Knowledge

Vietnam continues to be a magnet for foreign direct investment ("FDI"), with FDI inflows reaching $25 billion in 2024, highlighting the continued attractiveness of the country for global investors.

Offshore structures play a key role in supporting Vietnam's investment landscape, with the British Virgin Islands ("BVI"), Cayman Islands, Jersey and Guernsey, facilitating capital flows into Vietnam, and assisting with Vietnamese investment abroad.

This briefing explores the strategic use and benefits of offshore companies in Vietnam's investment ecosystem.

Vietnam's investment landscape and offshore jurisdictions

Vietnam is one of the leading destinations in Southeast Asia for foreign direct investment, with one of the highest regional GDP growth rates.  A notable portion of these inflows is structured through offshore vehicles.

For instance, the BVI has historically ranked among the top investing countries into Vietnam. By 2015, the BVI accounted for $19.3 billion of cumulative FDI into Vietnam, spread over 623 projects, which placed it among the top 5 investors, alongside countries such as South Korea, Japan and Singapore. 

The reason why offshore companies have become integral tools in structuring investment into Vietnam is that they provide tax efficiency, deal flexibility, legal certainty and international investor comfort. We shall explore these features in the following section.

Why are offshore companies favoured in Vietnam?

Vietnam is a civil law jurisdiction, which has a complex array of rules and regulations in relation to local investment.  Conversely, offshore jurisdictions are based on the common law and widely accepted in international deal structuring, as they allow investors to rely on a legally sound, financially efficient, vehicle, allowing them to enter the Vietnam market swiftly and efficiently.

The practical benefits of an offshore vehicle include:

• Tax advantages: offshore companies are typically not subject to corporate income tax, capital gains tax, withholding tax or foreign exchange controls, which allows international investors to rely upon tax-efficient cross-border profit repatriation.
• Swift and cost-effective incorporation: offshore companies can typically be formed within days, with minimal filing requirements, facilitating swift and friction free deals.
• Flexibility: offshore companies can operate as holding companies, special purpose vehicles, or investment funds, which facilitate investment, ownership transfer and complex deal structuring.
• Strong brand recognition: offshore companies are widely used in Asia (to the extent that "BVI" is widely used as a term to describe an offshore vehicle), making them trusted and accepted investment conduits.
• Jurisdictional flexibility: offshore companies offer efficient use-cases in many scenarios. For instance, BVI companies are frequently used as holding companies, venture capital funds or joint venture vehicles, Cayman vehicles are typically preferred for larger funds with institutional or US based investors, and Jersey and Guernsey are favoured by European investors for outbound fund investment or inbound UK real estate investment.

What are practical use cases for offshore companies in Vietnam?

Offshore vehicles are frequently used to ensure transactional efficiency across the investment spectrum, from formation to exit, and across sectors, from real estate to venture capital. However, some common use cases include:

• Facilitating mergers and acquisitions: offshore companies can operate as a deal accelerant, by holding interests in Vietnamese assets, enabling transfer at the offshore level, rather than the local asset level, thereby expediting transactions and mitigating administrative burdens or delay. 
• Facilitating inward investment: global private equity and venture capital funds frequently choose offshore structures to form funds, given their ease of set-up, investor familiarity and cost efficiency.  Vietnam tracks this pattern.  For instance, Mekong Capital, a pioneering Vietnam focused PE fund, raises funds through Cayman limited partnerships, Dragon Capital structured their fund through a BVI vehicle, and VinaCapital's Vietnam Opportunity Fund is based in Guernsey.
• Simplifying regulatory complexity: in sectors with complex regulatory regimes, or foreign ownership restrictions, such as the real estate sector, it is common practice to use an offshore joint venture, in which the local party and international investor hold shares. Aside from regulatory alignment, this also provides legal protections by locating the joint venture in a legally neutral environment and allows for the efficient management of profit distributions.
• Startup and tech sector: the Vietnam startup scene is booming, and Vietnamese startups commonly incorporate BVI or Cayman parent companies for the purpose of seeking international investment, forming an IPO ready vehicle, or deal structuring to enable employee share plans.  For example, VNG Corporation, Vietnam's first technology unicorn, incorporated a Cayman holding company in preparation for an eventual Nasdaq listing.  Similarly, Sky Mavis, a blockchain gaming studio behind Axie Infinity, is backed by significant venture capital funding and had a hybrid BVI/Cayman holding structure in place when global investors came onboard.
• Outbound investments: given the rapid economic growth in Vietnam, local companies are increasingly investing abroad and frequently leverage offshore vehicles to navigate foreign jurisdictional complexities or international financing requirements. For instance, offshore companies can offer a legally neutral platform for cross-border investment, which is acceptable to investors or financial institutions.
• Private wealth management: with Vietnam's economic success, there has been a concurrent growth in wealthy individuals, which has led to increasing demand for offshore solutions for estate planning purposes. Similarly, family offices in Singapore and Hong Kong, seeking portfolio diversification, frequently form offshore vehicles or funds to pool investments into Vietnam.

Conclusion

Offshore companies have become integral to Vietnam's investment ecosystem, enabling billions in FDI inflows, outbound investments, and facilitating the internationalisation of local startups.

Offshore companies can provide transactional efficiency, accelerate deals, or mitigate financial or tax leakage, across a wide spectrum of use cases, and play a role in contributing to the success of the Vietnamese economy.

If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.