Company A (foreign) owns company B (Vietnam), and company B sets up company C (Vietnam) — making C a “tier-2 subsidiary”. The question 90% of investors ask wrong is “can a tier-2 subsidiary be established?” — the right question is “must company C go through investment procedures as a foreign investor?”
The law caps no tiers — each company is an independent legal entity
Enterprise Law 59/2020/QH14 sets no limit on subsidiary tiers: company B (even though it is itself a subsidiary of a foreign investor) may fully establish company C as a Vietnamese economic organization. Each company is an independent legal entity, liable with its own assets.
But “may be established” and “established in what capacity” are two different things — and that distinction decides the procedure.
The decisive test: must company C complete investment procedures?
Under Investment Law 143/2025/QH15 (effective 1 March 2026), not every foreign-invested economic organization must complete investment procedures as a foreign investor — only those meeting the law’s criteria for “foreign-invested economic organizations subject to investment procedures”.
In practice, when company B (already foreign-invested) establishes company C, the investment registration authority examines the effective foreign ownership “seeping” down into C — the foreign ratio in B multiplied by B’s stake in C. Above the statutory threshold, C needs an investment project and an IRC like a foreign investor; below it, C is established as a purely domestic enterprise (enterprise registration only).
This is the calculation many groups get wrong: they look at B’s stake in C (say 60%) and forget to multiply by the foreign ratio in B (say 100% → effectively 60%; but if B is only 40% foreign-owned, C “seeps” just 24%). Always compute the effective ratio, not the nominal single-tier figure.
Three practical scenarios
Scenario 1: B is 100% foreign-owned and controls C
The seeped foreign ratio in C exceeds the threshold → C must complete investment procedures: have an investment project, obtain an IRC, then register the enterprise. C’s IRC dossier needs B’s documents (as the investor) — and since B is a Vietnamese legal entity, the file is leaner than for a direct foreign investor.
Scenario 2: B has only a small foreign stake and sets up C
If the seeped ratio is below the statutory threshold, C is established as a domestic enterprise — enterprise registration under Decree 168/2025/ND-CP only. Many groups use this structure to expand flexibly without an IRC for each grandchild company.
Scenario 3: A 3–4 tier chain (A→B→C→D)
Not prohibited. But each tier is a separate “seepage” calculation, and regulators may ask for the full ownership chain to be clarified when the lower-tier foreign ratio sits near the threshold. Advice: draw the complete ownership diagram with per-tier ratios right in the dossier — upfront transparency is cheaper than later explanations.
FAQs
Does a tier-2 subsidiary need an IRC?
It depends on the “seeped foreign capital ratio” test: above the Investment Law 143/2025/QH15 threshold, it needs an investment project and an IRC; below it, enterprise registration as a domestic company suffices. There is no one-size answer for all multi-tier structures.
Is there a cap on subsidiary tiers in Vietnam?
No. Enterprise Law 59/2020/QH14 caps nothing. Each company is an independent legal entity. The practical limit is compliance cost and complexity when regulators ask to clarify a multi-tier chain.
Is the foreign parent liable for the tier-2 subsidiary’s debts?
As a principle, no — each legal entity is liable with its own assets; the parent’s liability is limited to its contribution in the direct subsidiary. Exception: liability can “pierce” tiers where abuse of legal personality is proven (e.g. asset stripping to evade debts) — but that sanctions conduct, it is not an automatic consequence of a multi-tier structure.
Should company B (Vietnam) or company A (foreign) directly own company C?
If B owns C and the seeped ratio stays below the threshold, C avoids IRC procedures — leaner. But if the goal is ring-fencing legal risk per project or optimizing tax on dividend flows (via double-tax treaties), direct ownership by A may be better. This is a structuring exercise with no default answer.
Contact us
FLAT Law Firm advises foreign investors on investment structuring, IRC/ERC procedures, ownership design and compliance in Vietnam. Contact us for advice on your specific case.
For reference only; not a substitute for legal advice on your specific case.
This article is pending review by the FLAW AI Legal Council.
