In Vietnamese private companies the line between the business and its owners is often blurred: land titled to the founder personally and leased to the company, revenue routed through a relative’s distribution firm, interest-free loans to directors. Related-party diligence is not about catching formal errors — it determines whether the profit the buyer is paying for truly belongs to the target or sits in the entities around it.
Map the related network before reading any contract
Start from the enterprise registrations of shareholders, legal representatives and close family to build a map of commonly owned entities. Then cross-check three sources: the detailed related-party receivable and payable ledgers, bank statements hunting for circular flows, and the top customer and supplier lists for overlapping managers. Many undeclared relationships surface at this cross-check stage, before a single contract is read.
Three questions per transaction: price, term, replaceability
For each related-party transaction, diligence must answer: is the price at market (how far above industrial-park benchmarks is the founder’s land rent); how much term remains and what happens on a change of control; and can the company replace the related counterparty with an independent one without disrupting operations. Below-market deals are as dangerous as above-market ones: they inflate current margins and vanish after the acquisition.
Tax risk: transfer pricing and reassessment
Transactions between related parties fall under the transfer-pricing regime of Decree 255/2026/ND-CP (effective 01 July 2026, replacing Decree 132/2020/ND-CP); the tax authority may re-price them and reassess under the Law on Tax Administration 108/2025/QH15. Diligence should review prior-year transfer-pricing documentation and estimate the latent reassessment — an amount that belongs in the SPA as a price cut or specific indemnity, not on the buyer’s shoulders after closing.
Frequently asked questions
Where does related-party checking start?
With a map of commonly owned entities: search the registrations of shareholders, managers and family members, then cross-check ledgers, bank statements and major customer–supplier lists for undeclared relationships.
How can you tell if a related-party price is at market?
Benchmark it against at least two independent references: equivalent premises rents in the same area, third-party supplier quotations, or existing transfer-pricing analyses. A large unexplained gap is a red flag.
What tax risk do related-party deals create for the buyer?
The tax authority can re-price related-party transactions and reassess corporate income tax plus penalties for pre-acquisition years. That exposure should be quantified in diligence and locked down with a specific seller indemnity.
How do related-party findings affect valuation?
Earnings must be normalised: replace related-party prices with market prices before applying any valuation multiple. If the attractive margin exists only because of cheap founder-owned land or revenue routed through a side company, the price must fall accordingly.
This article has been quality-reviewed by the FLAW AI Legal Council