rrangements in Vietnam: The Project-Termination Sanction Under Article 36.2(g) of the 2025 Law on Investment and the Real Risk to Foreign Investors
By Vu Manh Quynh, Managing Partner, ECOVIS Vietnam Law | Last reviewed: 16 July 2026
Law Update Note (16 July 2026)
This article originally (15 July 2026) cited Article 48, Clause 2, Point (e) of the Law on Investment 2020 (Law No. 61/2020/QH14). The 2020 Law has been superseded by the Law on Investment 2025 (Law No. 143/2025/QH15), passed by the National Assembly on 10 December 2025 (some sources cite 11 December 2025) and effective from 1 March 2026. The content below has been updated to reflect the 2025 Law. The underlying legal mechanism and risk analysis are substantively unchanged – only the article/clause/point citation has changed.
Transitional issue not verified in this article: for projects or capital-contribution transactions established before 1 March 2026 but reviewed for termination after that date, the specific transitional provision of the Law on Investment 2025 (if any) has not been independently reviewed here. This should be checked against the 2025 Law’s implementing/transitional provisions before being applied to a specific matter with a before/after 1 March 2026 timing element.
Executive Summary
Many foreign investors, when facing ownership-ratio limits or market-access conditions in Vietnam, consider having a Vietnamese individual or entity “hold” their capital contribution or shares on their behalf. In the short term, this appears to solve the legal obstacle. In the long term, it creates a structural risk the investor does not control: the investment authority has a legal basis to treat the capital-contribution transaction as a sham and terminate the investment project – not merely void the private civil arrangement between the two parties, but terminate the project itself. This article analyzes the specific legal mechanism under the current Law on Investment 2025 and, more importantly, the real-world reliability of that legal basis based on independent cross-checked research.
Business Context
Nominee arrangements most commonly appear in three situations: (1) a foreign investor wants to operate in a sector with market-access conditions or a foreign-ownership cap; (2) an investor wants to avoid the Investment Registration Certificate (IRC) procedure by having a Vietnamese entity/individual hold the entire registration; (3) an informal family or partnership structure, where the actual contributing party does not want to appear on the enterprise registration file for tax, parent-group governance, or commercial-confidentiality reasons.
For German and European groups expanding manufacturing in Vietnam – the core client base of ECOVIS Vietnam Law – time pressure is usually the main driver: obtaining a proper IRC/ERC can take several weeks, while “borrowing” a Vietnamese partner’s name appears faster. This is precisely where investors misjudge the risk: the cost saved at the setup stage is far smaller than the risk of losing control of the project later.
Legal Framework
The Law on Investment 2025 (Law No. 143/2025/QH15), effective from 1 March 2026, sets out the grounds for terminating an investment project’s operation in Article 36. Based on our cross-checked research (updated 16 July 2026, based on two independent secondary sources), Article 36, Clause 2, Point (g) is the ground allowing the investment registration authority to terminate a project’s operation where “the investor carries out the investment activity on the basis of a sham civil transaction under civil law” – i.e., where a capital-contribution/transfer transaction is found to be a sham transaction designed to conceal the project’s true owner, referencing the principle of voidness for sham civil transactions under Article 124 of the Civil Code.
This provision replaces Article 48, Clause 2, Point (e) of the Law on Investment 2020 (no longer in effect as of 1 March 2026) – the substantive legal content is materially equivalent; only the article/clause/point location has changed in the new text.
In practice, the competent authority (Department of Planning and Investment / Industrial Zone Authority that issued the IRC) rarely detects a nominee arrangement at the licensing stage – the risk typically surfaces later: an internal dispute between the real investor and the nominee, a targeted inspection, or when the project attracts attention (e.g., expansion, applying for further investment incentives, or preparing for M&A/divestment).
Practical Guidance
What happens when it is discovered. This is not merely a civil dispute between the investor and the nominee (already complex enough – the real investor is typically in a weaker position when suing to recover ownership of an asset that, in legal form, is not registered in their name). The greater risk is that the investment authority has grounds to terminate the project under Article 36.2(g) – meaning the entire investment activity, not just the disputed capital contribution.
When the risk escalates. Three notable moments: (1) when an overseas parent group tightens governance compliance (e.g., Germany’s LkSG) and requires a review of ownership structures across subsidiaries; (2) when preparing an M&A transaction or capital raise, and the buyer/investor requires comprehensive legal due diligence; (3) when the nominee dies, loses legal capacity, or a family/inheritance dispute arises concerning the nominally held assets.
The cost of remediation after discovery is typically far higher than the cost of structuring correctly from the outset – including the legal cost of “regularizing” true ownership (usually via a new transfer transaction, triggering tax), and the risk of operational disruption if the authority intervenes.
Lawful alternatives. Instead of a nominee arrangement, two common and lawful structuring paths: (a) a valid holding structure (an intermediate company in Singapore, Hong Kong, or directly in Vietnam) achieving governance/tax objectives without concealing ownership; (b) for conditional sectors, properly applying for foreign-ownership-ratio approval or a transparent joint-venture structure instead of routing around the rules via a nominee.
Business Risks
- Legal risk: the project may be terminated under Article 36.2(g) (the reliability of this legal basis currently sits at MEDIUM confidence).
- Parent-group governance risk: German/EU parent groups under increasing supply-chain compliance pressure (LkSG, CSDDD) are progressively requiring transparent ownership-structure reviews at subsidiaries – a nominee structure uncovered during an internal review can affect the parent group’s reputation and management accountability.
- Transaction risk: a serious obstacle to future M&A, restructuring, or capital raises – a buyer/new investor will treat this as a “red flag” that must be resolved before the deal.
- Personal-relationship risk: dependence on the nominee’s continued goodwill and stability throughout the project’s life – a risk the investor has no reliable legal tool to control.
- Transitional-law risk: for structures formed before 1 March 2026, it has not been verified how the Law on Investment 2025’s transitional provisions treat transactions established before the effective date – this requires separate review if a timing element is present.
Recommendations
- Do not use a nominee arrangement as a long-term structuring solution, even if it appears to be the fastest option at the setup stage – ranked as the strongest recommendation.
- For projects with an existing nominee structure, proactively review and restructure before a risk-triggering event occurs (inspection, M&A, parent-group review) – acting proactively always costs less than reacting after the fact.
- For conditional sectors, prioritize applying for the correct approval rather than circumventing the law – the upfront time cost is typically far lower than the risk of a project termination down the line.
- Before publishing or using this for a specific client, cross-check the full text of Article 36 of the Law on Investment 2025 directly (not merely via web lookup) to confirm the precise clause/point and check the transitional provision.
Frequently Asked Questions
1. Is a nominee arrangement always illegal? Having an individual hold assets on someone else’s behalf is not automatically a criminal violation, but when the purpose is to conceal the true owner in order to circumvent foreign-ownership-ratio rules or market-access conditions, the transaction can be treated as a sham, leading to the legal consequences analyzed above.
2. If I discover my project is in this situation, what should I do first? Conduct an internal (non-public) legal review to determine the real level of risk and an appropriate restructuring path before taking any action with the authority or a third party.
3. Does restructuring from a nominee arrangement to direct ownership trigger tax? Potentially, since in form this is a new capital/share transfer transaction. This should be tax-planned in advance, not treated as a routine administrative step.
4. Is a holding structure via Singapore/Hong Kong a suitable alternative? In many cases, yes – since this is a transparent ownership structure recognized by law, substantively different from concealing ownership. However, the specific choice depends on the sector, relevant tax treaties, and the group’s governance objectives.
5. Does this risk apply equally across all sectors? No – the risk and the actual level of scrutiny vary significantly between conditional sectors (e.g., real estate, certain technology fields, education) and sectors without foreign-ownership limits, where the motive for a nominee arrangement is typically weaker and therefore, in practice, less scrutinized.
6. Does the Law on Investment 2020 still apply to any situation? The Law on Investment 2020 ceased to be effective from 1 March 2026. For facts/legal relationships arising before that date, which law applies depends on the Law on Investment 2025’s transitional provisions – this has not been reviewed in this article and requires separate advice where a timing element is present.
Related Articles
- Termination of Investment Projects in Vietnam: 9 Risks Foreign Investors Must Know Under Article 36 of the 2025 Law on Investment – overview of the 9 grounds (pillar article) – published
- Nominee arrangements analysis under Article 36.2(g), companion piece on lawful holding structures – see ECOVIS Vietnam Law’s holding-structure advisory
Related Services
Investment-structure advisory and legal review of foreign-invested enterprise ownership – ECOVIS Vietnam Law.
About ECOVIS Vietnam Law
ECOVIS Vietnam Law is a member law firm of ECOVIS International, providing legal and tax advisory services to foreign investors in Vietnam, combining local legal expertise with the international standards of the ECOVIS network across more than 90 countries.
Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), corporate governance, and regulatory compliance in Vietnam.
For a complimentary 30-minute consultation on reviewing your enterprise’s ownership structure, contact Attorney Vu Manh Quynh at vietnam@ecovislaw.com.
Disclaimer
This material is for general informational purposes only and does not constitute legal, tax, or professional advice. Investors should seek specific advice based on their business sector, ownership structure, and investment location in Vietnam. The citation to Article 36.2(g) of the Law on Investment 2025 in this article is currently held at medium confidence (two independent secondary sources in agreement, not yet checked against the original Official Gazette text) and should be verified by a lawyer before being applied to a specific situation. The article has also not verified the transitional provision applicable to transactions predating 1 March 2026.
