Vietnam late payment interest: what the Civil Code allows

Vietnam late payment interest is set first by what the two parties wrote in their contract. If the contract is silent, the Civil Code fills the gap with a default rate of 10 percent a year. This guide shows how both rules work and how to word your payment terms.

Sources: National Assembly of Vietnam, Civil Code 91/2015/QH13, Articles 357 and 468.

The short answer

A late payer owes interest on the unpaid amount. The rate comes from one of two places. The first is the rate the parties agreed. The second is the legal default, which applies when there is no agreement or the agreement is unclear. The default is 10 percent a year.

The key rules sit in Article 357 of the Civil Code, which covers late performance of a money obligation. Article 468 sets the limit on interest rates. The Civil Code was passed on 24 November 2015 and has applied since 1 January 2017.

Sources: Civil Code 91/2015/QH13, Articles 357 and 468.

What Article 357 says in plain words

When a party pays late, the other party can ask for interest on the overdue amount. Interest runs for the period of the delay. If the parties agreed a rate for late payment, that rate is used, as long as it stays within the legal limit. If they did not agree a rate, the 10 percent default applies.

Read the full article with your lawyer before you rely on a summary like this one.

Sources: Civil Code 91/2015/QH13, Article 357.

The 20 percent cap on agreed rates

Parties are free to set their own rate, but not without a limit. Article 468 sets the ceiling for an agreed interest rate at 20 percent per year, counted on the amount owed. If a contract sets a higher rate, the part above 20 percent is void. The rest of the contract still stands.

This means a clause such as "5 percent a month" for late payment is risky. That is 60 percent a year. A court or arbitrator could cut it back to the limit.

Sources: Civil Code 91/2015/QH13, Article 468.

Sales of goods and services between businesses

The Commercial Law 36/2005/QH11 covers trade between businesses. Article 306 says that when a buyer is late paying for goods or services, the seller may claim interest on the overdue amount. The rate is the average market interest rate for the overdue debt at the time of payment. The seller may claim this even if the contract does not mention it.

So two sets of rules can touch the same debt. Businesses should not guess which one a court will use. The safest path is to write the rate into the contract, so the question never comes up.

Sources: National Assembly of Vietnam, Commercial Law 36/2005/QH11, Article 306; Civil Code 91/2015/QH13, Article 357.

How to word payment terms

Clear wording prevents most disputes. Here are practical steps.

• State the due date as a calendar date or a clear number of days after the invoice.
• Write the late interest rate as a yearly percentage, for example "10 percent a year".
• Keep any rate at or below 20 percent a year.
• Say what amount interest is charged on, such as the unpaid balance only.
• Say when interest starts and when it stops, for example from the day after the due date until the day of payment.
• Keep invoices, delivery records and reminders. They prove the debt and the date it fell due.

Write the clause in the same language as the rest of the contract, and have both sides sign or initial it. A rate that is clear and agreed in writing is the easiest kind to prove later.

If your contract says only "late payment will be charged interest", the rate is unclear. The 10 percent default could then apply. A short, exact clause is better.

Sources: Civil Code 91/2015/QH13, Articles 357 and 468.

Before you sign

Late payment hurts cash flow, and a clear clause also makes talks with a slow payer easier. Both sides know the rate before any problem starts.

Check three things. Is the rate written down? Is it at or under 20 percent a year? Does the clause say when interest starts? If you can answer yes to all three, your late payment terms rest on solid ground.

Read this as background only. Contract terms differ, and a Vietnamese lawyer can check how the rules apply to your own payment clause.

Sources

• National Assembly of Vietnam, Civil Code No. 91/2015/QH13, passed 24 November 2015, Articles 357 and 468.
• National Assembly of Vietnam, Commercial Law No. 36/2005/QH11, passed 14 June 2005, Article 306.