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Official Gazette

Friday, December 3, 2021

Capital contribution of foreign investors to real estate projects in Vietnam

Updated: 09:00’ - 21/11/2021

Lawyer Nguyen Thanh Ha
SB Law Firm

We are foreign real estate investors wishing to enter Vietnam’s real estate market through signing contracts directly with Vietnam-based project owners. So, what are applicable investment forms (loan contract, business cooperation contract, etc.) and relevant mandatory procedures for foreign investment in real estate projects? And in what cases does a foreign investor need to apply for an investment registration certificate?

Foreign investors are defined by Vietnam’s Investment Law as foreign legal entities or individual investors with foreign citizenship. Depending on investment periods of foreign investors, appropriate investment forms can be determined.

For a short-term investment period of between six months and 12 months, the form of investment that a foreign investor may consider is signing a loan contract with a project owner in Vietnam. Under Article 5 of the State Bank of Vietnam’s Circular 12/2014/TT-NHNN (Circular 12), the borrower may borrow from abroad to implement an investment project funded with foreign loans of the borrower. Hence, it is completely legal for the foreign investor to lend a sum of money to a project owner for implementation of an investment project in order to collect both capital and interest (profits) when the investment period expires.

Regarding procedures, in case the loan contract is of a term of under 12 months, the foreign investor and the project owner only need to enter into a loan contract. This form of investment must meet the following conditions:

Firstly, the foreign loan agreement must be entered into in writing before the loan is disbursed and must not be contrary to Vietnamese laws.

Secondly, the foreign loan currency must be a foreign currency, except for some cases (exceptions) specified in Article 7.2 of Circular 12.

Thirdly, secured transactions for foreign loans must not be contrary to relevant Vietnamese regulations currently in force, especially in case of using shares or stocks to secure the loans in accordance with securities regulations, foreign investors’ holding rate in Vietnamese enterprises and/or other relevant regulations.

Fourthly, borrowing costs must be agreed upon by the parties. However, in case of necessity, borrowing costs must not exceed the ceiling level as decided and announced by the State Bank Governor.

For medium and long-term investment terms of between 12 months and 36 months, foreign investors can choose either of two investment forms; entering into a loan contract or entering into a business cooperation contract.

For entering into a contract for a medium- or long-term loan, in addition to meeting the conditions of the short-term loan contract, under the State Bank of Vietnam’s Circular 03/2016/TT-NHNN (Circular 03), this loan is subject to registration with the State Bank with procedures and dossiers clearly specified in the Circular. Accordingly, when foreign investors register for borrowing medium- or long-term foreign loans, the disbursement and repayment schedule must be accurate and specific. Furthermore, any adjustment related to the disbursement amount, disbursement progress, debt amount and debt payment period must be registered with the State Bank in accordance with Circular 03.

If not wishing to enter into a loan contract, a foreign investor may enter into a business cooperation contract with a Vietnam-based project investor. Business cooperation contract is a form applicable only to foreign investors with medium- or long-term investment (between 12 months and 36 months). As per the 2020 Investment Law, business cooperation contract is defined as a contract between investors for business cooperation, profit or product sharing as prescribed by law without establishing an economic organization. In this case, though no economic organization has been established, according to Article 37 of the Law, the foreign investor is required to apply for an investment registration certificate for its/his/her project. The procedures and dossier are specified in the Investment Law and its guiding text, Decree 31/2021/ND-CP.-
 

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