Legal Considerations for Corporate Foreign Loans

In the context of economic and market fluctuations that have caused cash flow difficulties for many businesses, raising capital from overseas has become increasingly common. Many enterprises in Vietnam choose to obtain loans from their parent companies, shareholders, or foreign partners in order to maintain their production and business operations.

In addition, a number of enterprises previously entered into short-term loan agreements of less than one year with foreign organizations or individuals. However, due to financial constraints, these enterprises have been unable to repay such loans on time and have had to extend the loan term for a longer period.

For foreign loans, enterprises should pay particular attention to several key legal obligations in order to avoid risks of non-compliance with foreign exchange management regulations.

1. Obligation to Register Foreign Loans

Under regulations governing foreign borrowing and repayment by enterprises, certain loans must be registered with the State Bank of Vietnam before implementation or during the loan term.

Loans subject to registration include:

• Medium- and long-term foreign loans.
• Short-term loans that are extended and whose total loan term exceeds one year.
• Short-term loans without an extension agreement but with an outstanding principal balance after one year from the first disbursement date, except where the borrower fully repays the loan within 10 days from the one-year milestone.

Therefore, depending on the loan term and outstanding balance, enterprises may be required to carry out loan registration procedures with the State Bank of Vietnam.

If an enterprise fails to register a foreign loan as required, the competent authority may impose administrative penalties, which may range from VND 20 million to VND 30 million, depending on the nature of the violation.

2. Foreign Loan and Repayment Accounts

Enterprises borrowing funds from overseas must conduct loan disbursement and repayment transactions through a foreign loan and repayment account opened at a licensed bank in Vietnam.

This account is used to conduct transactions related to:

• receiving loan proceeds from overseas lenders;
• repayment of principal and interest;
• money transfers related to guarantees or other transactions arising from the foreign loan.

2.1 Borrowers that are Foreign-Invested Enterprises (FDIs)

For medium- and long-term foreign loans, FDI enterprises must use their Direct Investment Capital Account (DICA) as the foreign loan and repayment account.

In addition to loan-related transactions, this account may also be used for other receipts and payments related to foreign direct investment activities in accordance with foreign exchange management regulations.

For short-term foreign loans, enterprises may choose to:

• use the Direct Investment Capital Account, or
• open a separate foreign loan and repayment account.

2.2 Borrowers that are not FDI enterprises

Domestic enterprises must open a foreign loan and repayment account at an authorized bank to carry out transactions related to:

• receiving loan proceeds;
• repayment of principal;
• payment of loan interest.

Each foreign loan must be conducted through only one account service bank. However, an enterprise may use one account for one or multiple foreign loans.

If enterprises withdraw or repay loan funds through an account that does not comply with the regulations, they may be subject to administrative penalties ranging from VND 30 million to VND 50 million.

3. Purposes of Foreign Borrowing

Under current foreign exchange management regulations, enterprises are permitted to borrow funds from overseas only for certain purposes, including:

(1) Financing business operations or investment projects

Loan proceeds may be used to implement:

• the borrower’s own production and business plans, or
• an investment project of an enterprise in which the borrower directly contributes capital (applicable to medium- and long-term loans).

In the latter case, the total loan amount must not exceed the borrower’s capital contribution ratio in the relevant project or enterprise.

The projects or business plans using foreign loan proceeds must:

• be approved by the competent authorities, and
• be consistent with the borrower’s registered business lines under its operating licenses (such as the establishment license, enterprise registration certificate, investment registration certificate, or cooperative registration certificate).

(2) Restructuring existing foreign debts

Enterprises may also borrow funds from overseas to restructure existing foreign debts, provided that such restructuring does not increase the borrowing cost.

4. Periodic Reporting Obligations

Enterprises with foreign loans must submit periodic reports to the State Bank of Vietnam.

Reports are generally required to be submitted quarterly, no later than the 5th day of the month following the reporting period.

Failure to comply with reporting obligations may result in administrative penalties, including:

• VND 5–10 million for late submission of reports;
• VND 10–15 million for incomplete reports;
• VND 30–40 million for inaccurate or dishonest reporting.

5. Borrowing Limits for Investment Projects

For enterprises holding an Investment Registration Certificate (IRC), the total outstanding balance of medium- and long-term loans (including both domestic and foreign loans) must not exceed the difference between the total investment capital and the contributed capital of investors recorded in the IRC.

This means that the loan amount must not exceed the mobilized capital portion registered for the project.

If an enterprise intends to borrow a higher amount, it must first amend the Investment Registration Certificate to increase the mobilized capital portion before implementing the loan.

For projects that are not required to obtain an Investment Registration Certificate, the outstanding balance of medium- and long-term loans must not exceed the capital requirements stated in the approved business plan or investment project.

Conclusion

Accessing foreign capital may help enterprises address cash flow challenges and expand their business operations. However, such loans are subject to strict regulations under Vietnamese foreign exchange management and foreign borrowing regulations.

Therefore, enterprises should carefully comply with legal requirements regarding:

• registration of foreign loans;
• use of appropriate loan and repayment accounts;
• permitted borrowing purposes;
• periodic reporting obligations; and
• borrowing limits applicable to investment projects.

Compliance with these requirements will help enterprises minimize legal risks, avoid administrative penalties, and ensure that their foreign financing activities are conducted smoothly and transparently.

To ensure that foreign capital mobilization is structured in compliance with regulations and implemented effectively in practice, Lexsol is ready to provide legal advisory support, assisting businesses in operating stably, ensuring compliance with applicable laws, and mitigating risks related to foreign loans.