There are no restrictions on the type of borrower that may borrow foreign currency or on the terms of those loans, or generally on the amount of foreign currency loans. However, certain borrowers must satisfy certain conditions for borrowing offshore loans, including limitations on the amount of offshore loans that an enterprise may borrow. The form of the enterprise of the borrower and its investment/enterprise registration certificate determines whether those limitations apply to a particular borrower.

Under the foreign exchange regulations, in principle, individuals may obtain offshore loans in accordance with the government's regulations. However, the government has not yet issued any regulations in relation to the borrowing of offshore loans by individuals, and therefore, the SBV is likely to take the view that,  because there is no explicit permission, it is not permitted. Given the foregoing, in practice, offshore loans may not be granted to individuals.

Vietnamese laws do not restrict the rate of interest or default interest in relation to offshore loans. However, as a matter of practice, if the rate of interest is too high compared to the market standard, the SBV may challenge the registration of the loan (referred to in the answer to question 7 of this section) and the parties will need to explain the reason for the high rate of interest. The SBV may refuse to register a loan if it considers the interest rate to be too high. There is also a criminal penalty for usury in Vietnam but, in practice, it is unlikely that an offshore lender would be subject to a usury penalty.

The remittance bank in Vietnam may also challenge the payment of interest that is too high (at the bank's discretion) if there is concern in relation to a potential breach of Vietnam's anti-money laundering regulations.

Under applicable exchange control regulations, the governor of the SBV may determine the ceiling on borrowing costs for each interest period. However, we are not aware of the governor ever having imposed a ceiling on the borrowing costs for offshore loans.

No. However, please note that there may be restrictions on the role that an offshore lender may take in relation to cross-border syndicated loans. Under Vietnamese laws, an offshore lender is not permitted to act as the paying agent in relation to a syndicated transaction.

No. However, for:

• Medium- or long-term offshore loans with a term of more than one year;
• Short-term loans whose principal payment period is extended so that the total term is over one year; and
• Short-term loans without any renewal agreement whose term is over one year from the first utilization date unless the borrower fully completes its debt repayment obligation within 30 working days from the first anniversary of the first utilization date,

that, in each case, are not guaranteed by the government, drawdown of the loans and payment of debts (including the principal and interest) contemplated under the facility agreement can only be made after the registration of the loans with the SBV (except in the case of the drawdown and partial repayment in the first year of a short-term loan which is being extended to a medium- or long-term loan).

If the lender is an offshore entity, the borrower is required to deduct withholding tax (currently set at 5%) from the amount of interest and fees payable to the lender under the finance documents. The borrower must file and pay the tax it has withheld within 10 days after each payment of interest or fee.

The foregoing requirement does not apply to Vietnamese lenders.

There are no "thin capitalization" rules under the current regulations.

An interest payment may not be deductible if, among others:

• It does not meet all of the following requirements:
  • The actual interest payment incurred is related to the enterprise's business operations.
  • There are sufficient and valid invoices in relation to the interest payments and proof of those interest payments can be shown as required by the tax regulations.
  • For each invoice for an interest payment of VND 20 million or above, there is proof of the corresponding non-cash payment.
• The payment of interest or the related loan payment relates to the enterprise's late equity contribution.

Yes. Under Vietnamese foreign exchange regulations, medium- or long-term offshore loans (i.e., offshore loans with a term of above one year, including short-term loans being extended to medium- or long-term loans) that are not guaranteed by the government are required to be registered with the SBV. The information to be provided on registration must include information about the offshore lender.

Loan documents can be made in any foreign language, with Vietnamese translations required for SBV registration purposes, with the accuracy to be certified by the borrower.

Vietnamese borrowers must also submit a written report on the status of the implementation of the offshore loan on a monthly basis or, in the case of unexpected or urgent events, on an extraordinary basis upon the request of the SBV.

No, SBV registration for foreign loans is free of charge.

For stamp, documentary, registration, notarization or other taxes, duties or fees chargeable in relation to security documents, see the answer to question 13 of the "If taking security" section below. 

Except for the case where credit institutions and foreign bank branches in Vietnam are permitted to issue subordinated debts pursuant to the regulations on prudential ratios and limits for operations of credit institutions and foreign bank branches of the SBV, Vietnamese law is silent on the subordination debt of enterprises. Vietnamese laws only provide that the order of priority for payment between the jointly secured parties may be changed if the jointly secured parties reach an agreement on changing the order of priority for payment between themselves. As a matter of practice, a creditor is entitled to contractually agree that its rights are subordinated to the rights of another creditor, subject to the fact that the rights of the parties may be limited by bankruptcy, insolvency, liquidation, reorganization and other laws of general application relating to or affecting the rights of creditors. The manner in which a subordination agreement is treated may be affected by how the Vietnamese courts exercise their inherent discretion.

If a bankruptcy process has been initiated in respect of the borrower, its indebtedness is paid in accordance with the hierarchy set out in the bankruptcy regulations (and therefore not necessarily as agreed between the lenders and borrowers). For the hierarchy of payments in relation to bankruptcy, see the answer to question 10 of this section.

If a bankruptcy process has been initiated in respect of the borrower, the order of the distribution of its assets is prescribed by the bankruptcy regulations and claims are paid in the following descending order of priority:

• Bankruptcy costs.
• Employees' unpaid wages, severance allowances, social insurance and health insurance, and other benefits under labor contracts and collective labor agreements.
• Debts arising after the commencement of bankruptcy proceedings that serve the purpose of business recovery of the enterprise or cooperative in accordance with the bankruptcy regulations.
• Financial obligations to the state, unsecured debts payable to the creditors named in the list of creditors and secured debts not yet paid as the value of their secured assets is insufficient for the debt payment.
• The members or shareholders of the enterprise (as the case may be).

If the value of the available assets is insufficient to pay all the creditors in any of the above categories, the debt due to each creditor in that category will be reduced on a pro rata basis.

For onshore loans, the rights and obligations of creditors and debtors are subject to the SBV's regulations in relation to borrowing.

For offshore loans, creditors and debtors are free to agree upon their specific rights and obligations in the relevant offshore loan agreement.

However, although it is untested in practice, regulations in relation to consumer protection likely apply to parties to an offshore loan. Therefore, legal counsel should carefully review the loan agreement to ensure its provisions are enforceable.

Technically, providing financial assistance may be deemed to constitute "lending," which requires a license from the SBV. Therefore, non-credit institutions in Vietnam may not provide loans to a third party for the purpose of purchasing shares or other assets.

Vietnamese foreign exchange regulations require borrowers to borrow offshore loans for a limited number of purposes, as follows:

If the borrower is a credit institution or foreign bank branch:

• To supplement capital for credit extension activities according to the borrower's credit growth 
• To refinance the borrower's offshore loans
  

• For mid- or long-term loans to:
  • Implement the borrower's investment project
  • Implement the production and business plan, or other projects of the borrower
  • Refinance the borrower's offshore loans

• For short-term loans:
  • To refinance offshore loans
  • To repay short-term loans (in accordance with accounting law) payable in cash (excluding principals of onshore loans) of the borrower, which are incurred during the implementation of investment projects, production and business plans and other projects of the borrower
  • in cases where the borrower is subject to prudential ratios according to specialized laws, for the borrower's professional business activities, provided the loan term is no more than 12 months after the utilization date

Therefore, if offshore loans are used for purchasing shares or other assets, the specific utilization should be categorized within the scope of:

• For mid- or long-term loan: the approved investment project/production and business plan/other projects of the borrower, which should be certified by the SBV. It is unlikely that the SBV will certify the offshore loans for the purposes of purchasing shares unless the borrower already has existing investment in the target company such that the purchase of shares would arguably be considered further investment by it in the target company. 
• For short-term loan: the borrower's professional business activities, e.g., securities investment activities conducted by professional securities investors.