A foreign-invested subsidiary in Vietnam has reported losses for three consecutive years. The group’s management faces the question: should the subsidiary be dissolved to “cut losses”, or restructured to preserve the legal entity and the market presence? In practice, many businesses decide hastily, believing that “three years of losses means the law requires dissolution” — a completely wrong notion. Conversely, some businesses simply “abandon” the loss-making company, only to have its enterprise registration certificate revoked and its managers held jointly liable for outstanding debts. This article analyzes five handling options and a decision matrix for each situation.
1. Must a company with 3 straight years of losses be dissolved?
The straightforward answer: no. Vietnamese law contains no provision requiring dissolution merely because a company has lost money for N consecutive years. The real legal threshold is not “accounting losses” but insolvency — at which point the enterprise falls under rehabilitation/bankruptcy proceedings governed by the Law on Recovery and Bankruptcy 142/2025/QH15 (effective 01/03/2026, replacing the 2014 Bankruptcy Law 51/2014 — the old law has expired and must not be cited as current authority).
The distinction matters: accounting losses are not the same as insolvency. A company may lose money for three years yet still pay its debts on time and stay outside bankruptcy; conversely, a profitable company may face a bankruptcy petition if it cannot pay due debts.
2. Five handling options and the decision matrix
| Situation | Suitable option | Rationale |
|---|---|---|
| Cash flow remains, market outlook positive | Restructure (merger, conversion of enterprise form…) | Keep the legal entity to carry forward accumulated losses against future profits (up to 5 years) |
| Business no longer viable but debts can still be paid in full | Voluntary dissolution | A clean, lawful wind-down |
| Liabilities exceed assets, insolvent | Rehabilitation/bankruptcy under Law 142/2025 | A collective statutory procedure protecting stakeholders in an orderly manner |
| Waiting for market recovery, want to keep the entity | Business suspension | Cut operating costs while waiting |
| Want to keep market share/brand but stop the bleeding | Merge the subsidiary into another group company | Streamline the structure; inherit losses for offset within the group |
3. Conditions and procedures for voluntary dissolution
Voluntary dissolution is a right, not an obligation (Article 207 of the Law on Enterprises 2020, as amended by Law 76/2025/QH15). The hard condition in Article 207.2: an enterprise may only be dissolved when it ensures full payment of all debts and other asset obligations, and is not in the process of dispute resolution before a court or arbitration.
The mandatory payment order upon dissolution (Article 208): (1) unpaid wages, severance allowances, social insurance and other employee benefits; (2) tax debts; (3) other debts. This is the biggest practical bottleneck: a loss-making company that still owes taxes, wages or social insurance contributions will have its dissolution dossier suspended until those debts are settled.
Dissolution registration follows Decree 168/2025/ND-CP (effective 01/07/2025, replacing Decree 01/2021 — do not cite the old decree).
4. Restructuring: tools under the Law on Enterprises
The Law on Enterprises 2020 provides the full set of reorganization forms: division (Article 198), spin-off (Article 199), merger (Article 200), consolidation (Article 201), and conversion of enterprise form (Articles 202–205).
For a subsidiary with three years of losses, merging into another group company is often the most practical option: it streamlines the structure and the accumulated losses are inherited for offset against future profits. But there is a tax red line: losses must not be “purchased” through transactions lacking economic substance — the tax authority may reassess under tax administration rules.
Business suspension (Article 206 of the Law on Enterprises + Decree 168/2025) is the “hibernation” option: the enterprise must notify the business registration authority in writing no later than 3 working days before the suspension date. For the permitted duration of each suspension and the total consecutive period, consult Decree 168/2025 directly (the new instrument replacing Decree 01/2021) — do not apply figures from the old decree.
5. Tax treatment of losses: the cost of dissolution and inspection risk
A point many boards overlook: dissolution means losing the right to carry forward losses. Under Article 9 of Circular 78/2014/TT-BTC (amended by Circular 96/2015), losses may be carried forward in full and continuously for up to 5 years from the year following the year the loss arose. A company with three years of losses is still within the carry-forward “window” — if restructuring succeeds and profits return, accumulated losses will reduce future corporate income tax payable. Dissolution wipes out this tax value entirely.
Conversely, persistently loss-making companies are more likely to face tax inspection over suspected transfer pricing or misstated losses. Businesses should prepare documentation proving the losses are genuine, and where transactions with the parent or affiliates exist, declare related-party transactions under Decree 132/2020/ND-CP.
6. Obligations toward employees
Whether dissolving or restructuring with workforce cuts, employee obligations must be fully honored under the 2019 Labor Code: severance allowance (Article 46), redundancy allowance (Article 47), and rules on termination due to structural/technological changes or economic reasons (Article 42). Unpaid wages and social insurance contributions will block the dissolution dossier under the Article 208 priority order.
7. The risk of “abandoning” a loss-making company
An enterprise that ceases operations for one year without notifying the business registration authority will have its Enterprise Registration Certificate revoked (point c, clause 1, Article 212 of the Law on Enterprises). Its managers and the enterprise are then jointly liable for debts and asset obligations. “Abandonment” is never an option — either handle it lawfully or face personal liability for managers.
8. Frequently asked questions
Do three years of losses force a capital increase or dissolution? No provision requires it. The enterprise decides the appropriate handling based on its finances and strategy.
Can a company owing taxes be dissolved? Dissolution cannot be completed until tax debts are fully paid — tax debts rank second in the payment priority (Article 208), and the dossier will be suspended.
Does merging a loss-making company into a profitable one “erase” the losses? Accumulated losses are inherited and offset gradually against future profits within the 5-year carry-forward period — but the transaction must have genuine economic substance, not be engineered merely to “buy losses” for tax avoidance.
Legal basis: Articles 198–212 of the Law on Enterprises 59/2020/QH14 (amended by Law 76/2025/QH15, effective 01/07/2025); the Law on Recovery and Bankruptcy 142/2025/QH15 (effective 01/03/2026; clause 3, Article 38 effective 01/07/2026); Decree 168/2025/ND-CP (effective 01/07/2025); Article 9 of Circular 78/2014/TT-BTC (amended by Circular 96/2015); Decree 132/2020/ND-CP; Articles 42, 46, 47 of the Labor Code 45/2019/QH14. Checked on 14/10/2026.
Subsidiary in losses needs a handling plan? FLAT Law Firm advises on restructuring, mergers, dissolution and tax — labor obligations for foreign-invested enterprises. Contact us.
The information in this article is for general reference only, based on the laws in force at the time of writing (14/10/2026), and does not constitute legal advice for any specific matter.
The legal content of this article is reviewed by FLAT’s AI Legal Council and submitted to the owner for approval; it is not an opinion of a licensed lawyer and does not replace legal advice for specific cases.