Corporate Restructuring Regulations in Vietnam

Introduction

In an increasingly dynamic business environment, corporate restructuring has become a necessary strategy for many enterprises in Vietnam. Whether to improve operational efficiency, expand market presence, or adjust to regulatory changes, businesses often find themselves revisiting their structure, ownership, and investment models.

In Vietnam, restructuring activities are primarily regulated under the Law on Enterprise 2020 and the Law on Investment 2020, alongside relevant tax, competition, labor, and sector-specific regulations. This article provides a practical overview of what restructuring means, the types of restructuring allowed in Vietnam, procedural requirements, related compliance matters, and key considerations for business owners and investors.

What is Corporate Restructuring?

Corporate restructuring refers to the process of reorganizing a company’s structure, ownership, capital, or business operations with the aim of improving its business performance, risk management, or alignment with market conditions.

Restructuring can take place for various reasons — such as mergers and acquisitions, capital restructuring, management changes, or adjusting to new regulatory frameworks — and often involves significant legal, financial, and operational implications.

Common Types of Restructuring in Vietnam

Under Vietnamese law, several forms of restructuring are permitted. The most common types include:

1. Change of Enterprise Type: An enterprise may convert from one type of legal entity to another (for example, from a limited liability company to a joint stock company) to facilitate capital mobilization, business expansion, or meet operational needs.

2. Company Split: A company may divide itself into two or more independent companies. The original company may cease to exist or continue operating, depending on the chosen restructuring plan.

3. Company Merger: Two or more companies can merge into one existing company, where the merged companies are dissolved without liquidation.

4. Company Consolidation: This involves two or more companies consolidating into a completely new legal entity, with the existing companies being dissolved without liquidation.

5. Company Acquisition: An enterprise may acquire another company by purchasing its contributed capital or shares, thereby gaining control or ownership of the target company.

6. Change of Investment Project or Ownership Structure: This typically applies to foreign-invested enterprises (FIEs) or projects where changes in ownership ratios, capital contributions, or business lines trigger obligations to amend investment registration documents or seek authority approvals.

Legal Procedures for Restructuring

Each type of restructuring involves distinct procedural steps governed by the Law on Enterprise and, for FIEs or investment projects, the Law on Investment. Generally, the process includes the following stages:

1. Internal Resolutions: Enterprises must first obtain approval from the appropriate internal governing body — such as the Members' Council, Board of Directors, or General Meeting of Shareholders — depending on the type of company.

2. Preparation of Restructuring Documentation: This includes drafting restructuring plans, merger or consolidation contracts, acquisition agreements, capital transfer contracts, and amended charters.

3. Business Registration Procedures: Applications must be submitted to the Business Registration Office (Department of Finance) to amend or reissue the Enterprise Registration Certificate (ERC). For mergers, splits, or consolidations, applications for dissolution or establishment of new legal entities are required.

4. Investment Registration Procedures: For FIEs or investment projects, relevant changes must be registered or approved by the licensing authority through amendments to the Investment Registration Certificate (IRC).

5. Notifying Relevant Authorities: Changes must be reported to tax authorities, labor authorities, and other specialized licensing agencies if applicable.

6. Settlement of Debts, Assets, and Labor Obligations: Prior to completing restructuring, companies must address outstanding debts, contractual obligations, employee rights, and benefits in accordance with the Labor Code 2019 and other applicable laws.

Related Legal and Compliance Considerations

Restructuring often involves multiple areas of legal compliance beyond enterprise and investment laws:

1. Tax Implications

Capital transfers and restructuring activities can trigger tax obligations, including:

• Corporate Income Tax (CIT) on capital gains from the transfer of capital contributions or shares.

• Value-Added Tax (VAT) implications for certain asset transfers.

• Personal Income Tax (PIT) for individual shareholders or capital contributors transferring ownership.

Tax finalization and clearance certificates may be required before finalizing the restructuring.

2. Competition Law

Mergers, consolidations, and acquisitions meeting certain thresholds (for market share, transaction value, or combined revenue) are subject to merger control filing with the National Competition Commission (NCC) under the Law on Competition 2018. Businesses must carefully assess whether their transaction requires notification and approval.

3. Investment Conditions

Certain business sectors remain subject to investment conditions for foreign investors, such as ownership restrictions or additional licensing requirements. Restructuring that affects the ownership ratios of foreign investors or involves conditional business lines may require prior approval or registration with relevant authorities.

4. Labor and Employment

Enterprises must ensure that labor contracts are properly transitioned or terminated in accordance with legal provisions. Employee rights — including severance pay, social insurance, and other benefits — must be fully settled before or during the restructuring process.

Key Considerations for Business Owners and Investors

Corporate restructuring can offer substantial strategic benefits but also involves legal and operational risks. Business owners and investors should consider the following:

• Early Legal and Tax Review: Engage legal and tax advisors early to assess the feasibility, risks, and requirements of restructuring plans.

• Due Diligence: Conduct comprehensive legal and financial due diligence on target companies or internal records before proceeding.

• Clear Transaction Documentation: Prepare clear, legally enforceable restructuring contracts and agreements in compliance with Vietnamese law.

• Regulatory Approvals: Identify whether competition filings, investment approvals, or industry-specific licenses are needed.

• Timeline Management: Recognize that restructuring involves multiple procedural steps with different authorities, requiring careful scheduling to avoid operational disruptions.

• Employee Communication and Compliance: Manage labor matters carefully, ensuring transparency and legal compliance during employee transitions.

Conclusion

Corporate restructuring is a valuable tool for businesses in Vietnam to strengthen operations, enhance market competitiveness, or realign business strategies. However, given the complex regulatory environment involving enterprise law, investment law, tax, labor, and competition regulations, thorough planning and compliance management are essential.

Business owners and investors are advised to seek professional legal and tax consulting before initiating any restructuring to ensure compliance, mitigate risks, and capitalize on potential opportunities under Vietnam’s evolving business landscape.