensing review;
• Ensure the minimum capital adequacy ratio after contributing capital to establish a non-bank credit institution;
• Not be sanctioned for administrative violations in the field of currency and banking activities in the 02 years immediately preceding the year of submitting the application for the License and up to the time of submitting the application for the License.

Conditions for owners and founding members

This condition is specified in Clause 4, Article 1 of Circular 05/2023/TT-NHNN. Specifically, founding members who are Vietnamese enterprises (except Vietnamese commercial banks) must comply with the following conditions:

• The owner, founding member is not a strategic shareholder, founding shareholder, owner, founding member of another credit institution established and operating in Vietnam;
• Commitment to financial support to resolve difficulties in cases where non-bank credit institutions have difficulty with capital solvency or liquidity;
• Do not use mobilized or borrowed capital from other organizations or individuals to contribute capital;
• Established under Vietnamese law;
• Profitable business for 3 consecutive fiscal years preceding the year of submitting the application for a License and up to the time of submitting additional applications to be considered for a License;
• Fulfill all tax and social insurance obligations according to the provisions of law up to the time of submitting the application for a License;
• Have minimum equity of 1,000 billion VND, minimum total assets of 2,000 billion VND in 03 consecutive fiscal years preceding the year of submitting the application for License. In case an enterprise operates in a business line that requires legal capital, it must ensure equity according to the audited financial statements of the year immediately preceding the time of submitting the application for a License. minus the minimum legal capital equal to the committed capital contribution;
• In case an enterprise is granted a License to establish and operate in the fields of securities and insurance, it must comply with capital contributions according to relevant legal regulations.

For owners and founding members who are Vietnam Commercial Banks, they must comply with the following conditions:

• The owner, founding member is not a strategic shareholder, founding shareholder, owner, founding member of another credit institution established and operating in Vietnam;
• Commitment to financial support to resolve difficulties in cases where non-bank credit institutions have difficulty with capital or solvency or liquidity;
• Do not use capital mobilized or borrowed from other organizations or individuals to contribute capital;
• Profitable business for 3 consecutive fiscal years preceding the year of submitting the application for a License and up to the time of submitting additional applications to be considered for a License;
• Fulfill all tax and social insurance obligations according to the provisions of law up to the time of submitting the application for a License;
• Have total assets of at least 100,000 billion VND, fully comply with regulations on risk management and full provisioning as prescribed at the time of application for License and up to the time of application. supplement to be considered for a License;
• Do not violate the limits and safety ratios in operations according to the regulations of the State Bank in the year immediately preceding the year of submitting the application for License and at the time of submitting additional documents for licensing review;
• Ensure the minimum capital adequacy ratio after contributing capital to establish a non-bank credit institution;
• Not be sanctioned for administrative violations in the field of currency and banking activities in the 02 years immediately preceding the year of submitting the application for License and up to the time of submitting the application for License.

Above is some advice from Viet An Law related to set up a financial leasing company in Vietnam. If clients need to establish a company, please contact us for the best support.