Stricter conditions for foreign loans by Vietnamese companies being non-credit institutions

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In June 2023, the State Bank of Vietnam (SBV) issued Circular 8/2023 to replace Circular 12/2014 which prescribes conditions for Vietnamese borrowers to borrow foreign loans (i.e., loans provided by an offshore lender) without a Government guarantee. Similar to Circular 12/2014, Circular 8/2023 has separate borrowing conditions for borrowers being credit institutions and borrowers being companies incorporated in Vietnam which are not credit institutions (Vietnamese Companies). In this post, we discuss the borrowing conditions for a Vietnamese Company. This post in written by Nguyen Hoang Duy and Nguyen Quang Vu.

The key highlights of Circular 8/2023 include:

  • offshore short-term loan borrowing will likely be more difficult since short-term loans are now only permitted for limited purposes (see 3.6) and (1) a Short-term Borrowing List needs to be prepared (see 5.1.2);

  • it is important to determine the purpose of an offshore loan to be for an investment project, a business and production plan, other projects, or for refinancing existing offshore loans; and

  • significant more paperwork is required for a medium- and long-term loans (see 5.1.1). The paperwork is mostly to evidence the purpose of the offshore loans.

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Written by Nguyen Quang Vu On In

50% Or 100% Foreign Ownership Limit In Public Companies Involving Real Estate Business In Vietnam?

The State Securities Commission (SSC) seems to take the view that public companies involving real estate business are subject to a 50% foreign ownership limit. However, we think that the SSC’s view is not consistent with the law and the foreign ownership limit in a public company involving real estate business should be 100% not 50%.

  • Under various international treaty (CPTPP or AFAS), Vietnam does not undertake to impose any foreign ownership limit to real estate business. Vietnam only limits the scope of operation of foreign-invested companies involving in real estate business (e.g. limitation on the ability to purchase houses for lease). This means that under these treaties, the foreign ownership limit in real estate business in general is 100%.

  • Article 139.1(a) of Decree 155/2020 provides that In the case of a public company operating in a business investment industry or trade for which an international treaty of which Vietnam is a member regulates foreign ownership, the provisions of such treaty apply. Accordingly, the foreign ownership limit in a public company involving in real estate business is 100%.

  • Similarly, since the Law on Real Estate Business 2014 imposes no foreign ownership limit to foreign invested enterprises, under the Law on Real Estate Business 2014, the foreign ownership limit in real estate busienss is 100%. Article 139.1(b) of Decree 155/2020  provides that in the case of a public company operating in a business investment industry or trade for which the relevant law regulates foreign ownership, then the provisions of such law apply. Accordingly, the foreign ownership limit in a public company involving in real estate business is 100%.

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Written by Nguyen Quang Vu On In