ISSUE OF DECEMBER 2022 – LATEST CHANGES IN ENTERPRISES’ FOREIGN BORROWING AND FOREIGN DEBT REPAYMENT

Dear Valued Clients,

On September 30^th 2022, the State Bank has issued Circular No. 12/2022/TT-NHNN (“Circular 12”) guiding the foreign exchange administration in respect of foreign borrowing and foreign debt repayment of enterprises replacing Circular No. 03/2016/TT-NHNN dated February 26^th, 2016, Circular No. 05/2016/TT-NHNN dated April 15^th, 2016 and Circular No. 05/2017/TT-NHNN dated June 30^th, 2017. On the basis of regulations effectively applied in previous documents, Circular 12 has been amended, supplemented to improve the legal framework for foreign borrowing and foreign debt repayment of enterprises and has taken effect from November 15^th, 2022.

In this Legal Update, we would like to summarize and clarify the notable amendments and supplements on foreign borrowing and foreign debt repayment of enterprises stipulated in Circular 12.

1.     Rules for foreign exchange administration of foreign loans arranged by means of deferred payment for imported of goods

Foreign loan granted by deferral of payment for imported goods shall include imports on which the first date of withdrawal precedes the last date of payment. In which:

(i)      The date of withdrawal of foreign loan granted by deferral of payment for imported goods shall be:

• The 90^th day from the date that transport documents are issued if the bank providing account services requires transport documents included in the payment documents;
• The 45^th day from the date that the examination of information in the cleared customs declaration if the bank providing account services does not require transport documents included in the payment documents;

(ii)      The last date of payment shall be:

• The final date of the payment time limit as shown in the contract;
• The last date of payment in reality if the contract is neither followed nor specified any payment time limit;

(iii)      The time limit of a foreign loan granted by deferral of payment for imported goods shall commence on the first date of withdrawal and ends on the last date of payment.

In addition, conventional loans made in the form of deferred payment for imported goods shall not be subject to registration or registration for changes of foreign loans set forth in Chapter III of Circular 12. Currently, pursuant to Article 4.3 of Circular 12, a new point has been added to the rules as follows: “The bank transfer of repayment of the debt (principal, interest) and charges relating to the foreign loan granted by deferral of payment for imported goods is not necessarily made via the foreign loan account.”

For mid-term or long-term foreign loans arranged in the form of deferred payment for imported goods of which registration or registration for changes has been confirmed by the State Bank before the date of entry into force of Circular 12 shall be continuously effected (including withdrawal of loan proceeds or debt repayment) according to statements on confirmation of registration or registration for changes of foreign loans. As for any changes that may arise as stated in the statement of confirmation of registration, registration for changes of foreign loan, the borrower shall register the change based on the agreement with the creditor, and shall not be required to apply for registration for changes with the State Bank[1].

2.      The use of Website for the declaration of registration information, registration for changes of loans, and reporting on the arrangement of conventional loans

Compared to previous documents, Circular 12 has changed the form of declaration, registration for changes and reporting on loan performance via the form of a Website instead of being able to choose between the traditional form and using the previous Website, which is specified as follows: “In case the borrower chooses to carry out the declaration of registration information or registration for changes of loans in order to reduce the administrative processing time, the borrower shall declare information on the registered loan, information on the request for certification of registration for changes before submitting an application for registration or registration for changes of the foreign loan[2] via the Website”. However, it should be noted that for the reporting on the performance of foreign loans, the borrower must use the Website to implement the online reporting regime as prescribed.

3.      Loans subject to registration with the State Bank

In addition to the above-mentioned rules for administration of foreign loans arranged by means of deferred payment for imported goods and the use of Website for the declaration of registration information or registration for changes of loans, and reporting on the arrangement of conventional loans , Circular 12 has introduced provisions on loans subject to registrations with the State Bank. Such loans include[3]:

(i)      Mid-term and long-term foreign loans;

(ii)     Short-term loans of which the principal repayment period is renewed and the maturity term is more than 01 (one) year;

(iii)    Short-term loans which are not covered by any loan renewal contracts but remain the outstanding principal owed (including the outstanding interest included in principal) at the date of 01 full (one) calendar year from the date of first withdrawal, unless the borrowers have already paid their principal debt within the permitted duration of 30 (ten) days after the date of 01 full year from the date of first withdrawal of loan proceeds.

4.     Time limit for the submission of applications for registration of foreign loans

Borrowers are required to submit 01 application for the registration of foreign loan to the competent authority on loan registration confirmation within the time limit of[4]:

(i)      30 working days from the date of signing the medium or long-term foreign loan agreement;

(ii)     30 working days from the date of signing the agreement to renew the foreign loan agreement from short-term to medium or long-term for the loans mentioned in item 3.(ii) in which the signing date of the extension is within 01 year from the date of first withdrawal of loan proceeds;

(iii)    30 working days from the date on which the borrower is granted the Enterprise Registration Certificate, the License for the establishment and operation under special laws, the date of signing the public-private partnership (PPP) investment contract, the date on which the parties sign the foreign loan agreement to convert the investment preparation amount into loans (that depends on whichever is later), applicable to foreign loans arising from the transfer of the investment preparation amount of the projects that have been granted an Investment Registration Certificate into foreign loans;

(iv)     60 working days after date of 01 full year starting from the date of the first withdrawal of loan proceeds mentioned in item 3.(ii) in which the signing date of the renewal is after 01 years before the date of first withdrawal of loan proceeds and the loans mentioned in item 3.(iii).

5.     Cases subject to registration for loan changes

According to the provisions of Article 17 of Circular 12, the borrower shall be responsible for  registering for changes of their foreign loans with the State Bank provided that there are changes to any content relating to loans referred to in the confirmation of foreign loan registration or confirmation of registration for changes of foreign loans issued by the State Bank. However, in some of the following cases, the borrower only needs to notify the changes on the Website without having to register for changes of foreign loans, which are specified as follows :

(i)     Change of time for the withdrawal of loan proceeds, repayment of principal within 10 working days against the plan previously approved by the State Bank;

(ii)    Change of the borrower’s address but not of the city or province where the borrower’s head office is located; the borrower shall thereto send a notice of the change in address to the competent authority with jurisdiction on confirming the registration, registration of changes in foreign loans;

(iii)    Change of the creditor, related information about creditors in respect of a syndicated loan that designates the representative for creditors, except when a creditor is also the representative for creditors in respect of a syndicated loan, and any change of creditors that may entail changes to the roles of the representative for creditors;

(iv)    Change of the commercial transaction name of the account service provider, the bank providing secured transactions;

(v)     Change the plan for payment of interests and fees on the foreign loan against the one previously confirmed by the State Bank in the written confirmation of registration or registration of changes in foreign loans, but not changing the method to calculate the interests and fees specified in the foreign loan agreement. The borrower is responsible for making a schedule to calculate the interests and fees to be paid for the account service provider to have a valid ground for checking and monitoring when making the money transfer;

(vi)     Change (increase or decrease) the amount of loan proceeds to be withdrawn, repaid of principal, interests and fees within 100 currency units of the foreign loan currency against the amount stated in the written confirmation of registration, written confirmation of registration of changes in foreign loans;

(vii)    Change of the actual amount of loan proceeds to be withdrawn or principal repaid of principal of a specific period less than the amount stated in the loan proceed withdrawal or debt repayment plan in the written confirmation of registration or written confirmation of registration for change of the foreign loan. In this case, before withdrawing the loan proceeds or repaying the outstanding debt of a period, the borrower shall register the change of the loan proceed withdrawal and debt repayment as to the outstanding amount as prescribed.

 6.      Time limit for the submission of the application for registration of changes in foreign loans

An application for registration of changes in foreign loans will be dispatched within 30 working days from the date[5]:

(i)      The parties sign an agreement to change or before the time the change is made (for cases where the change does not require such an agreement provided that the change is still consistent with the foreign loan agreement);

(ii)     The successor of the obligation to repay the foreign loan is issued with a business registration certificate or the date on which the parties sign an agreement on changing the borrower in cases where the former borrower is fully or partly divided, consolidated or acquired (whichever comes later) and before the withdrawal of loan proceeds and loan repayment continues;

(iii)    The borrower completes the update of information on the name change and/or address change, moving the head office to another province or city on the National Business Registration Database;

(iv)     The creditor (or the organization representing the creditors in the syndicated loan – if any), the grantor (of security interest), the guarantor or other related parties mentioned in the written confirmation of registration, the written confirmation of the registration of changes in foreign loans sends a written notice to the borrower on the name change and before making money transfers related to these parties.

7.      Authority over confirmation of registration, registration for changes of loans

In addition to the competent authorities confirming the registration, registration of changes in foreign loans mentioned in previous documents, Circular 12 has supplemented the case for the exchange rate used to determine the competent authority in charge of confirming the registration and registration of changes in foreign loans to be the accounting rate quoted by the Ministry of Finance and applied at the time of signing foreign loan agreements or agreements on changes of the foreign loans in relation to the loan proceeds[6].

 8.      Performance of guarantee obligations

According to the provisions of Article 35 of Circular 12, as for guaranteed foreign loans, the guarantor shall perform guarantee obligations to the foreign creditor (the obligee) as requested under the commitments of the loan agreement, written guarantee commitments (letter of guarantee, guarantee contract or other guarantee commitments) which have been agreed between the parties involved, and not contrary to the applicable laws.

The guarantor is a resident who transfers money to fulfill the guarantee obligations through a bank providing secured transactions. However, in case the guarantor is a credit institution or foreign bank branch in Vietnam, the transfer of guaranteed money is not required to be done via the bank providing secured transactions. Credit institutions, foreign bank branches in Vietnam that provide guarantee for foreign loans are responsible for complying with the provisions of the law on bank guarantee and notifying the account service provider about the provided guaranteed amount.

9.     Reporting regime applied to the borrower

In the past, the borrower had to report foreign loans quarterly, however Circular 12 prescribes that on a monthly basis, no later than the 5th day of the month after the reporting period, the borrower must prepare an online review report on short-term, mid-term and long-term loans on the Website. In case any technical failures in the Website arises thus making the reporting unfeasible, the borrower shall send a written report using the form in Appendix 05 attached to Circular 12[7].

In case the borrower has not been granted an account to access the Website, it is essential to register and update the account to access the Website in accordance with the provisions of Article 8, Article 10 of Circular 12 to make a report in compliant with the provisions, avoiding the case of being administratively sanctioned for violating the reporting regime.

10.     Sanctions

Enterprises will be fined from VND 40,000,000 to VND 60,000,000[8] for failing to comply with the provisions on administrative procedures for pre-investment transfer of foreign currency abroad; registration or registration of changes in foreign loans or international bond issuance; registration or registration of changes in offshore loans and collection of guaranteed debts for non-residents; registration or registration of changes in foreign exchange transactions in respect of outward investment; registration of program for the issuance of bonus shares abroad; registration of proprietary trading limit; registration of temporary proprietary trading limit; registration of trust limit; registration of temporary trust limit and other administrative procedures for other funding transactions; administrative procedures for other cases of outward portfolio investment[9].

Regarding the reporting regime, if an enterprise fails to submit a report on time as prescribed by law, it may be fined from VND 10,000,000 to VND 20,000,000[10][11] except for the following cases:

(i)      Failing to meet deadlines and documentation requirements for statistical reports covering a period of less than 01 month if the violation is recommitted within the fiscal year;

(ii)     Failing to send reports on credit information to the State Bank of Vietnam (“SBV”) within the prescribed time limit;

(iii)    Failing to submit reports on credit information to the SBV in accordance with SBV’s regulations on credit information services;

(iv)     Failing to submit reports on schedule as prescribed in the law on anti-money laundering and combating the financing of terrorism.

As usual, we hope you find this Legal Update helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC

The full version of this Legal Update can be found here.

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[1] Article 51.1 of Circular 12.

[2] Article 5.1 of Circular 12.

[3] Article 11 of Circular 12.

[4] Article 15.2 of Circular 12.

[5] Article 18.2 of Circular 12.

[6] Article 20.4 of Circular 12.

[7] Article 41.1 of Circular 12.

[8] Article 3.3(b) of Decree No. 88/2019/ND-CP of the Government dated November 14, 2019 on penalties for administrative violations in the monetary and banking sectors (“Decree 88”).

[9] Article 23.3(g) of Decree 88.

[10] Article 3.3(b) Decree 88.

[11] Article 47.1(b) of Decree 88.