The rapid rise of the high-net-worth individual (HNWIs) class in Vietnam has driven the demand for legal tools beyond the framework of traditional wills to protect assets, optimize taxes, and plan for intergenerational succession. In this context, Singapore, with its stable legal system and tax incentives, has become an ideal destination for establishing trust structures. However, transferring assets from a country following the Civil Law system (Vietnam) into a structure belonging to the Common Law system (Singapore) creates significant legal challenges regarding ownership rights and legal personality. 

This article analyzes the legal basis and feasibility of using Singapore Trusts as an asset management tool for assets located in Vietnam. The article focuses on resolving the conflict between the Common Law and Civil Law systems, analyzing the connection mechanism with Vietnam’s specialized laws (Land Law, Investment Law, Law on Marriage and Family), and simultaneously proposes an indirect holding structure model to ensure compliance and asset protection efficiency. 

1. Overview and theoretical basis of legal system conflict  

1.1. Legal Nature of Singapore Trusts  

According to the Singapore Trustees Act, a trust is not a legal entity but a fiduciary relationship. 

The fundamental characteristic of this institution is the separation of ownership into two distinct components: 

• Legal Ownership: Belongs to the Trustee. The Trustee holds title to legal documents and bears responsibility for managing assets according to the Trust Deed. 

• Equitable Ownership: Belongs to the Beneficiaries. This is the right to enjoy economic benefits arising from the assets, protected by the principle of Equity of the Court. 

1.2. Ownership principles in Vietnamese law and the conflict issue  

The Vietnamese legal system does not recognize the concept of “Equitable Ownership” separate from “Legal Ownership” in civil relations. 

Article 158 of the 2015 Civil Code stipulates that ownership rights comprise three full rights: possession, use, and disposition, concentrated in a single subject. 

Furthermore, the Lex Situs principle (Law of the place where the property is situated) stipulates that the establishment, implementation, and transfer of ownership rights regarding real estate must comply with the law of the place where the real estate is located. 

Because Vietnam does not yet have a legal framework recognizing a foreign Trust as a subject entitled to hold title on a Certificate of Land Use Rights or register enterprise ownership, a Singapore Trust cannot directly hold assets in Vietnam. 

2. Legal architecture of the indirect multi-layered holding model  

To resolve the aforementioned legal conflict, the optimal legal structure must mandatorily use an “Indirect Holding Structure,” converting real assets in Vietnam into financial assets (shares) abroad. 

2.1. The Three-Tier Structure  

The standard model includes three layers of legal entities and overlapping legal relationships: 

• Tier 1 – The Trust: This is the apex of the structure. The Settlor transfers ownership of the Holding company shares (Tier 2) to the Trustee. Here, the trust assets are foreign shares, subject entirely to the regulation of Singapore law. 

• Tier 2 – Offshore Holding Company (Offshore SPV): Usually established in Singapore or the BVI. This company plays the role of a “Foreign Investor” investing directly into Vietnam. 100% of the SPV’s shares are held by the Trustee. 

• Tier 3 – The Target Company in Vietnam (The Vietnamese Entity): This is the Vietnamese legal entity that directly owns the assets (factories, projects, commercial real estate). The Holding company (Tier 2) will own capital contributions or shares in this entity. 

2.2. Reserved Powers Trust Mechanism  

To address the psychological concern regarding loss of control by the Vietnamese Settlor, the structure often applies Section 90 of the Singapore Trustees Act. 

This regulation allows the Settlor to retain certain powers (such as the right to direct investment, the right to change beneficiaries) without invalidating the Trust, avoiding the risk of the Trust being considered a sham. 

3. Legal analysis for specific asset categories in Vietnam  

The ability to place assets into a trust structure depends on Foreign Ownership Restrictions for each specific type of asset. 

3.1. For Real Estate  

This is the asset category subject to the strictest control under the Land Law and the Law on Real Estate Business. 

• Individual Residential Real Estate: Vietnamese law strictly prohibits foreign-invested enterprises (FIE) from receiving the transfer of residential land use rights from households or individuals. Therefore, a Trust structure (via an SPV) cannot be used to hold assets such as villas, townhouses, or land plots for the purpose of personal accumulation. 

• Commercial Real Estate and Projects: This is the only feasible channel. A Singapore SPV can own a Vietnamese company implementing a project to build housing for sale/lease or conduct commercial real estate business (office buildings, hotels, industrial parks). In that case, the assets in the Trust are the capital contribution in the project company, not the physical real estate. 

3.2. For Shares and Corporate Capital Contributions  

The transfer of capital from an individual to a Singapore SPV turns a domestic enterprise into a foreign-invested enterprise (FIE), triggering regulations on market access conditions. 

• Industry Appraisal: If the Vietnamese enterprise operates in sectors with restricted market access (e.g., maritime transport, pharmaceutical distribution, press), the transfer of ownership to the SPV may be rejected or subject to limited ownership ratios (Foreign Ownership Limit – FOL). 

• Administrative Procedures: Capital transfer transactions must undergo procedures to register the purchase of capital contributions or shares with the Department of Planning and Investment according to the regulations of the Law on Investment 2020. 

3.3. For Cash and Financial Assets  

Vietnam applies strict Foreign Exchange Control policies under the Ordinance on Foreign Exchange. 

Resident individuals cannot freely transfer money abroad to settle a Trust except for permitted purposes. 

Therefore, Trusts are usually settled using funds that are already legitimately abroad (offshore funds) or through share swaps. 

4. Connection and interaction mechanisms with the Vietnamese legal system  

Although the Trust is established and regulated by Singapore law, when holding assets in Vietnam, this structure is directly governed by local legal regulations through the following important “Legal Touchpoints”: 

4.1. Interaction with Civil Code 2015: Legal Personality and Inheritance  

• Regarding legal personality (Article 74 of the Civil Code): Since a Singapore Trust is not a legal entity, it cannot directly participate in transactions in Vietnam. The SPV (Holding Company) at Tier 2 acts as the “connecting entity”. Vietnamese law recognizes the SPV as a legal foreign legal entity. All rights and obligations are performed under the name of the SPV, ensuring compatibility with the principle of subjects under the Civil Code. 

• Regarding Compulsory Portion (Article 644 of the Civil Code): Vietnamese law protects minimum inheritance rights for close relatives. However, once assets have been converted into “foreign company shares” (movable property in Singapore) through the SPV structure, ownership of the assets is then subject to the regulation of the law where the company is registered (Singapore). Singapore law allows freedom of disposition of assets in a Trust, helping the Settlor distribute assets according to their own will, avoiding the intervention of compulsory portion regulations in Vietnam regarding this block of assets. 

4.2. Interaction with Law on Investment 2020: Foreign Investor Status  

• Cascade Effect: When a Singapore SPV (owned by the Trustee) invests in a Vietnamese company, that Vietnamese company becomes a foreign-invested economic organization. If the SPV holds over 50% of the charter capital, when this Vietnamese company invests further down into other subsidiaries, those subsidiaries are also subject to market access conditions applied to foreign investors. 

• Practical Consequence: Before settling a Trust, it is necessary to review the List of industries with restricted market access (under Decree 31/2021/ND-CP). If the target company operates in a sector “banned” for foreigners, the Trust structure will be invalidated in terms of investment legality. 

4.3. Interaction with Law on Marriage and Family 2014: Asset Regime  

• Asset protection before divorce: For the Trust to have protective validity in Vietnam, the transfer of assets into the Trust (transfer of shares to the SPV) must take place before marriage or there must be a notarized agreement on separate property regime. 

• Risk of invalidity: If the Settlor transfers common matrimonial property into the Trust after marriage without the consensual signature of the spouse, the capital transfer transaction to the SPV may be declared invalid by the Vietnamese Court under Article 213 of the Civil Code, leading to the Trust structure being “pierced”. 

4.4. Interaction with Law on Enterprise 2020: De Facto Control  

• Authorization Mechanism (Article 14): The Singapore SPV is the Legal Owner. However, the SPV will appoint an individual (usually the Settlor themselves or a family member in Vietnam) as the “Authorized Representative” to exercise shareholder/member rights in Vietnam. 

• Legal Value: This authorization document connects power from the Trustee (Singapore) back to the family (Vietnam) in a legal manner. This helps the family still retain rights to manage the enterprise daily (signing papers, attending General Meetings of Shareholders) even though nominally, the assets belong to the Singapore company. 

5. Tax efficiency and financial obligations  

Establishing a trust structure requires careful consideration of initial tax costs versus long-term tax benefits. 

5.1. Tax obligations upon asset transfer  

In Vietnam, transferring assets from an individual to a Singapore SPV is not tax-exempt but is considered a capital transfer activity. 

• Personal Income Tax (PIT): Individuals must pay tax when transferring shares/capital contributions (20% on profit for LLC capital contributions or 0.1% on transfer value for securities). 

• Valuation Risk: Tax authorities have the right to impose tax if they detect that the transfer price is unreasonably lower than the market price for the purpose of tax avoidance. 

5.2. Tax optimization in operation  

Once the structure has been established, the Trust provides superior tax efficiency thanks to the Double Taxation Avoidance Agreement (DTA) between Vietnam and Singapore: 

• Dividend Tax: After-tax profits transferred from the subsidiary in Vietnam to the SPV in Singapore are subject to a 0% tax rate in Vietnam. 

• Tax in Singapore: Singapore does not tax capital gains (No Capital Gains Tax). If the Trustee decides to divest from the Vietnamese company by selling the SPV, the gain obtained is completely tax-exempt in Singapore. 

6. Risk governance and international compliance  

To ensure the goal of asset protection and maintain the Settlor’s control, the structure needs to integrate specific governance mechanisms and comply with global regulations. 

6.1. Internal Governance: PTC and Protector  

• Private Trust Company (PTC): The enterprise establishes a separate company to act as Trustee, allowing beneficiaries to directly participate in the Board of Directors to make investment decisions. 

• Protector: An individual with veto power over key decisions of the Trustee such as amending the trust deed or changing beneficiaries, playing the role of the final safety “stopgap”. 

6.2. International Compliance: CRS and AML  

• Common Reporting Standard (CRS): Information on accounts and Controlling Persons of the Trust will be reported to the Inland Revenue Authority of Singapore and exchanged with Vietnamese tax authorities. 

• Anti-Money Laundering (AML): Vietnamese investors are forced to explain in detail the Source of Wealth and Source of Funds. Any assets formed from tax evasion behavior in Vietnam will be rejected from being received into the structure. 

Conclusion  

The use of Singapore Trusts to hold Vietnamese assets is a high-level legal solution, combining the asset protection advantages of Common Law with the profitability potential of the Vietnamese market. 

However, this is a complex structure, requiring close coordination between Singaporean Lawyers and Vietnamese Lawyers to navigate through sensitive legal “touchpoints”. 

This solution is particularly suitable for assets that are corporate capital contributions and large-scale commercial investment projects (net assets over 5 million USD), helping Vietnamese enterprises thoroughly solve the problem of asset protection, inheritance planning, and avoiding family asset dispersion in the future, provided that the enterprise accepts the conversion costs and strictly complies with current tax and investment regulations. 

HARLEY MILLER LAW FIRM

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