Foreign loan consulting at the State Bank of Vietnam

Borrowing foreign capital is a common practice for companies operating in Vietnam. Many foreign-invested companies usually finance partly through equity and partly through debt. This debt is usually provided by the parent company or other financial institutions through international loans. 

In the article below, we have mentioned general regulations on foreign loans and important terms that business owners and financial officers need to keep in mind when borrowing foreign capital.

Legal regulations on loans to foreigners at state banks

Foreigners cannot get loans from Vietnamese banks, but companies with foreign founders can! In order to obtain a bank loan, a company must have been in business for at least 2 years, provide all accounting documents for that period, and clearly establish the purpose of the loan.

If borrowing domestically is difficult, borrowing abroad is even more difficult because it must comply with legal regulations on foreign exchange management.

Short-term foreign loans (12 months or less) do not need to be registered with the State Bank of Vietnam (SBV), while medium- and long-term foreign loans of more than 12 months must be registered with the SBV first. .

Vietnamese borrowers must regularly (no later than the 5th of the next month) report the implementation status of short-term, medium-term and long-term loans to SBV online through the SBV portal.

In addition, the loan amount for foreign-invested enterprises to implement special projects must not exceed the difference between the borrower's contributed capital and the total investment capital recorded in the Investment Registration Certificate. All existing long-term domestic and foreign loans of the borrower are included in this loan limit.

Tax regulations on loans with state banks

Interest income received by foreign lending institutions is subject to corporate income tax that Vietnamese borrowers must withhold, currently at 5% (CIT)*. This problem can be resolved by including appropriate clauses in the loan contract. Within 10 days from the date of foreign loan interest payment, the company must prepare and submit tax deduction and tax declaration documents.

According to Decree No. 68/2020/ND-CP amending Decree No. 20/2017/ND-CP, the total amount of loan interest expenses incurred during the tax period is deducted from the taxable income of corporate income tax and is not included in the income tax account. to corporate income tax. More than 30% of the total. Specific tax deadlines. Net profit from operating activities plus interest expenses and depreciation expenses incurred during the period (EBITDA).

In the case of an interest-free loan, the borrower only needs to repay the borrowed amount without paying interest. However, the competent authority may apply a presumptive interest rate for tax purposes because it considers that these transactions do not follow general market prices.

Conditions for foreigners to borrow at state banks

If you are an operating company, it is not difficult to get a loan of up to $20,000 in a few hours from the bank you serve. The interest rate on such loans ranges from 12-14% per annum, depending on the bank. According to regulations, foreigners who meet the following conditions can borrow money from Vietnamese banks:

- Must be 18 years old and have full civil capacity.

- Over 15 years old and under 18 years old do not lose or limit civil act capacity.

- Borrow capital for legal purposes.

- Have a feasible plan for using capital resources.

- Ability to repay debt.

Limits and requirements of foreign loans

Compliant and legally operating companies (including domestically funded companies) can borrow capital from foreign organizations or individuals (applicable to companies without a government guarantee subsidy) for various financial and expansion purposes.

Foreign-invested companies are allowed to borrow medium and long-term foreign capital. The company's total available medium- and long-term loans do not exceed the difference between the company's registered capital prescribed by the IRC and the total investment capital of the company. according to regulations. capital. For example, if the company's registered capital is 20,000 USD and the total investment capital is 100,000 USD, the maximum medium and long-term loan amount that the company can borrow is 80,000 USD.

If the borrower is a foreign-invested enterprise, when applying for a medium- to long-term foreign loan, the bank account used to receive loan-related funds must be a direct investment capital account (DICA).

For short-term foreign loans, the borrower may use a DICA or a foreign loan account (unlike a DICA) to handle receipts and payments related to the foreign loan.

If the borrower is not a foreign-invested enterprise, it must open a foreign-related loan account at the bank that provides services to handle foreign-related loan business (including withdrawing funds and paying principal and interest).

Bank deposits in Vietnamese banks for foreigners

If you decide to deposit your money in a bank at a certain percentage, this is a very trendy and relevant option in Vietnam. Vietnamese people like to deposit their money in banks and earn interest on it. Currently, the bank deposit interest rates of different banks range from 6.9% to 7.8%, but this interest rate is actually only applicable to Vietnamese dong. 

Starting from September 5, 2019, Vietnamese banks have stopped opening foreign currency deposits. That is, you can simply deposit or transfer dollars or euros into your account, however, they will not generate any passive income for you.

You can also open a VND deposit box without any supporting documents. But in this option, you just deposit the money in the bank and cannot transfer the money anywhere. In big cities like Ho Chi Minh City and Hanoi, you can store not only money but also valuables.

If you require any assistance with these questions or any other issues related to international investors in Vietnam, our experts are ready to work with your company to ensure you understand how the above applies to your specific situation in Vietnam.

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