Warning: Should Foreign Investors Ask Vietnamese Individuals to Act as Nominees When Establishing a Company?

As a result, many foreign investors attempt to “bypass” legal barriers by asking Vietnamese individuals to stand in their name. However, this approach entails numerous potential risks. In the following article, LH Legal clarifies common concerns and highlights the legal risks faced by foreign investors who are considering using Vietnamese nominees.

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Common Forms of Capital Contribution by Foreign Investors in Vietnam

Pursuant to Article 21 of the 2020 Law on Investment, forms of investment include:

1. Investment in the establishment of an economic organization;

2. Investment through capital contribution, share purchase, or acquisition of capital contributions;

3. Implementation of investment projects;

4. Investment in the form of a Business Cooperation Contract (BCC);

5. Other forms of investment and new types of economic organizations as prescribed by the Government.

In practice, Vietnamese law allows foreign investors to participate through the establishment of new economic organizations, capital contributions or share purchases in existing companies, implementation of investment projects, or business cooperation contracts (BCCs).

However, direct investment (personally establishing a foreign-invested company) is often more complicated and time-consuming than establishing a purely Vietnamese company. Moreover, certain business sectors in Vietnam are subject to restrictions on foreign capital, making direct market entry difficult for foreign investors.

As a result, foreign investors often ask Vietnamese individuals to act as nominees in the following sectors:

• Distribution, import, and export businesses;

• Restaurants, karaoke, massage services, beauty services, real estate leasing, accommodation services, and medical clinics;

• Labor outsourcing services and domestic travel services;

• Preschool education and foreign language training centers;

• Other conditional business sectors applicable to foreign investors.

These practices are precisely the source of many underlying legal risks.

Legal Risks Commonly Faced by Foreign Investors When Contributing Capital in Vietnam

Violation of Enterprise Registration Laws

Vietnamese law strictly prohibits false or inaccurate declarations during enterprise registration. Specifically, Clause 4 Article 16 of the 2020 Law on Enterprises, as amended by Clause 5 Article 1 of Law No. 76/2025/QH15, provides:

“4. Forging declarations; making untruthful or inaccurate declarations in enterprise registration dossiers and dossiers for changes to enterprise registration contents.

5. Falsely declaring charter capital by failing to fully contribute the registered charter capital without registering adjustments in accordance with the law; deliberately misvaluing contributed assets.”

If detected, enterprises may be fined between VND 20–30 million and have their business licenses revoked pursuant to Article 43 of Decree 122/2021/NĐ-CP. More seriously, in the event of a dispute, the law only recognizes the individual named on official documents as the legal owner. The foreign investor will not be recognized as the owner or capital-contributing member and may lose all legal claims to benefits and interests.

Nominee Capital Contribution Agreements May Be Invalid

In many cases, parties only rely on verbal agreements or poorly drafted contracts to conceal the fact that the foreign investor is the true owner. Such loosely drafted agreements fail to clearly define rights and obligations, making disputes difficult to resolve.

If the agreement’s purpose is to conceal foreign investment—an act prohibited by law—it may be declared invalid under Article 123 of the 2015 Civil Code (civil transactions violating prohibitions of law are invalid). When an agreement is not legally protected, foreign investors have little to no legal basis to recover their capital or profits if the Vietnamese partner breaches the agreement.

Risk of Fraud and Asset Misappropriation by Vietnamese Partners

When a Vietnamese individual holds full legal ownership and control of the company, they have absolute decision-making authority. A dishonest partner may exploit this to misappropriate assets, such as selling company assets or even the entire company without the foreign investor’s knowledge, withholding profits, suspending operations, or misusing invested capital.

Since the foreign investor has no legal status within the company, they are unable to prevent such actions or recover assets through legal means.

Risks of Failing to Properly Register Investment Activities

Operating “under the guise” of domestic capital means that the investment project is not legally registered. If discovered by authorities, the enterprise may be required to convert into a legally compliant foreign-invested company or cease operations entirely. Failure to remedy may result in suspension or dissolution.

In addition to administrative penalties (fines and license revocation), foreign investors face financial risks such as inability to legally receive profits, inability to remit profits abroad, and loss of investment protection due to the project’s lack of official recognition.

The enterprise may be required to cease operations if it fails to properly register its investment in accordance with the law

Warning Signs That a Foreign Investor May Be Exploited

Foreign investors should be cautious if any of the following signs arise:

• Avoidance of legal procedures: The Vietnamese partner refuses to include the foreign investor’s name in official documents or delays investment registration, often claiming that procedures are “unnecessary.”

• Inadequate or absent capital contribution contracts: Contracts lack essential terms such as profit-sharing ratios, management rights, or exit mechanisms.

• Lack of transparency in financial operations: Refusal to provide financial statements, accounting records, or clear revenue and profit information.

• Unjustified requests for additional capital: Frequent requests for additional funding without clear plans or justification, often accompanied by promises of unusually high returns.

• Exclusion from management: Preventing the foreign investor from participating in management or unilaterally changing company structure without notice.

If one or more of these signs appear, foreign investors should immediately reconsider further capital contributions and seek legal advice.

How to Prevent Risks When Investing and Contributing Capital in Vietnam

To ensure safe and lawful investment, foreign investors should:

• Comply strictly with investment laws: Choose lawful investment structures rather than nominee arrangements.

• Select reputable Vietnamese partners: Conduct due diligence on partners’ backgrounds, credibility, and business history.

• Execute comprehensive contracts: Clearly define capital contributions, management rights, profit distribution, exit mechanisms, and dispute resolution.

• Consult lawyers and legal experts early: Legal consultation at the planning stage helps avoid costly mistakes later.

• Maintain oversight and control: Actively participate in management where possible and regularly monitor financial and operational activities.

Ignoring legal compliance for short-term convenience can lead to severe and long-term consequences.

Investors need to implement the above measures to minimize risks when contributing capital for business operations

LH Legal – Your Trusted Legal Partner for Safe Foreign Investment in Vietnam

With extensive experience in investment and corporate law, LH Legal is a trusted legal partner for foreign investors in Vietnam. We provide comprehensive support, from investment licensing and company establishment to capital contribution structuring and protection of investor rights.

LH Legal is committed to accompanying foreign investors throughout the entire investment process, ensuring compliance with Vietnamese law and safeguarding legitimate interests. With LH Legal by your side, foreign investors can invest in Vietnam with confidence, security, and peace of mind.

If you have any questions or need legal advice, please contact us via the following forms:

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