Scenario: an FDI company wants to “split” its loss-making logistics arm into a separate company for sale, keeping the profitable manufacturing arm. Accounting proposes: “dump all tax debts and bad contracts into the new company; keep the old one clean.” Is that allowed?
No — the law blocks “debt dumping” upfront
The 2020 Law on Enterprises distinguishes division (Article 199: the divided company ceases to exist; assets/rights/obligations split among new companies) from spin-off (Article 200: only part of assets/rights/obligations moves to a new company; the original survives). Both in force as of 19/10/2026.
The key principle the accountants’ proposal violates: the divided/spun-off company and the new companies are jointly liable for unperformed obligations — unless otherwise agreed (usually with creditors). You cannot “dump” tax debts and bad contracts into the new company and walk away; creditors and tax authorities may claim against any jointly liable company.
Tax debts: finalize before splitting
Before division/spin-off, finalize tax duties up to the split point: declare, finalize all tax types, and pay declared amounts under the 2025 Law on Tax Administration 108/2025/QH15 (replacing Law 38/2019 from 01/7/2026). The division/spin-off resolution must state the tax-obligation allocation plan. In practice, tax authorities usually require finalization before “releasing” the registration steps — put tax in the timeline from day one, not at registration.
Contracts: allocate by resolution, notify counterparties
The resolution must set principles for dividing assets, rights, and obligations — including which contracts follow which company. Three notes:
- Contracts with anti-assignment clauses: many credit and exclusive-distribution contracts bar transferring rights/obligations without counterparty consent. “Automatically” moving these in a split breaches the contract — get consent first.
- Notify counterparties: even where not barred, notify every counterparty in writing of the party change, avoiding “I signed with the old company” disputes.
- Guarantees and mortgages: security interests must move consistently with the obligations — you cannot split the obligation away while leaving the collateral behind (or vice versa) without the secured party’s agreement.
Streamlined sequence
- Members’ council/GMS adopts the division/spin-off resolution with full contents: new company names, asset/right/obligation/tax allocation plan, labor-use plan, timeline.
- Finalize tax, obtain consent for restricted contract transfers, notify creditors and counterparties.
- Register the new company and the spun-off company’s changes under Decree 168/2025/ND-CP.
Frequently asked questions
What is the difference between division and spin-off?
Division (Article 199): the divided company ceases to exist; everything splits among new companies. Spin-off (Article 200): only part moves to a new company; the original survives.
Can we dump all debts into the new company?
Pointless externally. The companies are jointly liable for unperformed obligations (unless otherwise agreed with creditors). Creditors and tax authorities may claim against any of them.
How are tax debts handled in a split?
Declare and finalize up to the split point under the 2025 Law on Tax Administration 108/2025/QH15; the resolution states the tax allocation plan. Finalize before registration.
What about contracts with anti-assignment clauses?
Counterparty consent is required before transfer. Unauthorized transfer breaches the contract, entitling the counterparty to terminate and claim damages.
This article has been quality-reviewed by the FLAW AI Legal Council Content prepared by the AI Legal Council of FLAT Law Firm for general reference only; it has not been reviewed by a human lawyer for your specific situation.