The look-through principle Vietnam authorities and courts apply is the rule that a Vietnamese company majority owned by foreign investors is itself treated as a foreign investor when it invests further. It sounds technical. In practice it decides whether a fund’s carefully layered holding structure holds land lawfully or not.
This guide sets out five lessons for overseas funds, drawn from how the principle operates across the Law on Investment, the Land Law 2024 and the securities regime.
Look-Through Principle Vietnam: The Basic Rule
Where foreign investors hold more than the prescribed proportion of the charter capital of a Vietnamese economic organisation, that organisation must satisfy the conditions and procedures applicable to foreign investors when it invests in another entity, contributes capital or acquires shares.
Below the threshold, the organisation invests as a domestic investor. The threshold is therefore not a mere reporting line; it is the switch between two entirely different regulatory regimes, and it is tested at each tier of a structure rather than only at the top.
Look-Through Principle Vietnam: Four-Tier Structures
The pattern that attracts scrutiny is a fund holding an offshore company, which holds a Vietnamese holding company just below the threshold, which holds a second Vietnamese company, which holds the land. Each tier is individually compliant on its face.
The look-through principle Vietnam regulators apply defeats this where the practical effect is foreign control of land that a foreign-invested enterprise could not hold directly. Authorities examine funding flows, board composition, veto rights and management contracts, not only the shareholder register, and a structure whose economics sit entirely offshore is difficult to defend as domestic.
Look-Through Principle Vietnam: Why Land Is the Pressure Point
Land is where the consequences are most severe. Foreign-invested enterprises cannot receive transfers of land use rights from households and individuals, cannot hold agricultural land in the way domestic entities can, and face approval requirements where land sits in sensitive locations including islands and border and coastal communes.
A structure designed to obtain those rights indirectly is not merely irregular; the underlying land transaction may be exposed. Our note on acquiring a land using company sets out the safer route.
Look-Through Principle Vietnam: Enforceability of Nominee Arrangements
Where a domestic tier is held by Vietnamese nominees under side agreements, the arrangement faces a further problem. Under the Civil Code 2015 a civil transaction entered into to conceal another transaction is void, and the concealed transaction is assessed on its own terms.
The consequence for the fund is that its economic entitlement rests on contracts a court may decline to enforce, leaving restitution rather than ownership. Our analysis of the VIE structure examines the same problem in the technology sector, where the exposure is to licences rather than land.
Look-Through Principle Vietnam: What Funds Should Do Instead
First, test whether the restriction is real. Many activities funds assume are closed are open, and a straightforward foreign-invested company is available. Second, where a cap applies, take the permitted stake and secure control through governance: reserved matters, board composition, veto rights and exit mechanics.
Third, separate the restricted asset from the unrestricted business, so that a Vietnamese-controlled company holds the land and a foreign-owned company holds the operating business, brand and technology under arm’s length contracts. Fourth, use convertible instruments that convert when the restriction lifts. Fifth, document the commercial rationale for the structure contemporaneously, because the absence of any purpose other than avoidance is what makes a structure indefensible.
Look-Through Principle Vietnam: Diligence Implications
For buyers, the principle means diligence cannot stop at the immediate target. The ownership chain must be mapped to ultimate beneficial owners, with the foreign proportion calculated at every tier and tested against the threshold as it stood at the time of each historical transaction, not only today.
Historic breaches do not cure themselves. A company that crossed the threshold five years ago without obtaining the approvals then required carries that defect forward, and it will surface when the buyer files its own approval application. Our due diligence guide covers the mapping exercise.
Frequently Asked Questions
What is the ownership threshold?
The Law on Investment sets the proportion at which a Vietnamese economic organisation is treated as a foreign investor for onward investment. Structures built just below it attract scrutiny of substance.
Does the principle apply to portfolio investment?
Separate foreign ownership limits apply to public companies under the securities regime, calculated on a similar look-through basis.
Can a management contract substitute for ownership?
It can transfer economics but not ownership rights, and where it is the sole mechanism of control it supports a finding that the domestic tier is a nominee.
Is the analysis done at signing or at completion?
At both. A structure compliant at signing can fail at completion where an intervening transaction changes the percentages.
Get a Structure Review
IVLF Advisors maps ownership chains, tests them against the look-through principle, quantifies exposure in existing structures and designs defensible alternatives for funds and strategic investors. See also our multi-layer ownership note and the Ministry of Planning and Investment. Contact our team.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
