Amendments to Vietnam’s Law on Enterprise: Strengthening Compliance and Corporate Accountability

The Government has recently submitted a draft amendment to the Law on Enterprises to the National Assembly for deliberation. The proposed changes aim to improve transparency in corporate operations, prevent the formation of shell companies, and address inflated charter capital declarations. The draft law is expected to be debated and potentially approved during the ongoing session of the 15th National Assembly.

Key highlights of the draft law are as follows:

Clarified definitions

The draft law introduces clearer definitions to align with international standards. Notably:

• Dividends are now more precisely defined in accordance with accounting principles (Clause 5, Article 4).
• A beneficial owner is defined as an individual who directly or indirectly holds at least 25% of a company’s charter capital, receives over 25% of its profits, or ultimately exercises control over the enterprise (Clause 16, Article 4).
• A significant addition is the explicit inclusion of “false declarations” as a prohibited act (Clause 4, Article 16). Although already addressed under the Penal Code, this conduct remains prevalent in practice, particularly involving forged signatures in business registration documents.

Shift from Pre-checks to Post-registration oversight

The draft law reinforces the post-registration supervisory role of provincial-level People’s Committees (Clause 3, Article 215), introducing key measures such as:

• Stricter penalties for enterprises that fail to contribute committed charter capital or engage in fictitious capital declarations and false reporting.
• Development of inspection procedures and inter-agency coordination regulations at the local level.

Expanded eligibility to establish enterprises

Under Clause 2, Article 17, the draft law expands the categories of individuals permitted to establish businesses. Specifically, public university lecturers and staff may now contribute capital to and participate in the management of enterprises aimed at commercializing scientific research, subject to prior approval from authorized institutions.

Decentralization of enterprise oversight

The proposed law significantly decentralizes enterprise management to provincial authorities. Local governments would be responsible for:

• Handling business registration;
• Conducting inspections;
• Addressing capital-related violations;
• Coordinating with other regulatory agencies in overseeing corporate activities.

This decentralized approach is expected to strengthen enforcement, improve the effectiveness of post-registration monitoring, and reduce legal violations in the business sector.

The draft law is scheduled to be deliberated by legislators during the National Assembly’s sessions in May 2025

Assessment of Midland & Partners

Strengthening corporate accountability and post-registration oversight

The proposed amendments represent a meaningful step toward greater corporate transparency and accountability, particularly by reinforcing the State’s oversight after registration. These reforms respond directly to concerns over the increasing prevalence of shell companies, fictitious capital, and illegitimate capital arrangements disguised as investment.

Alignment with international commitments

As Vietnam continues to strengthen its regulatory framework to combat money laundering and enhance financial transparency, the newly introduced provisions on beneficial ownership represent a critical step. These enhancements are designed to ensure greater clarity and accountability in identifying the individuals who ultimately own or control legal entities. This move aligns with Vietnam’s commitments under key international frameworks, including the Financial Action Task Force (FATF) Recommendations, and supports the country’s broader efforts to prevent the misuse of corporate structures for illicit purposes. In particular, the legal recognition and mandatory disclosure of beneficial owners will play a central role in ensuring compliance with global anti-money laundering (AML) standards.

By Phan Thi Phuong Anh – Midland & Partners