CAN FOREIGN LOANS BE CONVERTED INTO INVESTMENT CAPITAL?
QUESTION
Dear TLK Law Firm, I currently have a question and hope to hear from you as follows: Last year, I borrowed a sum of money from a foreign enterprise to do business. The payment deadline is now but my company cannot afford to pay and I want to convert that loan into investment capital, is that possible? Looking forward to your company's answer. Thank you!
RELATED ARTICLES
1. What is investment capital reduction? Conditions for reducing investment capital?
2. What documents need to be prepared for an investment capital reduction application?
3. When withdrawing capital, in what ways do foreign investors receive their contributed capital back?
Thank you for your trust and sending questions to TLK Law Firm. Based on legal regulations and practical solutions, we would like to send you the following consulting content:
LEGAL BASIS
1. Investment Law No. 61/2020/QH14 passed by the National Assembly on June 17, 2020;
2. Circular No. 12/2022/TT-NHNN issued by the State Bank of Vietnam on September 30, 2022 providing guidance on foreign exchange management for foreign borrowing and debt repayment of enterprises;
3. Other legal documents providing relevant guidance.
CONSULTATION CONTENT
In the current context of global economic integration, Vietnam is a country with a stable economic growth rate. Therefore, this is also a market that attracts many investors to deploy and implement investment projects of different scales. During operation, businesses in Vietnam are required to have large enough capital to carry out investment projects and develop production and business activities of the business. In reality, not all businesses have enough capital and must mobilize from many different capital sources, of which foreign loans are often chosen by businesses. Besides, not all businesses can fulfill their debt repayment obligations on time. In this case, can the foreign loan be converted into investment capital? This is a question that many customers sent to TLK Law Firm.
Therefore, through this article, we will answer your questions about "Can foreign loans be converted into investment capital?"
Photo 1. Can foreign loans be converted into investment capital?_Hotline: 0972118764
I. SOME IMPORTANT LEGAL ISSUES RELATED TO WHETHER FOREIGN LOANS CAN BE CONVERTED INTO INVESTMENT CAPITAL
1. What is investment capital? What is a foreign loan?
Pursuant to the Investment Law 2020, investment capital is money and other assets according to the provisions of civil law and international treaties to which the Socialist Republic of Vietnam is a member to carry out business investment activities.
According to the provisions of Decree No. 219/2013/ND-CP, foreign loans are the borrower's receipt of credit from non-residents through the signing and implementation of foreign loan agreements in the form of loan contract, deferred payment sales contract, loan entrustment contract, financial leasing contract or issuance of debt instruments by the borrower.
Converting a foreign loan into investment capital means that instead of recovering the debt, the lender will use that receivable debt to "buy" the company's own shares/capital contribution. At that time, the lender will become the owner/shareholder/member of the company.
2. Debt repayment through conversion into investment capital
Pursuant to Circular No. 12/2022/TT-NHNN, one of the cases of debt repayment not through a loan account, foreign debt repayment includes debt repayment through the lender and borrower agreeing to transfer outstanding debt into shares or capital contribution in the borrower. This is one of many forms chosen by parties to help lenders increase investment in expanding business markets and borrowers repay the loan. In addition, the parties need to notify and send documents proving that they have withdrawn capital and paid debt in forms that do not use loan accounts or paid foreign debt for the bank (which provides account services) to know and continue to follow the borrower's foreign loan.
Thus, with the above form of debt repayment, economic organizations can choose to convert in accordance with the lender according to the provisions of law.
3. Purchasing foreign currency and transferring money to pay foreign debt
Pursuant to Circular No. 12/2022/TT-NHNN, purchasing foreign currency and transferring money to pay foreign debt is regulated as follows:
(1) The borrower purchases foreign currency at an authorized credit institution to fulfill obligations related to repayment of principal, interest and fees of foreign loans on the basis of presenting documents according to the provisions of law and requirements of authorized credit institutions are as follows:
- Documents;
- Documents proving the need for legal foreign currency payment.
(2) Credit institutions are allowed to regulate documents and documents proving the legal need to use foreign currency on the principle of verifying the borrower's legal debt obligations through the following documents:
- Foreign loan agreement;
- Documents confirming the withdrawal of loan capital;
- Document confirming foreign loan registration from the State Bank (in case the loan must be registered with the State Bank) and other documents (if any) as required by the authorized credit institution .
Thus, when purchasing foreign currency and transferring money to pay foreign debt, the borrower needs to fully comply and comply with the provisions of law.
=> See more: Can foreign invngestors withdraw from Vietnam by transferri 100% of the project to Vietnamese investors?
Photo 2. Can foreign loans be converted into investment capital?_Hotline: 0972118764
II. SUMMARY OF ANSWER SECTION: CAN FOREIGN LOANS BE CONVERTED INTO INVESTMENT CAPITAL?
Dear Customers, from the above synthesis and analysis, TLK Law Firm would like to give the following answer!
Investment capital is money and assets that parties carry out business investment activities. In addition, the parties can completely agree to convert the foreign loan into investment capital by repaying the debt through the lender and the borrower agreeing to convert the outstanding loan balance into shares or capital contribution in the borrowing party.
III. HOW SHOULD YOU BEST CHOOSE AN ORGANIZATION THAT PROVIDES LEGAL SERVICES?
An organization providing quality and reputable legal services should have the following criteria:
First: Must be an official legal organization with a legal operating license;
Second: It is better if the Board of Directors must be lawyers, experienced and have high degrees;
Third: Have a team of lawyers and a systematic, professional, and thoroughly trained human resources system;
Fourth: Friendly, dedicated and make every effort for the benefit of customers. Consider customer satisfaction and work quality as your own honor;
Fifth: Professional, thoughtful, flexible and logical service provision process to optimize work performance and save customers' time;
Sixth: Reasonable and competitive service prices;
Seventh: Rich services in both fields of supply and service packages in the same field for customers to choose the appropriate service package, as well as comprehensive support for customers throughout the operation process. movement;
Eighth: Have the ability to Connect - Promote commercial relationships for customers if customers have needs,...
Finding a comprehensive, professional and reputable legal consulting organization is what every customer wants. Because no one wants to risk losing both money and time while the results are not as expected. However, finding such an organization is not easy because the number of service providers in the Vietnamese market today is very large with varying quality.
A suggestion for you: Although our TLK Law Firm does not dare to claim to be the company providing the best legal services on the market, we satisfy all of the above criteria and more will definitely be a good choice for you.
=> See more: Fast and reputable investment capital reduction service for foreign companies.
IV. SOME QUESTIONS REGARDING CAN FOREIGN LOANS BE CONVERTED INTO INVESTMENT CAPITAL
Question 1: Is providing goods and services to lenders a form of debt repayment other than through a foreign loan or debt repayment account?
Reply:
The answer is yes.
Pursuant to Circular No. 12/2022/TT-NHNN, if the borrower cannot repay the loan to the lender via the loan account registered with the bank providing account services, both parties can make an agreement to choose repayment in the form of providing goods and services to the lender. This debt repayment will take place according to the agreement of both parties until the debt repayment is completed according to the provisions of law.
Question 2: What is the time limit for notifying the bank about the form of debt repayment without using a loan account or foreign debt repayment?
Reply:
Pursuant to Circular No. 12/2022/TT-NHNN, within 05 working days from the date of decision to repay debt by not using a loan account, repaying foreign debt, the lender is responsible for notifying and send documents proving that debt repayment has been made in the above forms so that the bank providing account services can know and continue to monitor the borrower's foreign loan.
Question 3: In what cases does the borrower pay debt into the lender's Vietnamese Dong payment account opened at a credit institution or foreign bank branch in Vietnam?
Reply:
Pursuant to Circular No. 12/2022/TT-NHNN, the borrower shall repay the debt to the lender's payment account in Vietnam Dong opened at a credit institution or foreign bank branch in Vietnam in the following cases:
(1) The loan is subject to registration according to the provisions of Circular No. 12/2022/TT-NHNN but does not meet the conditions for registration confirmation. The exchange rate applied to determine the amount of money in Vietnam Dong that needs to be paid to the lender according to regulations is the accounting rate announced by the Ministry of Finance or the foreign currency buying and selling rate provided by the bank. Listed account services or other credit institutions and foreign bank branches in Vietnam apply at the time the competent authority issues a written refusal to confirm foreign loan registration or the time of money transfer pay;
(2) The foreign loan has an outstanding balance but the registration confirmation document or change registration confirmation document is invalidated due to the dossier containing fraudulent information or fake documents. The exchange rate applied to determine the amount in Vietnam Dong that needs to be paid to the lender according to the provisions of Circular No. 12/2022/TT-NHNN;
(3) Foreign loans in Vietnam Dong from profits from direct investment activities in the Vietnamese territory of the lender are foreign investors contributing capital to the borrower.
Thus, when falling into one of the above cases, the borrower can make repayments to the lender via a payment account in Vietnam Dong according to the provisions of law.
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Above is some general advice that we would like to offer to our customers. As a service provider, we always understand and are ready to accompany and solve the needs and difficulties that customers are facing. If you still have questions or need more in-depth advice, please contact the hotline: 0972118764 to receive direct advice from a lawyer (completely free consultation).
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