Vietnam’s Amended Enterprise Law: Key Changes and Implications
Vietnam’s National Assembly has taken a significant step by passing amendments to the Enterprise Law, effective from July 1, 2025. These revisions aim to enhance transparency, reinforce corporate governance, and align Vietnam’s legal framework with global anti-money laundering (AML) standards.
Mandatory Disclosure of Beneficial Ownership
One of the hallmark features of the amended law is the mandatory disclosure of beneficial ownership. Companies are required to disclose individuals who ultimately control or benefit from the entity, excluding state representatives in wholly state-owned enterprises.
Key Requirements:
- Registration: At business registration, all companies must submit beneficial owner details, including name, nationality, ownership percentage, and identification specifics.
- Reporting Changes: Companies must report ownership changes within 10 days, barring specific exemptions for listed companies.
- Data Retention: Information on beneficial ownership must be stored for a minimum of five years post-dissolution.
- Government Access: Authorities will have unrestricted access to this data to combat money laundering and enhance enforcement.
For existing companies, beneficial ownership disclosures are necessitated during the next business registration update. This leap towards international standards follows Vietnam’s 2023 placement on the Financial Action Task Force (FATF) “grey list” due to inadequate financial transparency controls.
However, the law lacks a clear threshold defining a beneficial owner. Previous guidelines hint that ownership or control of 25% or more may suffice. Additionally, the broader definition of control—potentially encompassing significant decision-making rights—could complicate compliance, particularly for entities with layered ownership or nominee arrangements.
Impact on Nominee Arrangements and Investment Structures
The new regulations present formidable challenges for “disguised” ownership structures, commonly employed in sectors with foreign ownership restrictions. Businesses will now be obligated to trace and verify ownership chains, making nominee arrangements less feasible.
The government’s expanded access to beneficial ownership data signifies that investors utilizing offshore entities or informal agreements may face heightened scrutiny. This trend promotes greater transparency while potentially curbing earlier methods of circumventing ownership laws.
Strengthening Regulations Against Capital Misrepresentation
The amendments reinforce prohibitions against false declarations related to charter capital. The law defines such falsehoods traditionally—where a company registers capital it hasn’t fully contributed, among others.
Implications for Legal Representatives:
Legal representatives may face liabilities for submitting inaccurate filings. Thus, maintaining truthful and current records is essential to avoid administrative penalties that could arise even from minor discrepancies.
Introducing a Debt-to-Equity Cap for Bond Issuers
A notable feature of the amended law is the introduction of a debt-to-equity ratio ceiling of 5:1 for non-public joint-stock companies issuing corporate bonds. The calculation will rely on the audited financial statements from the preceding year to control over-leveraging and minimize default risks.
Although this ceiling aims to stabilize Vietnam’s corporate bond market, certain exemptions apply, including state-owned enterprises and sectors like real estate and banking, allowing them to operate under prior legal frameworks.
Revised Market Valuation Standards
The amended law provides comprehensive guidelines on capital contribution and share transfer valuations. Key changes include:
- For Listed Shares: Market value will be defined as the average trading price over the 30 days preceding the valuation date.
- For Unlisted Shares: Valuation may be based on the most recent transaction price, mutual agreement, or an appraisal by a licensed valuer.
These adjustments replace the previous reliance on volatile and potentially manipulable single-day trading prices, contributing to more accurate financial reporting.
E-ID Requirement for Online Transactions
From July 1, 2025, all enterprises must secure an electronic identification (e-ID) account to facilitate online administrative processes. This registration will occur through the VNeID application, with the requirement that either the legal representative or an authorized employee possess a Level 2 e-ID account.
Foreign legal representatives could face challenges during this registration process, as current systems only accommodate those with permanent or temporary residency cards. Further guidance is anticipated, allowing for more streamlined registration for a broader range of foreign nationals.
Compliance and Cost Implications
Businesses will likely encounter increased compliance costs due to the new stipulations, especially those with intricate ownership structures. Firms may need to establish new protocols for monitoring and updating ownership data to ensure regulatory filings remain accurate and timely.
Amid these challenges lies the opportunity for improved investor confidence, born from increased transparency and accountability within Vietnam’s corporate sector.
Action Steps for Businesses:
- Compliance Review: Reassess existing ownership structures.
- Preparation for Reporting: Understand qualifying individuals and methods for collecting verifiable data.
- Monitoring Decrees: Stay updated on upcoming government guidance clarifying thresholds and penalties.
- Legal Counsel: Seek expert advice, particularly for mergers and acquisitions, to navigate the new documentation requirements effectively.
Amended Law’s Broader Implications
The Amended Law on Enterprises represents a seismic shift in Vietnam’s corporate landscape. As firms navigate the complexities of compliance, the overall aim to establish a transparent, efficient, and globally appealing business environment signifies a notable progression for the country.
For businesses operating in Vietnam, staying informed and adaptable to these changes will be crucial to capitalizing on new opportunities while ensuring regulatory compliance.