Sub-Subsidiaries (Tier 2, Tier 3): Can They Be Established in Vietnam?

A Singapore holding company owns 100% of Company X, a manufacturer operating in an industrial park in Hai Phong. The group now wants Company X to set up Company Y, a warehousing and logistics firm, and then have Company Y establish Company Z, a domestic distribution company. The general counsel asks a deceptively simple question: does Vietnamese law allow a subsidiary to have its own subsidiary — and its own “grandchild”?

The short answer is yes. The longer answer — the one that determines timelines, licensing, and compliance risk — lies in how Vietnam treats each tier once foreign capital flows down the chain.

Yes, multi-tier structures are lawful

Vietnamese law imposes no cap on the number of ownership tiers. Two provisions settle the question:

• Article 17(1) of the Law on Enterprises 2020 (Law 59/2020/QH14, still in force): organizations and individuals have the right to establish and manage enterprises in Vietnam, except for the disqualified categories listed in Clause 2 (state agencies, officials, entities without legal personality, and similar). A lawfully operating company is an “organization” that falls into none of those categories — so Company X may establish Company Y, and Company Y may establish Company Z.
• Article 194 of the Law on Enterprises 2020 confirms that a group of companies is not a separate business-entity type, has no legal personality, and is not subject to establishment registration. Every member company carries the full rights and obligations of an independent enterprise.

“Tier 2” and “tier 3” are therefore just shorthand for a company’s position in the ownership chain. Legally, Companies Y and Z are ordinary, independent enterprises formed under the same Law on Enterprises as Company X.

The one boundary that matters: Article 195 prohibits “upstream” and “sideways” investment

Article 195 of the Law on Enterprises 2020 defines parent-subsidiary relationships and draws the only real red lines:

1. Parent test (Clause 1): a company is a parent if it owns more than 50% of charter capital or ordinary shares, controls the appointment of most board members or the director, or controls charter amendments. Company X, holding 100% of Company Y, is unambiguously its parent — regardless of X being itself a subsidiary.
2. No upstream investment (Clause 2): a subsidiary may not contribute capital to or purchase shares of its parent. Company Y cannot invest back into Company X; Company Z cannot invest into Company Y.
3. No cross-ownership among siblings (Clause 2): subsidiaries of the same parent may not jointly contribute capital or buy shares to create cross-holdings with each other.

Capital must flow one way — downward. Internal restructurings that accidentally create upstream or circular holdings breach Article 195 and expose the companies to administrative penalties, so the group’s internal approval workflow should screen for this.

The decisive question is not “can it be formed” but “which investment regime applies at each tier”

Company formation follows the Law on Enterprises everywhere. But the investment regime — whether an Investment Registration Certificate (IRC) is needed and which market-access conditions apply — depends on the foreign-ownership ratio at each level of the chain, under Article 20 of the Law on Investment 143/2025/QH15 (effective 1 March 2026, replacing Law 61/2020/QH14):

• Point (a), Clause 1, Article 20: a company with foreign investors holding more than 50% of charter capital must satisfy the conditions and follow the procedures applicable to foreign investors when it contributes capital to another enterprise or implements another investment project.
• Point (b), Clause 1, Article 20: the same treatment extends to a company in which a point-(a) company holds more than 50% — this is the provision that carries “foreign” status down to tier 2, tier 3, and beyond.
• Point (c), Clause 1, Article 20: likewise where foreign investors together with a point-(a) company hold more than 50%.
• Clause 2, Article 20: companies outside points (a), (b) and (c) follow the rules for domestic investors — a materially lighter procedure.

What this means in practice

• Tier 1 (Company X, 100% Singapore-owned): the foreign investor may now establish the enterprise first and obtain the IRC afterwards — the reversed sequence introduced by Clause 2, Article 19 of Law 143/2025 — while still meeting foreign-investor market-access conditions (Article 8) at the establishment stage. Its project requires an IRC (Point a, Clause 1, Article 26).
• Tier 2 (Company Y, 100% owned by X): Company Y falls under Point (b), Clause 1, Article 20, so its own investment projects are treated as foreign-investor projects and require an IRC (Point b, Clause 1, Article 26), issued by the industrial-zone management board or the Department of Finance depending on the project location. The most common compliance failure we see: groups assuming that “a Vietnamese company investing in Vietnam” follows domestic procedures. It does not — not when the foreign-capital chain exceeds 50%.
• Tier 3 (Company Z, 100% owned by Y): the same analysis recurses. Because Y is a point-(a)-type company holding more than 50% of Z, Z inherits the foreign-investor regime.
• The dilution variant: if Company X holds only 40% of Company Y alongside Vietnamese partners, and Y falls outside points (a), (b) and (c) of Clause 1, Article 20, then Y invests onward as a domestic investor (Clause 2, Article 20) — no IRC for ordinary projects. Ownership design at each tier is therefore a genuine structuring decision, not just paperwork.

Three routes to creating a tier-2 or tier-3 company

Route 1: Capital contribution to form a brand-new company

The standard path — Company X contributes charter capital to incorporate Company Y (as an LLC or joint-stock company). The enterprise-registration file follows the Law on Enterprises 2020 according to company type. On the investment side, apply the Article 20 analysis above: if Y is a point-(b) company implementing a new project, that project needs its own IRC.

One often-overlooked alternative sits in Clause 3, Article 20: a foreign-invested enterprise already established in Vietnam that wants to run a new project may simply complete the procedures for that project without necessarily forming a new company. Before creating Company Z, ask whether Company Y could hold the new project directly — the answer turns on governance, tax, and risk-ring-fencing objectives rather than on any legal compulsion to multiply entities.

Route 2: Acquiring shares in an existing operating company

Instead of incorporating, Company X may buy into an existing Vietnamese company and turn it into a tier-2 subsidiary. This route is governed by Article 21 of Law 143/2025. Investors are free to contribute capital or purchase shares, but must register the capital contribution with the competent authority before the change of members/shareholders in any of the three cases listed in Clause 3:

• (a) the deal increases foreign ownership in a company doing business in a sector with conditional market access for foreign investors;
• (b) the deal results in foreign investors — or Article 20(1)(a)/(b)/(c) companies — holding more than 50% of charter capital, whether crossing the 50% line from below or increasing an already-majority foreign stake;
• (c) the target company holds land-use rights on islands, in border or coastal communes/wards/special zones, or in other areas affecting national defense and security.

All foreign-investor capital contributions must also satisfy market-access conditions (Article 8), defense/security requirements, and land-law conditions (Clause 2, Article 21).

Route 3: A tier-2 company investing onward to tier 3

The same logic applies recursively: determine whether Company Y sits in point (a), (b) or (c) of Clause 1, Article 20, and the regime for Company Z follows. The longer the chain, the more important it becomes to trace ownership percentages tier by tier — particularly where Vietnamese co-investors at intermediate levels dilute the foreign ratio.

Direct versus indirect investment — a practical distinction

Market practitioners commonly call forming a new company to run a project “direct investment” and contributing capital to or buying shares in an existing enterprise “indirect investment.” The distinction has real consequences:

• Direct investment (establishment, project implementation) is tied to the IRC and managed project by project.
• Indirect investment (capital contribution, share purchase) does not require an IRC (Point c, Clause 2, Article 26) — but may still trigger the pre-registration duty under Clause 3, Article 21 described above.

The frequent mistake is assuming that “buying shares means no filings with the investment authorities.” No IRC, yes — but the capital-contribution registration in the three Clause 3 cases is mandatory, and skipping it will block the subsequent enterprise-registration update.

Worked example: the Singapore — Hai Phong chain

• Level 0: Singapore holding group (foreign investor).
• Tier 1 — Company X (Hai Phong, 100% group-owned): incorporated first, IRC afterwards under Clause 2, Article 19; project subject to IRC (Point a, Clause 1, Article 26).
• Tier 2 — Company Y (logistics, 100% owned by X): a Point (b), Clause 1, Article 20 company, so its logistics project is handled as a foreign-investor project and needs its own IRC (Point b, Clause 1, Article 26). If the warehouse sits outside any industrial zone, the issuing authority is the Department of Finance under the current post-2025 administrative structure.
• Tier 3 — Company Z (distribution, 100% owned by Y): Y is a point-(a)-type holder of more than 50% of Z, so Z inherits the same regime.
• Variant: if X takes only 40% of Y with Vietnamese partners holding 60%, Y escapes points (a)–(c) of Clause 1, Article 20 and invests onward as a domestic investor (Clause 2, Article 20).

Recurring pitfalls

1. Treating a tier-2 company as a domestic enterprise when it falls under Point (b), Clause 1, Article 20 — resulting in a missing IRC and a project exposed to sanctions.
2. Skipping capital-contribution registration when acquiring an existing company to create a tier-2 subsidiary in one of the three Clause 3, Article 21 situations.
3. Breaching Article 195 of the Law on Enterprises during restructurings — upstream contributions or sibling cross-holdings.
4. Forgetting market-access screening (Article 8) at every tier: logistics, distribution, and telecoms carry foreign-ownership limits, and the analysis must be repeated for each company in the chain because the applicable commitments can differ by tier.
5. Relying on repealed law: Law 61/2020/QH14 expired on 1 March 2026. All structural analysis today must rest on Law 143/2025/QH15 and its guiding instrument, Decree 96/2026/ND-CP (issued 31 March 2026, effective 31 March 2026).

Frequently asked questions

1. Can a tier-2 subsidiary establish a tier-3 subsidiary, or does the law limit the number of tiers?
Yes, it can — there is no statutory limit on tiers. Article 195 of the Law on Enterprises 2020 only prohibits subsidiaries from investing upstream into their parent and prohibits cross-holdings among sibling subsidiaries; it does not restrict downward investment. Each tier must still comply with its applicable investment regime under Article 20 of Law 143/2025.

2. Does Company Y (tier 2, 100% owned by FDI Company X) need its own IRC?
Yes, if Y implements an investment project. Y falls under Point (b), Clause 1, Article 20, so its project is subject to IRC issuance under Point (b), Clause 1, Article 26, following foreign-investor procedures.

3. If we buy an existing Vietnamese company to serve as the tier-2 subsidiary, is an IRC required for the acquisition itself?
No IRC is required for the share purchase as such (Point c, Clause 2, Article 26), but you may need to register the capital contribution in advance with the investment registration authority if any of the three cases in Clause 3, Article 21 applies — conditional sectors, crossing the 50% foreign-ownership threshold, or sensitive land holdings.

4. Can the overseas parent skip tier 1 and directly establish the tier-2 company in Vietnam?
Yes. A foreign investor may directly establish an additional enterprise in Vietnam under Clause 2, Article 19. That new company would be a tier-1 subsidiary of the overseas parent rather than a tier-2 subsidiary of Company X — the legal and tax consequences can differ, so take specific advice.

5. How do foreign market-access conditions apply across a multi-tier chain?
They are assessed company by company. Market-access conditions (Article 8, Law 143/2025) apply according to the foreign-capital character of each enterprise. A sector open to 100% foreign ownership at tier 1 is not automatically open on identical terms at tiers 2 and 3 if the ownership mix changes along the chain (for example, through additional foreign shareholders of different nationalities or treaty-specific commitments). Screen each tier before proceeding.

This article has been quality-reviewed by the FLAW AI Legal Council