An offshore loan is how most foreign-invested companies in Vietnam fund the gap between charter capital and what a factory actually costs. The mechanism works well, but it runs on registration and reporting rules that are unforgiving of informality – and the cost of getting it wrong is money stuck outside the country.
Why an offshore loan rather than more equity
Three reasons. Flexibility – a loan can be repaid as cash flow permits, whereas reducing charter capital is a difficult procedure, as our charter capital guide explains. Timing – equity must be contributed within ninety days, while loan funding can be drawn against the construction programme. And efficiency, since interest is deductible within the statutory cap.
The counterweight is that borrowing capacity is assessed against the company’s registered capital position, so a thinly capitalised borrower cannot simply substitute debt for equity without consequence.
Registration is the controlling step
Medium and long-term offshore loans must be registered with the State Bank, and drawdowns and repayments flow through a designated account. The registration records the lender, amount, currency, tenor, interest and the drawdown and repayment schedule – and those recorded parameters govern what the bank will process.
Two practical consequences follow. Terms agreed commercially but not reflected in the registration cannot be performed through the banking system. And amendments to the facility require the registration to be amended before the changed terms take effect, not afterwards.
Structuring an offshore loan for a Vietnamese borrower
Four decisions shape the outcome. Lender identity – a parent, an affiliate or a third-party bank, which drives the transfer pricing analysis in our transfer pricing documentation guide where the lender is related. Currency, weighed against the borrower’s revenue currency.
Interest rate, which for related-party lending must be defensible against arm’s length benchmarks rather than set at group convenience. And security, where a foreign lender taking Vietnamese security faces enforceability questions that should be tested before documentation rather than at default.
Interest deductibility and withholding
Interest paid offshore attracts withholding tax, and deductibility is capped by reference to EBITDA – a constraint that binds capital-intensive projects during construction, when EBITDA is low and interest is high. Modelling the cap across the construction and ramp-up years, rather than at steady state, is what prevents an unwelcome adjustment at the first finalisation.
Groups should also confirm the treaty position for withholding, since the lender’s jurisdiction can materially change the net cost – an analysis our tax team runs alongside the loan documentation.
Offshore loan FAQs
Are short-term loans registered?
Short-term facilities follow a lighter regime than medium and long-term ones, but roll-overs that extend beyond the short-term threshold bring the registration requirement into play – a point borrowers frequently miss.
Can the loan fund the land premium?
Use of proceeds should match what was registered and what the project requires, and should be consistent with the certificate – see our project financing guide.
What if repayment is delayed?
Amend the registration rather than simply paying late. The banking system operates on the registered schedule. Texts are published via the Ministry of Finance.
Operating an offshore loan after registration
Registration is the beginning of the administration, not the end. Three disciplines keep the facility usable. Draw and repay strictly through the designated account and strictly on the registered schedule, because the bank operates on what is registered rather than on what the parties agreed.
File the periodic reports the regime requires, since gaps in reporting complicate the next amendment. And amend before acting, not after – a rescheduled repayment, a capitalised interest payment or an increased facility all require the registration to catch up first.
Groups running several Vietnamese subsidiaries should hold one register of all offshore loan facilities, their registered parameters and their drawn positions, reviewed quarterly. Facilities drift from their registration through ordinary commercial adjustment, and the drift is invisible until a transfer is blocked at the counter.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
