Exiting Vietnam with offshore loans unsettled — the subsidiary borrowed from the Chinese parent, from a Hong Kong bank — where does the dissolution procedure jam? This is many projects’ “time bomb”: easy going in (money flows in), hard going out (registration, approvals, repayment sources). This article guides the sequence for settling offshore loans before exit: repay, convert, or transfer — and the price of each choice.
Why offshore loans jam exit procedures
Foreign loans (parent company, foreign banks) are debt obligations — and dissolving/liquidating a company requires settling all debts (or an approved debt plan). Jams at three points: (a) the loan was never registered with the State Bank (medium/long-term foreign borrowing must be registered) — repaying now “exposes” the unregistered loan; (b) no repayment source — the company is loss-making, cash insufficient; (c) repaying with assets (machinery, inventory) instead of cash — valuation and tax complexity.
Three settlement options — pick by situation
Option 1 — Cash repayment: the company repays all principal + interest to the foreign creditor before dissolution. Cleanest, fastest — but needs enough cash. Outbound loan interest suffers 5% contractor tax (withheld before remittance). Option 2 — Debt-to-equity: the creditor (usually the parent) converts the loan into capital — charter capital increases, debt erased. Fits when the company can’t pay cash but the parent wants book value preserved; procedure: amend the enterprise registration certificate (capital increase). Option 3 — Debt transfer: the project/company buyer assumes the debt — stated in the capital/project transfer contract, with creditor notice/consent. Fits selling an operating project rather than dissolving.
Practical sequence: what first, what next?
Step 1: Review all foreign loans (loan contracts, SBV registration, principal + interest outstanding). Step 2: Pick the option (repay / convert / transfer) and agree in writing with the creditor. Step 3: Settle tax duties (contractor tax on interest for cash repayment). Step 4: Remit repayment through the bank (with loan file + agreement). Step 5: Obtain the creditor’s debt-clearance confirmation — this paper is the “ticket” for dissolution/tax-code closure. Warning: don’t “forget” parent-to-subsidiary intercompany loans — tax authorities and banks don’t forget, and they’ll jam exactly when you need speed most.
The capital account (DICA) — the FX “backbone” of FDI projects
What DICA is — and why it’s mandatory
DICA (Direct Investment Capital Account) is the direct-investment capital account — all offshore capital contributions must flow through DICA (never via ordinary accounts). Purpose: the SBV tracks FDI flows (in vs out). Where: one licensed bank (pick one, never several) — all capital transactions (contributions, transfers, profits, dissolution) pass through it.
Operating DICA — three principles
(1) “In” correctly: Chinese capital enters DICA (stating contribution purpose) — never land in an ordinary account then “transfer across” (banks question origins). (2) “Out” correctly: profit/equity remittances exit via DICA (with valid documents). (3) “Don’t mix”: never use DICA for daily payments (suppliers, payroll) — DICA is for capital transactions only; daily operations use a current account.
DICA mistakes — three
(1) Late opening: capital already arrived (into an ordinary account) before DICA opens — messy (source explanations required, possible fines). Right: open DICA right after the IRC (before capital moves). (2) Multiple DICAs: opening 2 accounts at 2 banks — a breach (only one allowed). (3) Early closure: closing DICA before finishing (unremitted profits remain) — reopening is painful (explanations required).
DICA and restructuring — often forgotten
When the project restructures (capital increases, shareholder changes, M&A), DICA must reflect it: (1) update the bank on new ERC/IRC details (banks freeze transactions on stale registrations); (2) new capital enters through the same DICA (never open a “fresh” one for the new investor — one DICA per project); (3) on exit, DICA is the last account closed (after all remittances clear). Reality: most DICA problems surface during restructuring or exit — the account everyone forgot becomes the blocker everyone curses. Keep DICA clean and current throughout the project life.
Settling offshore loans before exit — the sequence
Why settle first: (1) offshore creditors may object to dissolution/transfer (if debts remain); (2) banks won’t remit funds with unsettled registered loans; (3) tax reviews loan cash flows (anti-transfer-pricing on interest). Sequence: notify creditors → repay in full (principal + interest + fees) → obtain settlement confirmation (written) → report to SBV (via bank) → then withdraw capital.
Early repayment — costs and negotiations
Early repayment often triggers prepayment penalties (1–3% of outstanding) — negotiate: (1) waivers (lenders prefer early cash to risky waiting — ask); (2) netting (offsetting receivables from the same group — reducing actual cash moved); (3) timing (repaying after interest resets — avoiding breakage costs). Document the commercial rationale (why now? — regulators question unusual timing). FX timing: repaying foreign-currency loans when the VND is strong saves real money — coordinate treasury and legal timelines (the cheapest repayment date is rarely the most convenient).
Offshore-loan settlement checklist
(1) List every foreign loan (including parent intercompany loans — don’t “forget”); (2) check SBV registration status; (3) compute outstanding principal + interest + 5% contractor tax on interest; (4) pick the option: repay / convert to equity / transfer to buyer; (5) written agreement with the creditor; (6) settle tax duties; (7) remit + obtain debt-clearance confirmation. Principle: settling offshore debt is the first job in the exit plan — not the last.
Contact us
FLAT Law Firm advises Chinese investors in Vietnam across the full lifecycle: investment structuring, IRC/ERC procedures, tax, labour, intellectual property and dispute resolution. Contact us for advice tailored to your case.
This article has been quality-reviewed by the FLAW AI Legal Council