Foreign borrowing conditions for private companies in Vietnam
Under Circular 12/2014 of the State Bank of Vietnam (SBV), a private company including foreign-invested companies in Vietnam can only borrow from a foreign lender if it satisfies the following requirements, among others:
- A foreign loan can only be used to (1) implement an investment project of the borrower or of a company in which the borrower has “direct investment” capital; or (2) refinance existing foreign loans without increasing borrowing costs. (1) is a positive development as it allows the borrower to use a foreign loan proceed to make capital contribution or, even possibly, on-lend to another company. (2) seems to be more restrictive than earlier regulations and may make it more difficult for a Vietnamese company to restructure its foreign debt;
- A foreign loan with a term of no more than 1 year is considered as a short term loan. A short term foreign loan must not be used for medium or long term use. In practice, a short term foreign loan is not required to be registered with the SBV. However it must be made in writing before draw down;
- The repayment and disbursement of a foreign loan of Vietnamese borrower being a foreign invested enterprise must be made through a foreign direct investment account in foreign currency opened by such borrower with a licensed bank in Vietnam. The bank will check all supporting documents before making any repayment to foreign lenders;
- A medium and long term loan together with all other outstanding long and medium term loans of must not exceed the difference between the total investment capital and the equity capital of the investment project as recorded in the relevant investment certificate. However, a short term loan is not subject to this restriction. This is a positive development as under old regulations a short term loan is also subject to the same funding limit except in limited circumstance;
- A medium and long term foreign loan must be registered with the SBV within 30 working days from the signing date of the loan agreement and before disbursement;
- A foreign loan must be made in foreign currencies except for loans given to micro finance organisations, loans between the foreign investor in a foreign-invested company and such foreign-invested company; or loans approved the SBV; and
- A foreign loan secured by shares or capital contribution or convertible bonds issued by a Vietnamese issuer must comply with the relevant foreign ownership limits. It is not clear if this means that the parties need to comply with the relevant foreign ownership limits at the time of taking or enforcing the relevant securities.
Introduction
From 1 July 2025, Vietnam’s local Government system formally operates according to a new “two-tier” system in 34 provinces as opposed to the old “three-tier” system in 63 provinces. In the new system, there are only two levels of local Government including provinces (tỉnh) and wards (xã, phường). Government agencies at district level no longer exist. Vietnam also combines several existing wards to form a larger ward. As a result, we estimate that Vietnam now has about 3,300 local people’s committees down from 10,000 local people’s committees.
To achieve this, by 1 July 2025, the National Assembly and the Government have, among other things, amended the Constitution, amended the Law on Organisation of Local Government, issued 34 resolutions and 28 Decrees to restructure the local government system. Unfortunately, despite such herculean efforts, it appears that the new regulations have not addressed adequately various legal issues arising from the restructuring. In this post we will discuss some of these issues. More information can be found from the attached research generated by the latest AI LLM from Google (Gemini Pro 2.5).
No clear geographical boundaries between various local authorities at wards levels.
It appears that on 1 July 2025, the Government did not establish clear geographical boundaries between the newly established wards. This is because the Standing Committee of the National Assembly sets a deadline of 30 September 2025 for the Government to do so for each province. Until a source of truth of the geographical boundaries at wards level is set up, many companies and individuals may not know for sure the correct addresses that they may use in their operations including application submitted to the authorities, invoices issued to clients, or contracts.