Understanding Vietnam’s Amended Law on Enterprises: Key Changes and Implications

Vietnam’s National Assembly has recently enacted amendments to the Enterprise Law, which will take effect on July 1, 2025. This important legislation is designed to enhance transparency, bolster corporate governance, and align the country’s legal framework with global anti-money laundering standards. Here’s a concise overview of the major changes and their implications for businesses operating within Vietnam.

Mandatory Beneficial Ownership Disclosure

The New Requirements

One of the standout features of the amended law is the mandatory disclosure of beneficial ownership. Companies must now provide detailed information about individuals who effectively control or benefit from their businesses. Notably, this excludes state representatives from wholly state-owned firms.

Key aspects include:

• Initial Registration: Companies must submit beneficial owner information during their initial business registration, detailing names, nationalities, ownership stakes, and identification.
• Timely Reporting: Changes to beneficial ownership must be reported within ten days, barring listed companies and those engaged in securities trading.
• Record Maintenance: Companies are required to retain this ownership data for at least five years post-dissolution or bankruptcy.

This move brings Vietnam in line with international standards set by the Financial Action Task Force (FATF), especially crucial after Vietnam’s placement on the FATF’s “grey list” in 2023 due to inadequate financial transparency measures.

Compliance Challenges

Despite these advancements, the law has left certain ambiguities unaddressed, particularly regarding the definition of a beneficial owner. Previous guidelines have suggested that anyone with a 25% or greater ownership stake might qualify, but legal nuances may lead to complications, especially in complex ownership structures.

Impact on Nominee Arrangements

Changes in Investment Structures

The amendments signal a substantial tightening of control over what are termed “disguised” ownership structures. Nominee arrangements, which have been prevalent in Vietnam due to restrictions on foreign ownership, face significant scrutiny under the new rules. Companies will now be obligated to trace and validate ownership structures, even those that are multi-layered or involve nominees.

Regulatory Oversight

Government agencies will have unimpeded access to beneficial ownership data, enhancing their ability to combat money laundering and enforce compliance. As a result, businesses utilizing offshore entities or informal arrangements should be prepared for increased scrutiny.

Strengthened Rules Against Misrepresentation of Capital

Understanding False Declarations

The amended law introduces stringent regulations against false declarations regarding charter capital. This includes scenarios where a company misrepresents the capital it has contributed or inaccurately values assets used to contribute capital.

Legal representatives of companies can be held accountable for any inaccuracies, emphasizing the need for strict record-keeping practices. Companies should ensure that all declared capital is fully contributed to avoid potential administrative penalties, even for minor discrepancies.

Debt-to-Equity Cap for Private Bond Issuers

New Financial Regulations

Another notable amendment is the introduction of a debt-to-equity ceiling set at 5:1 for non-public joint stock companies issuing corporate bonds. This ratio will be calculated based on the audited financial statements from the preceding year.

While exceptions exist for state-owned enterprises, real estate developers, and banks that have disclosed previous offerings, the overarching goal is to control excessive leverage and mitigate default risks in Vietnam’s burgeoning corporate bond market.

Revised Market Valuation Standards

Guidelines for Valuations

The law now stipulates clearer guidelines for determining the market value of capital contributions and share transfers:

• For listed shares, the market price is defined as the average trading price over the 30 days leading to the valuation date.
• For unlisted shares, options include the latest transaction price, consensus among parties, or an appraisal by a licensed valuer.

These revisions represent a departure from the previous practice of relying on single-day trading prices, reducing the potential for price manipulation.

Electronic Identification (E-ID) Requirement for Online Transactions

A Shift Toward Digital

Starting July 1, 2025, all enterprises will be required to register for an electronic identification (e-ID) account to streamline administrative processes online. This account must be created through the VNeID application, with either the legal representative or an authorized employee must secure a Level 2 e-ID account.

However, foreign legal representatives may face obstacles during the registration process as the current framework supports only those with permanent or temporary residence cards. More comprehensive guidelines for broader circumstances are expected to be issued soon.

Navigating Compliance and Cost Implications

Business Adjustments

The changes instituted by the amended law will likely elevate compliance costs, particularly for foreign-owned enterprises with complex ownership arrangements. As firms adapt to these new regulations, they will need to develop new protocols to monitor and update ownership data and allocate resources for regulatory filings and audits.

In anticipation, businesses can:

• Conduct Compliance Reviews: Reassessing ownership and capital declaration practices will become essential.
• Prepare for Reporting: Companies should familiarize themselves with the requirements for beneficial ownership reporting and establish systems for data collection.
• Stay Informed: Keeping abreast of forthcoming government guidelines will be critical as specifics around thresholds and penalties are clarified.
• Seek Legal Counsel: Professional legal advice will be invaluable, especially for those engaged in mergers, acquisitions, or other restructuring efforts necessitating new documentation.

Final Thoughts

The Amended Law on Enterprises marks a transformative phase in Vietnam’s corporate landscape, offering both challenges and opportunities. As businesses adjust to these enhancements, they will contribute to a more transparent, efficient, and attractive business environment in Vietnam.