Focus on: Focus on Beneficial Ownership of Equity Capital in Vietnam

Introduction

It has often been observed by legal commentators that Vietnam – being as it is a civil law jurisdiction – does not recognise the concept of a ‘trust’ (the concept of a ‘trust’ being a peculiar creation of the common law world and the equitable jurisdiction which exists inside it). Conventional legal wisdom in Vietnam has generally held that in the absence of the recognition of ‘trusts’ under Vietnam law, it follows that Vietnam law is also silent as to the existence of the concept of ‘beneficial ownership’ of property. Put another way – the conventional wisdom has generally been that insofar as the Civil Code of Vietnam and other key legislative instruments in Vietnam are concerned, a person (whether natural or organisational) (a “Person”) either owns an item of property or doesn’t, and if a Person does own an item of property, they are able to prove ownership by relying on whatever is the applicable type of ownership documentation recognised by the applicable legislation.

The conventional wisdom outlined above has generally been considered to apply to property which takes the form of shares (as issued by a joint stock company (“JSC”)) or contributed charter capital (as contributed to a limited liability company with one member (an “LLC1”) or a limited liability company with two or more members (an “LLC2”)). In the balance of this article, paid-up shares (as issued by a JSC) and contributed charter capital (as contributed to an LLC1 or an LLC2) are referred to collectively and interchangeably as “Equity Capital”.

The Law on Enterprises and its implementing legislation have been (and continue to be) relatively clear as to what constitutes and/or gives rise to ‘ownership’ in Equity Capital.

In the case of a share issued by a JSC, the Person to whom that share is issued owns it if its par value has been fully paid up and that Person’s name is entered in the JSC’s register of shareholders as being its owner (with the issuance of a share certificate not being a mandatory requirement for legal title to exist, but providing robust evidence of the holding of legal title).

In the case of contributed charter capital in an LLC1 or LLC2, the contribution to the charter capital must actually have been made in accordance with applicable law, and ownership is evidenced (in the case of an LLC1) by the registration of the contributing (or acquiring) Person on the face of the applicable Enterprise Registration Certificate or (in the case of an LLC2) the entry of the Person’s name in the register of members (and further formalised by registration of the Person’s name on the face of the applicable Enterprise Registration Certificate and the (optional) issuance of a certificate of charter capital contribution).

It is fair to say that until recently, the existence and direct holding of registered legal title in Equity Capital was generally regarded as being the end of the story, insofar as ‘ownership’ of Equity Capital in Vietnam was concerned.

With the entry into force on 1 July 2025 of an amended Law on Enterprises (and its implementing Decree 168) (the “2025 Enterprise Law”), Vietnam corporate law has witnessed a significant change. For the first time, Vietnam corporate law now expressly recognises the concept of a ‘beneficial owner’ of Equity Capital, and imposes upon Vietnam-domiciled enterprises (“Enterprises”) positive obligations to identify, monitor, and declare the existence of ‘beneficial owners’ of their Equity Capital.

When these new concepts and requirements were first legislated, they caused a significant degree of consternation amongst the Vietnam and Vietnam-facing investment, business, and legal communities, for various reasons – not least amongst which were concerns as to whether or not the new ‘beneficial ownership’ requirements would have any material adverse impact upon any key equity investment structures of any of the kinds which are commonly deployed in Vietnam, whether by foreign investors, domestic investors, or both.

 

Overview of the new disclosure requirements

Under the 2025 Enterprise Law, Enterprises are now under a positive (and unprecedented) obligation to identify and then declare to their primary corporate licensing authority (being, in most cases, the Department of Finance, at provincial or municipal level) (the “DOF”)), for registration on their official enterprise registration records, details of their ‘beneficial owners’ and related matters (“Beneficial Ownership”).

The provisions of the 2025 Enterprise Law which impose upon Enterprises the Beneficial Ownership identification and declaration requirements (the “2025 Beneficial Ownership Regulations”) have at the time of this article being published been in force and effect for approximately four months – meaning that it is early days and that the actual longer-term impact of the 2025 Beneficial Ownership regulations is something that remains to be seen.

Set out below is a brief and high-level summary of the key provisions of the 2025 Beneficial Ownership Regulations and what they require of Enterprises and their investors, legal representatives, and other key officers.

 

The concept of a ‘beneficial owner’

The 2025 Beneficial Ownership Regulations define the concept of a ‘beneficial owner’ of an Enterprise by reference to two core concepts, namely where an individual (in other words, a ‘natural person’) (an “Individual”) possesses:

• actual ownership of the Equity Capital of the Enterprise; and/or
• rights to control the Enterprise.

 

Actual ownership

In relation to an Individual, under the 2025 Beneficial Ownership Regulations, ‘actual ownership’ of the Equity Capital of an Enterprise exists where that Individual directly or indirectly owns equal to or greater than 25% of the:

• Equity Capital of the relevant Enterprise; or
• (where applicable – in the case of a JSC) issued voting shares of the relevant Enterprise.

‘Direct ownership’ of Equity Capital is clear and obvious. Where an Individual is the registered, legal owner of Equity Capital (in the manner outlined in the ‘Introduction’ section of this article above), that Individual enjoys ‘direct ownership’ of the Equity Capital.

‘Indirect ownership’, on the other hand, is deemed to exist in relation to an Individual where that Individual holds equal to or greater than 25% of the Equity Capital or issued voting shares of the relevant Enterprise through any other organisation.

The following is an indicative example of how the concept of ‘indirect ownership’ works under the 2025 Beneficial Ownership Regulations, in the context of determining whether or not an Individual is a ‘beneficial owner’ of an Enterprise as a result of having actual ownership of Equity Capital in that Enterprise:

• Assume that the relevant Individual (“I’) is the direct, registered owner of 65% (the “65% HoldCo Stake”) of the issued shares in the equity capital of a foreign-domiciled holding company (“HoldCo”). Assume that all shares on issue in HoldCo are ordinary voting shares.

• Assume that HoldCo is the direct, registered owner of 49% (the “49% VN OpCo Stake”) of the issued shares in the equity capital of a Vietnam-domiciled operating subsidiary, which exists in the form of a JSC (the “VN OpCo”). Assume that all shares on issue in the VN OpCo are ordinary voting shares.

• In this scenario, the ‘indirect ownership’ ratio of the relevant Individual, “I”, in the VN OpCo would be calculated thus:

 

65% HoldCo Stake x 49% = 31.85%.

• Thus, in this indicative example, the relevant Individual, “I” is an indirect ‘beneficial owner’ of the VN OpCo, for the purposes of the 2025 Beneficial Ownership Regulations – as a result of ‘indirectly’ (via another organisation, namely HoldCo) possessing ‘actual ownership’, in a ratio of greater than 25%, of the Equity Capital of the VN OpCo.

Although the express provisions of the 2025 Beneficial Ownership Regulations are unclear on the matter, the Agency for the Development of Private Enterprises and Collective Economy under the Ministry of Finance (the “MOF”) has issued written guidance which indicates that the ‘indirect’ holding concept is to be applied in relation to all of the ‘other organisations’ which are interposed between the relevant Individual and the relevant Enterprise, in circumstances where there are two or more such interposed entities. It is therefore relatively clear that an ‘indirect actual ownership’ analysis of the kind outlined above is required to be conducted in respect of the relationship between an Individual and an Enterprise, regardless of how many layers of holding company there may be in place between the two.

In the balance of this article, the term “Actual Ownership” is used to describe the direct or indirect possession by any Individual of 25% or more of the Equity Capital of a specified Enterprise, in a qualifying manner as summarised above.

 

Control

In relation to an Individual, the existence of ‘control’ over an Enterprise, for the purposes of the 2025 Beneficial Ownership Regulations, is determined by whether or not that Individual possesses the ability to ‘influence’ corporate decision-making in relation to any one or more of the following matters in relation to the Enterprise (the “Key Corporate Matters”):

• The appointment or dismissal of:
• all or a majority of the members of the board of management (being the Vietnamese equivalent of a board of directors), in the context of an Enterprise which is a JSC (“Board”);
• the chairman of the Board, in the context of an Enterprise which is a JSC;
• the chairman of the members’ council (in the context of an Enterprise which is an LLC1 or an LLC2);
• one or more legal representative(s) of the Enterprise; or
• the general director (being the Vietnam equivalent of the chief executive officer or other most senior executive officer) of the Enterprise.
• Amendments to or supplementations of the Charter (being the primary constitutional document) of the Enterprise.
• Changes to the organisational or management structure of the Enterprise.
• The reorganisation or dissolution of the Enterprise.

The use of the word ‘influence’ in relation to corporate decision-making for Key Corporate Matters makes it relatively clear that the applicable test is a negative control test – meaning that the possession by the relevant Individual of a veto right would be sufficient to satisfy the test. Indeed, the MOF has confirmed in written guidance that the intention is that the ‘influence’ test should be interpreted and applied as being a negative control test.

The MOF has also provided further written guidance in relation to the concept of the ‘ability to exercise control’, to the effect that the ‘ability to exercise control’ may arise from:

• contractual or other agreements or arrangements among shareholders or members;
• arrangements based on the relevant individual’s business or market reputation; and/or
• special control rights bestowed upon a founding shareholder (for example, arising from a special class of preference shares or other rights enshrined in the constitutional documents of a relevant company),

(the “Key Control Mechanisms”).

In the balance of this article, the term:

• “De Facto Control” is used to describe the possession by an Individual of (at least) negative control over any one or more of the Key Corporate Matters of a specified Enterprise, by way of any one or more of the Key Control Mechanisms; and
• “Beneficial Owner” is used to describe any Individual who possesses Actual Ownership and/or De Facto Control in respect of a specified Enterprise.

 

Key obligations in relation to Beneficial Owners

From an implementation perspective, the key Vietnamese State authorities appear to date to have taken a comparatively passive approach in relation to the application and enforcement of the 2025 Beneficial Ownership Regulations.

The 2025 Beneficial Ownership Regulations require that Enterprises must include the necessary information in relation to their Beneficial Owners in the first application dossier (seeking amendments or supplementations to their enterprise registration details, or the issuance of an amended Enterprise Registration Certificate, or similar) which they file with the relevant DOF after 1 July 2025 (when the 2025 Beneficial Ownership Regulations came into force and effect) – unless they voluntarily elect to lodge Beneficial Owner information at an earlier time (which they are entitled to do).

This means in effect that until such time as an Enterprise has a need to apply for an amened Enterprise Registration Certificate or otherwise amend or supplement its enterprise registration particulars, it is under no compelling obligation to take any proactive steps to lodge any declaration in relation to its Beneficial Owners. On the other hand, the 2025 Beneficial Ownership Regulations oblige Enterprises to take steps to identify their Beneficial Owners and gather the necessary information in relation to them – and it is only ever a matter of time before any Enterprise has a need to apply to the DOF for one thing or another, from an enterprise registration perspective.

Upon its next lodgement of an application dossier with the DOF after 1 July 2025, an Enterprise is required already to have conducted a self-assessment of its Beneficial Ownership position and on the basis of that self-assessment to include in that application dossier the following details in respect of each of its Beneficial Owners (if any):

• identification details in respect of each Beneficial Owner;
• the percentage of the Enterprise’s Equity Capital (and, where applicable, voting shares) held by each Beneficial Owner (including details of whether the ownership is direct or indirect); and
• where applicable, the nature of any relevant Control rights held by each Beneficial Owner.

The express provisions of the 2025 Beneficial Ownership Regulations appear on their face to require that where a Beneficial Owner owns his or her Equity Capital in the relevant Enterprise indirectly (through one or more corporate intermediary(ies)) the Enterprise is also required declare information in respect of the relevant intermediary entity(ies), including their name(s), registration number(s) (or equivalent), registered head office address(es), and particulars of their own shareholding structure(s). In practice, however, the MOF’s written guidance indicates that it is unnecessary for Enterprises to disclose any such information in respect of intermediary holding entities, and the various provincial and municipal DOFs do not to date appear to be imposing any such requirements upon disclosing Enterprises. This policy position may of course change at some point in the future.

Once Beneficial Ownership information has been disclosed to the DOF, it is then stored in the National Business Registration Portal database, although at this stage it appears that whilst any State authorities will have the ability to access the disclosed information via the DOF and the National Business Registration Portal, the public will not be able to access it. There can be little doubt that any Vietnamese State authority wishing to access the Beneficial Ownership details of an Enterprise through the National Business Registration Portal database will have the ability to do so, but at least for now it appears that Enterprises and their investors need not be unduly concerned about the disclosed Beneficial Owner details being available on the public record. The longer-term implications of the availability to State authorities of Enterprises’ disclosed Beneficial Ownership information remain to be seen.

After having made their initial Beneficial Owner declarations to the DOF, Enterprises are obliged on an ongoing basis to self-monitor their Beneficial Ownership position, and to keep maintain an official register of their Beneficial Owners (in the form which was initially disclosed to the DOF upon the Enterprise’s first Beneficial Ownership declaration). If from time to time there are any changes to the Beneficial Ownership position of an Enterprise, it is under a positive obligation to notify the DOF of the relevant change within 10 calendar days of it having occurred.

Enterprises who fail to comply with their disclosure obligations in relation to Beneficial Owners or who provide inaccurate information when lodging Beneficial Owner declarations with the DOF can be subject to administrative penalties. Although the quantum of the potential penalties for failure to comply is modest (and unlikely to present a compelling incentive to Enterprises to ensure compliance), false or misleading declarations can result in more onerous penalties, including in some cases personal liability exposure for legal representatives or other directly responsible corporate officers. In addition, failure to have disclosed Beneficial Ownership information as and when required by the 2025 Beneficial Ownership Regulations may give rise to difficulties in procuring timely and efficient approvals or registrations from the DOF or other State authorities down the track.

 

Impact on investment structuring

The key question then becomes to what extent the 2025 Beneficial Ownership Regulations are likely to impact upon the structuring of investments in and in relation to Vietnam.

It is relatively clear that the primary objective of the 2025 Beneficial Ownership Regulations is to enhance Vietnam’s regulatory regime in relation to anti-money-laundering (“AML”). It is widely considered to be the case that the 2025 Beneficial Ownership Regulations were driven primarily by Vietnam’s desire to bring itself into alignment with Recommendation 24 of the Financial Action Task Force on AML (the “FATF”) and thereby to improve its FATF rating position. Even so, it would be imprudent for investors to assume that disclosed Beneficial Owner information will at no time serve any purpose outside of AML compliance initiatives.

Requirements for the declaration of beneficial and/or indirect ownership are of course nothing new in Vietnam. Under Vietnam’s domestic AML laws, for example, credit institutions have for some time been under positive obligations to enquire as to the ultimate beneficial and/or indirect ownership of applicants for bank accounts, credit facilities, or other types of banking products. Other bodies of law under which (in one way or another) declarations of beneficial and/or indirect ownership of Enterprises are required include: (i) the Law on Securities and its implementing legislation (for example, when determining who is a “major shareholder” of a public company and the disclosure requirements which apply to them); (ii) the Law on Competition and its implementing legislation (for example, when quantifying the market presence in Vietnam of participants in economic concentration transactions); and (iii) the Law on Enterprises and its implementing legislation (for example, when determining who is a “related person” of an Enterprise). However, these and other concepts (being directly tantamount or closely analogous to beneficial and/or indirect ownership), which have for many years been scattered throughout various different legislative instruments in Vietnam, have never before required Enterprises to take positive action to register beneficial and/or indirect ownership particulars as part of their enterprise registration obligations.

The absence of express recognition of beneficial ownership in Vietnamese law made it (ostensibly) straightforward for investors, both foreign and domestic alike, to take advantage of nominee and similar structures, in order to overcome regulatory restrictions such as foreign ownership restrictions, or restrictions on percentage ownership of the Equity Capital within protected sectors such as banking. In circumstances where applicable law recognises only direct legal ownership and does not impose any practical mechanism by which beneficial or indirect ownership is monitored or required to be reported, those who may be mindful to circumvent regulatory restrictions by deploying nominee or similar structures have historically had available to them significant scope to do so.

In relation to nominee structures, it is important to note that it has been for some time clear that under the Civil Code of Vietnam, a transaction which is entered into for the purposes of concealing another transaction is deemed by law to be invalid. Many legal commentators are of the view that this Civil Code prohibition against ‘sham’ transactions operates to render invalid many of the types of agreements which commonly underpin nominee or similar Equity Capital holding arrangements (such as nominee agreements, investment agreements, loan agreements, Equity Capital mortgage agreements, and similar). It is also important to note that nominee arrangements have in recent years decreased in popularity among foreign investors, as foreign ownership restrictions have progressively eroded, and increasing numbers of foreign investors have discovered (often the ‘hard way’) that their nominee investment structures are not as robust as they had believed them to be.

 

Nominee structures – foreign investors

The 2025 Beneficial Ownership Regulations may in the future make it more difficult for foreign investors successfully deploy local nominee structures, although in the immediate term it appears as though impact is likely to be minimal. Unless and until such time as full disclosure of the details and equity structures of all intermediary holding entities is required, there will remain ample scope for those who are inclined to do so to devise and deploy nominee structures which conceal the ultimate interests of foreign investors.

On the other hand, the burden of true and accurate Beneficial Ownership declaration now falls upon Enterprises (and by extension, the local nominees who establish them – and most importantly their legal representatives, who will often be the principal local nominee individuals), thereby increasing the overall risk profile for Vietnamese citizens in acting as nominees. Even where there is no indirect ownership link between a foreign investor and the Enterprise in which he or she holds Equity Capital via a local nominee, in most cases of nominee structuring the foreign investor will enjoy full De Facto Control over the Enterprise, normally by way of one or more of the Key Control Mechanisms. Even though it may be possible in practical terms to purport to conceal De Facto Control, under the 2025 Beneficial Ownership Regulations, Enterprises and their legal representatives will now commit unequivocal offences if they fail to declare to the DOF the existence of De Facto Control held by one or more foreign investors, which may serve as a disincentive for Vietnamese citizens to participate in nominee structuring arrangements.

 

Nominee structures – domestic investors

Similar propositions apply in relation to domestic investors who may be mindful to circumvent key restrictions (such as the caps on Equity Capital percentage holdings in credit institutions) by using elaborate networks of nominee individuals to hold Equity Capital. Although those who may be inclined towards unlawful nominee structuring of this kind will still have scope for doing so, it will now be incumbent upon legal representatives of Enterprises to ensure that the Enterprises for which they are responsible diligently and accurately declare their Beneficial Ownership status (as part of their enterprise registration obligations). This in turn may have the effect of disincentivising legal representatives from facilitating ‘shadow shareholding’ arrangements, and may also serve as a disincentive for Vietnamese citizens who may find themselves prevailed upon by principal individuals to participate in such arrangements.

 

Structures permitted under the Law on Investment

As at the time of this article being published, the Law on Investment and its implementing legislation allow certain corporate structures lawfully to be deployed, which enable foreign investors indirectly to make Equity Capital investments into operating Enterprises in a manner which ensures that those operating Enterprises lawfully exist and are able to operate lawfully in all respects as wholly domestic enterprises. These structures, which are legally robust and have been permitted under the Law on Investment and its implementing legislation for many years, are unlikely to be impacted adversely by the entry into force of the new Beneficial Ownership declaration requirements.

 

Conclusion

It remains to be seen how the MOF and the DOFs will interpret, apply, and enforce the 2025 Beneficial Ownership Regulations in the medium-to-long term. In the short term, it appears as though direct and immediate impact upon corporate structuring is likely to be minimal, albeit that it is clear that regulatory circumvention techniques of the kind that often prevailed in days gone by may henceforth become more problematic for those who are mindful to attempt them. Certainly, all investors (whether direct or indirect) into Vietnam-domiciled Enterprises need to be aware of the Beneficial Ownership declaration requirements and ensure that investee Enterprises comply with them, and legal representatives of Vietnam-domiciled Enterprises need to take a firm hand in ensuring diligent and proactive compliance with this new aspect (as well as all other existing aspects) of enterprise registration requirements in Vietnam.