Placing a holding company in Hong Kong or Singapore before investing into Vietnam is a familiar structure for Chinese investors, and in itself it is neither good nor bad. The structure’s value lies in the real functions the holding layer performs for the group; risk appears when that layer is only a legal shell for capital to travel in a circle, claiming treaty benefits with no economic substance behind it. Vietnamese law views this structure through three separate lenses that investors should keep apart when designing it.
Lens one: capital must travel through the correct foreign exchange channel
Whether capital originates in Hong Kong, Singapore or directly from mainland China, once it enters Vietnam to conduct investment activity it must pass through an investment capital account opened at a licensed bank in Vietnam under current foreign exchange rules, now Circular 38/2026/TT-NHNN replacing Circular 06/2019/TT-NHNN, with the investment capital account termed the ICA. Capital contributions, profit remittances, foreign loans and related capital transactions are all reconciled through this account.
The practical consequence is that a multi-layer structure creates no foreign exchange grey zone in Vietnam: regulators and the servicing bank see the direct contributor into the Vietnamese enterprise, and every question about the source of funds returns to proving the lawfulness of cash flows through the banking records of the layers above. A holding structure without clear fund-flow records will stall at account opening and capital transaction registration, before any tax question is even asked.
Investors should also note the reverse direction: profits and capital withdrawn from Vietnam can only be remitted lawfully through the same investment capital account channel after tax duties and reporting are completed as prescribed.
Lens two: related-party transactions and transfer pricing
Where the Hong Kong or Singapore holding transacts with the Vietnamese subsidiary, through loans, management services, trademark licensing or goods trading, those transactions are related-party transactions governed by the transfer pricing framework, now Decree 255/2026/ND-CP replacing Decree 132/2020/ND-CP from 1 July 2026. The core principle is the arm’s length principle: prices, interest rates and service fees must match conditions between unrelated parties in comparable circumstances, and the enterprise must prepare pricing documentation as prescribed.
This is where many intermediated structures are hurt most. A loan from a holding with no staff and no real finance function, at an interest rate above market levels, is a classic transfer pricing inspection target. Likewise, a management fee charged as a percentage of revenue without evidence of services actually provided to the Vietnamese subsidiary is very hard to defend when the tax authority demands the file proving the fee’s economic benefit.
Lens three: treaty benefits must travel with substance and genuine tax residence
Vietnam has double taxation agreements with both Hong Kong and Singapore, and a holding layer placed there can deliver real tax benefits on dividends, interest or capital gains depending on transaction structure. Treaty benefit, however, is not automatic: the income recipient must be a genuine tax resident of the place where the holding sits, must be the beneficial owner of the income, and must carry economic substance proportionate to the role claimed for it in the structure.
Beyond tax, the holding layer’s real value lies in three functions investors should weigh seriously: group governance for multiple projects across countries on one stable legal platform, capital raising from international banks and investors familiar with Hong Kong and Singapore law, and access to investor protection mechanisms under investment treaties to which those two centres are parties. Where these functions are real, the structure withstands any question about its purpose; where they are absent, a solitary tax benefit becomes the whole structure’s greatest weakness.
Economic substance is assessed through concrete indicators: a real office and staff where the holding is placed, important management decisions actually taken there rather than merely re-signed from elsewhere, cash flows with clear destinations and a business purpose beyond tax, and in particular capital that does not circle back to its country of origin within a short period in a pattern suggesting the intermediate journey existed only to manufacture a residence shell.
Frequently Asked Questions
When does an investment structure via Hong Kong or Singapore into Vietnam create real value for a Chinese investor?
The structure creates real value when the holding layer performs provable functions: governing a regional investment portfolio with on-site staff and decisions, raising international capital for the Vietnam project at lower cost than the direct route, holding and licensing intellectual property with genuine management, or preparing a future exit to international investors. These functions create a business rationale independent of tax, and that rationale is precisely what protects the structure when any country’s authorities question the intermediate layer’s purpose.
When is a structure via a third country treated as round-tripping, and what are the legal consequences?
Round-tripping is not a separate legal concept in Vietnamese law, and this article uses the term in its ordinary descriptive sense: capital originating in one country passes through an intermediate entity and returns as foreign investment without real economic activity at the intermediate layer. Legal consequences do not flow from an offence named round-tripping, but from each specific mechanism: denial of treaty benefits for lack of substance and beneficial ownership, transfer pricing re-determination, bank and investment registration questions on the source of funds, and home-country risks on outbound investment compliance. Assessment always rests on the substance file of each structure.
By what criteria do authorities assess the genuine nature of a capital flow?
The criteria commonly cross-checked include: whether the intermediate entity has an office, staff and operating costs proportionate to the capital passing through it; whether investment and management decisions are genuinely taken where the entity sits; whether funds remain and are used for business purposes at the intermediate layer or pass onward immediately within a short time; whether bank records through the investment capital account in Vietnam match the contribution records of the upper layers; and whether pricing between layers follows the arm’s length principle. No single criterion decides the conclusion; authorities look at the overall substance picture.
What must an investor prove, in economic substance terms, to design a valid holding structure?
The substance proof set comprises genuine establishment and operation records where the holding sits: an office lease, employment contracts and insurance for local staff, board minutes showing decisions discussed and passed there, audited financial statements of the holding, a valid tax residence certificate, and fund-flow records showing capital managed for defined business purposes. On the Vietnam side it also needs transfer pricing documentation for every transaction between the holding and the subsidiary. Substance must be built and maintained continuously; it cannot be manufactured retroactively after an explanation request has arrived.
An invitation for investors weighing a regional holding layer
If your group is deciding between direct investment from China and a route via Hong Kong or Singapore, FLAT Law Firm can run a substance test on the proposed structure before capital is contributed: matching the holding’s intended functions against the staff and governance that will accompany it, reviewing the related-party transactions that will arise with the Vietnamese company, and the treaty benefit conditions tied to genuine tax residence. The first discussion focuses on the single question that decides the entire design: what will this holding layer actually do for the group, beyond standing in the middle of the capital flow.
This article has been quality-reviewed by the FLAW AI Legal Council