In the period of international economic integration post-2025, the investment and business legal system in Vietnam has undergone a fundamental transformation with the synchronized implementation of the Law on Investment 2020, the Law on Enterprises 2020, the Land Law 2024, the Law on Real Estate Business 2023, and the Law on Credit Institutions 2024. Although Vietnam commits to opening the market through new-generation free trade agreements (CPTPP, EVFTA, RCEP), the State still maintains macroeconomic control over key sectors through the principle of management by the negative list.

The most significant change in this period is the shift from an entry control mechanism to operational control and post-inspection regarding foreign capital flows. This poses strict requirements for Mergers and Acquisitions (M&A) activities. Mastering the control regulations and technical barriers is the core foundation for building safe transaction structures (Structuring Deals), optimizing cash flow, and ensuring exit strategies.

1. Control mechanism according to the List of sectors with restricted market access

Pursuant to Article 9 of the Law on Investment 2020 and Decree 31/2021/ND-CP, foreign investors are treated equally to domestic investors regarding market access conditions, except for the business lines belonging to the List of sectors with restricted market access. Accurately classifying the economic sector code (VSIC) and comparing it with international commitments is a prerequisite legal due diligence step.

1.1. Group of sectors without market access

These are sectors completely prohibited for foreign capital, including: investigation services; judicial security; notary public and bailiff practice; business of sending workers to work abroad under contracts; press and news gathering. The legal consequence for this group is absolute. Any transaction structure aimed at penetrating these sectors, directly or indirectly, faces a high risk of being declared invalid by the Court due to violating legal prohibitions; investment assets may be handled or forced to be restored to their original state.

1.2. Group of sectors with conditional market access

This is the focal area of M&A activities. Foreign investors are allowed to participate but must meet conditions regarding the charter capital ownership limit, investment form, and scope of operations. For the Real Estate sector: The Land Law 2024 and the Law on Real Estate Business 2023 stipulate that foreign-invested enterprises (FIEs) have more restricted business rights compared to domestic enterprises. Specifically, FIEs are only allowed to conduct real estate business within the scope of projects attached to land leased from the State. FIEs are not permitted to transfer land use rights in the form of subdividing land parcels for sale and are restricted in purchasing existing construction works for secondary business. Therefore, the transaction structure must focus on acquiring shares in project companies. For the Finance – Banking sector: The Law on Credit Institutions 2024 prescribes strict ownership limits. A single foreign organization is not allowed to own more than 15% of the charter capital; total aggregate ownership ratio of foreign investors must not exceed 30% in a joint-stock commercial bank. Exceptions exceeding the 30% limit only apply to restructuring plans for weak credit institutions approved by the Government. For the Distribution and Retail sector: The primary non-tariff barrier is the Economic Needs Test (ENT) process. When opening the second retail outlet onwards (except for cases with an area of less than 500m2 in a commercial center), the regulatory agency will appraise it based on local planning and population density.

2. Transaction structuring strategies through the multi-layered capital model

2.1. Legal basis and implementation model

This model applies the provisions of Article 23 of the Law on Investment 2020 on determining the status of investors. Accordingly, an economic organization with foreign investment capital accounting for 50% or less shall apply the conditions and procedures as a domestic investor when subsequently investing in another economic organization. The structuring process consists of two tiers: Tier 1 (F1 Company): Foreign investors own a maximum of 50% of the charter capital of the F1 Company. The remaining capital is held by Vietnamese partners. Tier 2 (F2 Company): The F1 Company (with the legal status as a domestic investor) invests 100% capital or acquires controlling shares in the F2 Company. The F2 Company is the direct operating entity in sectors with FOL restrictions (e.g., road transport, domestic logistics) where foreign investors cannot directly own 100%.

2.2. Governance risk control at the F1 Company

Due to holding a maximum of 50% of capital in F1, foreign investors need to establish control mechanisms through the Shareholders’ Agreement and the Company Charter: List of reserved matters: Stipulating that important decisions must obligatorily have the approval of foreign investors (Veto right). Super-majority voting ratio: Establishing a high minimum approval ratio (e.g., 65% or 75%), ensuring that no resolution is passed without the consensus of the foreign party. Deadlock resolution mechanism: Stipulating the resolution process when parties cannot reach an agreement, including call options or put options.

3. Utilization of hybrid financial instruments

3.1. Convertible debt instruments

Using a Convertible Loan or Convertible Bond is a solution to inject capital into an enterprise during a period when the conditions for share ownership are not yet met. At the time of disbursement, the investor has the status of a creditor, not subject to the regulation of foreign ownership limits. The contract stipulates the right to convert the debt into equity when trigger events occur, such as: the law relaxing ownership limits, or the company conducting an Initial Public Offering (IPO).

3.2. Separation of economic rights and voting rights

The Law on Enterprises 2020 allows the issuance of different types of shares: Dividend preference shares: Held by foreign investors to enjoy economic benefits and priority in capital return, but with restricted or no voting rights to comply with security regulations. Ordinary shares: Held by Vietnamese partners with voting rights to maintain nominal control over conditional business activities.

4. Business Cooperation Contract (BCC) Model

4.1. Operational and management mechanism

A BCC is an investment form that does not establish a new legal entity, frequently applied in telecommunications and oil & gas infrastructure projects. The parties agree to share profits or share products directly from project revenues. Regarding governance, the parties usually establish a Coordination Board to unify operational decisions. The foreign partner contributes capital, technology; the Vietnamese partner contributes land use rights and licenses.

4.2. Benefits and tax obligations

The BCC model helps investors enter the market without establishing an FDI enterprise and without being subject to capital ownership limits in sectors that are not committed to opening. Regarding taxes, foreign investors must fulfill foreign contractor tax or corporate income tax obligations depending on the accounting method.

5. Legal risks concerning sham transactions

5.1. Risk of transaction invalidation

 The use of Vietnamese individuals or organizations to hold ownership on behalf of foreign investors (Nominee Structure) entails very high legal risks. According to Article 124 of the Civil Code 2015, a civil transaction established to conceal another transaction renders the sham transaction invalid. Adjudication practices show that the Court often declares nominee agreements invalid, resulting in the parties having to return to each other what they have received, causing a risk of capital loss for investors.

5.2. Compliance risks

 In addition to civil risks, using nominees in sensitive sectors can be considered for criminal liability related to tax evasion or violations of anti-money laundering regulations. Financial institutions currently apply very strict ultimate beneficial owner verification processes, reducing the operational viability of these structures.

6. Merger Control and Tax Optimization

6.1. Economic concentration notification procedures

Under the provisions of the Law on Competition 2018 and Decree 35/2020/ND-CP, economic concentration activities are strictly controlled through a pre-clearance mechanism. Before executing a transaction, participating parties must obligatorily submit a notification dossier to the National Competition Commission if they fall into one of the cases reaching the prescribed thresholds regarding: total assets, total revenues in the Vietnamese market, transaction value, or combined market share. The transaction is only permitted to be completed and procedures for changing enterprise registration are to be carried out after obtaining approval from the regulatory agency. Violating the notification obligation can lead to a maximum fine of up to 05% of the violating enterprise’s total revenue in the preceding financial year, and concurrently, remedial measures may be applied, which consist of forcing the division or separation of the enterprise, or the resale of the acquired capital portion.

Practical case law analysis: The acquisition deal of Imexpharm Pharmaceutical Joint Stock Company

To clarify the pre-clearance control mechanism and the trend of applying remedial measures by state agencies, the transaction where a subsidiary of Livzon Pharmaceutical Group (China) acquired controlling shares in Imexpharm from a South Korean investment fund group serves as a typical legal demonstration. Legally, this M&A transaction triggered the mandatory notification obligation because it met the control thresholds based on asset scale, revenue, and the actual value of the deal. According to the core principles of the Competition Law, the parties are strictly forbidden from executing the share transfer as long as the regulatory agency has not issued an official approval decision. A notable point in the competitive impact assessment process is that the National Competition Commission did not only view the transaction from a pure share acquisition perspective but conducted an in-depth analysis of the vertical economic concentration structure. The acquiring group is a large-scale manufacturer of active pharmaceutical ingredients in the upstream segment, while the target company is the leading enterprise in the downstream segment in Vietnam regarding the production of finished antibiotic drugs. The regulatory agency clearly identified the risk that the acquirer could abuse its position to squeeze competitors in the domestic market through behaviors such as refusing to supply materials or applying discriminatory pricing policies. In order to neutralize this anti-competitive risk, the regulatory agency issued a decision approving the transaction but attached extremely strict behavioral conditions. The acquirer is forced to comply with the principle of non-discrimination, not being allowed to apply different commercial conditions in similar transactions when supplying materials to the target company compared to other pharmaceutical manufacturing enterprises. Simultaneously, they must commit to maintaining the stability of the production strategy, absolutely not disrupting the supply of antibiotic drugs to the domestic healthcare system. Furthermore, the buyer is also assigned the responsibility to develop a plan to enhance research and development capacity, with a clear technology transfer roadmap, and is subject to periodic monitoring. From this practical precedent, an essential lesson can be drawn in the activity of establishing transaction structures: the clause on economic concentration approval must obligatorily be designed as a core condition precedent in the share purchase agreement. Consulting organizations need to anticipate a reasonable appraisal timeframe. More importantly, the contract requires a transparent risk allocation mechanism between the buyer and the seller to address scenarios where state agencies impose additional conditions that the buyer’s cost structure or operational strategy cannot accommodate.

6.2. Tax Optimization and Transfer Pricing Control

In a multi-layered transaction structure, international tax issues become complex with the application of the Global Minimum Tax mechanism in Vietnam from 2024. Investors need to evaluate the impact of the Qualified Domestic Minimum Top-up Tax if they fall under the applicable subjects. For related-party transactions (loans, technical support between companies in the group), enterprises must strictly comply with Decree 132/2020/ND-CP on determining market prices. In particular, attention must be paid to the regulation on capping deductible interest expenses when determining taxable corporate income (not exceeding 30% of total net profit from operating activities plus interest expenses and depreciation expenses – EBITDA) to avoid the risk of having expenses rejected and increasing tax obligations.

7. Exit Mechanisms and Foreign Exchange Management

7.1. Cash flow management and Capital Accounts

Investors must comply with foreign exchange management regulations to ensure the ability to transfer profits and capital back to their home country. A clear distinction is needed between the use of a Direct Investment Capital Account (DICA) or an Indirect Investment Capital Account (IICA) depending on the ownership ratio and transaction structure.

7.2. Exit strategy

 Transaction documents need to detail the exit mechanism, including: Put option: Allows investors to sell back shares at a predetermined price if the company does not meet its commitments. Tag-along right: Protects minority shareholders’ interests when majority shareholders transfer their capital. Drag-along right: Allows majority shareholders to force minority shareholders to sell their shares in the event of an entire company exit.

8. Conclusion

Transaction structuring activities in Vietnam post-2026 require the precise application of the provisions of the Law on Investment, the Law on Enterprises, Competition Law, and Tax Law. Investors need to shift from a direct ownership mindset to substantial control through governance and financial instruments. Concurrently, strict adherence to the economic concentration notification process and national security regulations is the optimal solution to protect long-term investment interests.

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