In the course of doing business, many foreign-invested enterprises borrow capital from their owners in the form of unsecured foreign loans. This is a quite convenient capital mobilization channel for FDI enterprises. However, due to the regular nature and quite easy to get loans, many businesses are subjective, do not understand the legal provisions on foreign loans, leading to the following legal risks:
1. Cannot repay the loan to the owner.
2. Interest expense is not deductible expense when CIT finalization.
3. Penalties for violations against regulations on unsecured foreign loans.
So what is the cause, how to handle it and what legal document bases will be?
The reason for the legal risks of foreign loans #
1. Failing to register for medium, long-term, short-term loans with a grace period of more than 01 year;
2. Failure to use the correct type of account when borrowing foreign capital, specifically:
+ The borrower is an enterprise with foreign direct investment capital: medium-term and long-term loans using direct investment capital accounts; short-term loans using direct investment capital accounts or other foreign loan or debt repayment accounts.
+ The borrower that is not a foreign direct investment enterprise: opens a foreign loan or debt repayment account at an account service provider in order to borrow and repay foreign loans.
3. Failure to comply or comply with the regulations on reporting on short term, medium and long term loans to the State Bank.
4. The interest rate for loans from partners who are not credit institutions or economic organizations exceeds 150% of the basic interest rate announced by the State Bank of Vietnam at the time of borrowing.
5. The loan does not have sufficient legal documents as prescribed by law and is not allowed to transfer loan payment.
Legal bases to comply with foreign loans: #
- Decree No. 219/2013 / ND-CP dated December 26, 12 of the Government on management of foreign borrowing and repayment of enterprises not guaranteed by the Government;
- Circular 03/2016 / TT-NHNN dated February 26, 02 of the Governor of the State Bank guiding a number of contents on foreign exchange management for foreign borrowing and debt repayment by enterprises;
- Decree 88/2019 / ND-CP dated November 14, 11 of the Government on sanctioning of administrative violations in the monetary and banking sector.
According to Point d, g Clause 4 and Point a Clause 7 Article 23 Clause 2 Article 24 of the Prime Minister's Decree 88/2019 / ND-CP dated November 14, 11:
“4. A fine ranging from VND 30.000.000 to VND 50.000.000 shall be imposed for any of the following violations:
d) Failure to comply with regulations of law on opening, closing, and using an account in Vietnam to perform one of the following activities: Foreign investment in Vietnam; Vietnam's investment abroad; foreign borrowing and debt repayment; foreign lending, foreign debt collection, overseas securities issuance of institutional residents; securities issuance in Vietnam by non-institutional residents and other capital transactions;
g) To withdraw capital and repay foreign loans; disbursement, debt collection for offshore loans; collection of guarantee debts for non-residents; transferring money in service of foreign investment activities into Vietnam, Vietnamese investment abroad in contravention of law provisions;
7. A fine of between VND 150.000.000 and VND 200.000.000 shall be imposed on one of the following acts of violation:
a) Failure to comply with regulations of law on foreign borrowing and foreign debt repayment; foreign lending, debt collection; guarantees for non-residents and other capital transactions, except for the cases specified at Point g, Clause 3, Point d, g j Clause 4 and Point b, Clause 5 of this Article; ”
Circular 12/2014/TT-NHNN stipulating conditions for foreign loans of enterprises that are not guaranteed by the government
Place of issue: State Bank Effective date: May 15, 05 Issue date: March 2014, 31 Status: Still valid STATE BANK OF VIETNAM Happiness No.: 03/2014/TT-NHNN Hanoi, March 12, 2014 CIRULLY PROVISIONS ON15 May, 2014
Consolidated document 03/VBHN-NHNN on foreign exchange management for foreign borrowing and repayment of enterprises
Place of issue: State Bank Consolidation date: 12/07/2017 Issued date: 12/07/2017 Status: In force STATE BANK OF VIETNAM SOCIALIST REPUBLIC OF VIETNAM Independence – Freedom – Happiness No: 03/VBHN-NHNN Hanoi, July 12, 7 CURRENCY GUIDE ONE12 July, 2017
Decree 88/2019/ND-CP on sanctioning of administrative violations in the field of currency and banking
Place of issue: Government Effective Date: 31/12/2019 Issued Date: 14/11/2019 Status: Valid GOVERNMENT SOCIAL REPUBLIC OF VIETNAM Independence – Freedom – Happiness No: 88/2019/ND-CP Hanoi, November 14, 11 DECREE PROVISIONS ON PENALTIES FOR VIOLATIONS31 December, 2019
Official Dispatch 899/NHNN-QLNH 2019 on administrative violations during the implementation of foreign loans
Place of issue: State Bank of Vietnam Effective Date: January 15, 01 Issue date: January 2019, 15 Status: Still valid STATE BANK OF VIETNAM due – Happiness No: 01/NHNN-QLNHV/v administrative violations during the implementation of water loans15 January, 2019