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| Garment production at the Shirt and Veston Workshop of Garment 10 Corporation - JSC in Sai Dong, Long Bien District, Hanoi__Photo: VNA |
The Government has recently proposed draft amendments to the Law on Enterprises to legislators for discussion, introducing new provisions aimed at improving transparency in corporate operations and curbing the formation of shell companies and inflated charter capital.
A key provision of the draft, presented to the National Assembly on May 9, is the regulation on beneficial ownership. Under the proposed definition, a beneficial owner is any individual who directly or indirectly holds at least 25 percent of a company’s charter capital, enjoys more than 25 percent of its profits, or ultimately exercises control over the enterprise.
The draft also adds regulations strengthening the supervisory role of provincial-level People’s Committees in business registration. It introduces stricter penalties for enterprises that fail to contribute the committed charter capital or engage in practices such as fictitious capital declarations and false reporting.
According to Minister of Finance Nguyen Van Thang, who presented the draft on behalf of the Prime Minister, these changes aim to enhance corporate transparency and accountability. They also reinforce the State’s post-registration oversight in response to the growing prevalence of shell companies, fictitious capital, and illegal capital arrangements disguised as legitimate investment.
The improvement of beneficial ownership provisions is also critical for Vietnam to meet its international commitments on anti-money laundering. Vietnam has been on the Financial Action Task Force (FATF) "grey list" since June 2023. Minister Thang cited research by the International Monetary Fund (IMF), which found that countries on this list experience reduced foreign direct investment and incur higher costs for cross-border financial transactions. To address these risks, Vietnam must establish mechanisms to provide and regularly update information on beneficial owners by May.
The draft Law assigns the Government the responsibility for detailing procedures on beneficial ownership declarations. In a review report, Phan Van Mai, Chairman of the National Assembly’s Economic and Financial Committee, supported this delegation but recommended further refinement of the scope of obligated entities. He suggested leveraging existing data systems to minimize the compliance burden and improve efficiency.
“Guidelines should be comprehensive and detailed to facilitate business freedom while minimizing compliance costs,” the legislator noted.
Legal experts have previously raised concerns over the laxity of procedures for registration and increase of charter capital, which have enabled some firms to inflate charter capital or establish shell entities prior to becoming public companies. They have called for clearer requirements for initial capital registration, including specific conditions, documentation, and asset valuation to ensure early-stage transparency and enforceability.
Responding to these concerns, Minister Thang explained that requiring additional documentation to prove financial capacity during company formation or capital contribution could impose further cost burdens. Such measures, he said, may also conflict with the Government’s policy of streamlining administrative procedures.
Legislators are expected to discuss the draft Law in group sessions on May 10 and in a plenary session on May 20.- (VLLF)
