Due Diligence Process in Cross-border M&A in Vietnam

Vietnam has become one of Asia’s most attractive destinations for cross-border mergers and acquisitions (M&A), thanks to its fast-growing economy, youthful population, and increasing openness to foreign investment. However, while opportunities abound, investing in a Vietnamese company comes with its own set of legal and regulatory complexities. At the heart of any successful cross-border M&A transaction lies a rigorous and well-executed due diligence process.

Due diligence in Vietnam is not just about ticking boxes. It is about uncovering hidden risks, identifying deal breakers, validating assumptions, and equipping buyers with the insight needed to make informed decisions. This article walks through the key phases, challenges, and best practices in conducting legal due diligence for cross-border M&A in Vietnam.

What is Due Diligence in Cross-border M&A?

Due diligence refers to the comprehensive appraisal of a target company to evaluate its legal, financial, tax, operational, and commercial position. For cross-border M&A, due diligence plays a vital role in identifying compliance risks, negotiating favorable deal terms, and ensuring the buyer understands the regulatory and cultural landscape.

In Vietnam, due diligence also helps foreign investors navigate local complexitiesranging from foreign ownership limits to licensing restrictionsbefore committing to a transaction. The findings from this process can significantly influence valuation, indemnity clauses, transaction structure, and post-deal integration planning.

Types of Due Diligence in Vietnam

Legal Due Diligence

Legal due diligence in Vietnam typically includes the following areas:

• Corporate structure and ownership: Verify if the target company is duly incorporated and whether its ownership structure complies with Vietnamese laws, especially in sectors subject to foreign investment restrictions.
• Licensing and regulatory compliance: Confirm the company holds valid business licenses, investment certificates, and other operational permits.
• Contracts and obligations: Review key commercial contracts for change-of-control clauses, termination triggers, and compliance risks.
• Labor and employment: Analyze labor contracts, compliance with employment laws, insurance contributions, and potential disputes with employees.
• Litigation and disputes: Investigate ongoing or past litigation and legal risks that may impact the target’s operations or assets.
• Intellectual Property (IP): Confirm that trademarks, copyrights, patents, or software are duly registered and owned by the company.

Financial and Tax Due Diligence

• Historical financial statements: Assess the company’s profitability, debt exposure, and accounting practices.
• Tax compliance: Examine if taxes have been accurately declared and paid, particularly VAT, CIT, and PIT.
• Transfer pricing and related-party transactions: Evaluate risks arising from group-level pricing structures and underreported transactions.

Operational and Commercial Due Diligence

• Business scalability: Examine growth potential, market share, and strategic alignment with the buyer’s goals.
• Asset inventory and facilities: Review the ownership or lease status of key assets.
• Supply chain and customer base: Identify dependencies or risks tied to critical partners.

Vietnam-specific Legal Considerations

Foreign investors must be especially cautious with legal and regulatory matters unique to Vietnam, as even seemingly routine aspects of a transaction can involve country-specific complexities that influence deal feasibility and execution.

Foreign ownership caps: Vietnam imposes foreign equity restrictions in several sensitive or conditional business sectors, such as banking, education, telecommunications, logistics, and pharmaceuticals. Understanding these limitations is essential before entering negotiations. In some cases, exceeding the allowed threshold can void a transaction or require restructuring through nominee arrangements, which come with additional risk.

Land use rights: In Vietnam, all land is owned by the state. Instead of title ownership, businesses are granted land use rights (LURs), which are transferable and can be leased or mortgaged under certain conditions. Due diligence must verify the legality, duration, and transferability of these LURs, particularly for projects in manufacturing, hospitality, or agriculture sectors where land access is key.

Licensing compliance: Many Vietnamese businesses operate with outdated or incomplete business licenses that do not fully reflect their actual business activities. A mismatch between business registration documents and current operations can result in post-deal regulatory scrutiny, fines, or even license revocation. It’s critical to confirm that the target’s operations are fully covered by its registered business lines.

Anti-corruption and compliance risks: Vietnam has made strides in strengthening anti-bribery and anti-corruption frameworks, especially for companies with state-owned capital or those operating in regulated sectors. Foreign buyers should assess internal policies, staff training, and historical practices for compliance with local and international anti-corruption standards such as the FCPA or UK Bribery Act.

Nominee structures: To circumvent foreign ownership limits, some Vietnamese companies may use nominee shareholders—locals who hold shares on behalf of foreign investors. While common, these arrangements are not legally recognized and can expose buyers to significant legal risk. Due diligence must explore the true beneficial ownership structure and review any side agreements, which may be unenforceable.

Corporate governance and transparency: Many Vietnamese businesses are family-owned or closely held, with informal management structures and limited documentation of key decisions. This can create challenges in verifying authority, understanding liabilities, or assessing decision-making protocols. Governance gaps should be addressed before closing the deal.

Key Challenges in Cross-border Due Diligence

• Language barriers: Most official documents are in Vietnamese. Accurate translation and bilingual legal expertise are crucial.
• Inconsistent documentation: Vietnamese companies may lack complete corporate records or follow informal business practices.
• Lack of transparency: Some liabilities, contracts, or internal policies may not be disclosed unless specifically requested.
• Time constraints: Pressure to close deals quickly can limit the ability to conduct comprehensive due diligence.

Best Practices for Effective Due Diligence in Vietnam

• Engage local legal experts: Work with M&A lawyers who understand Vietnamese regulations, business culture, and the regulatory environment.
• Customize the checklist: Avoid generic templates. Tailor your due diligence scope to the target’s industry, ownership model, and jurisdiction.
• Use virtual data rooms: Centralized access to documentation improves coordination between buyers, advisors, and local counsel.
• Plan site visits and interviews: Interacting with key personnel and viewing facilities can reveal operational realities not captured in documents.
• Anticipate post-deal compliance: Begin early planning for rectifying licensing issues, labor restructures, and tax obligations identified during diligence.

How Due Diligence Findings Shape Deal Structuring

Due diligence doesn’t end with identifying risksit directly informs how deals are structured and negotiated. Buyers often rely on their findings to safeguard their investment and reduce post-closing exposure.

• Purchase price adjustments may be negotiated if financial liabilities, tax exposures, or compliance issues are uncovered.
• Escrow arrangements or holdbacks can be used to reserve part of the purchase price to cover unresolved risks.
• Representations, warranties, and indemnities (RW&I) are typically revised to reflect red flags or information gaps discovered during the process.
• Choice of deal structurewhether to pursue a share purchase or asset acquisitioncan change based on legal or licensing complexities.
• Walk-away rights may be exercised if the due diligence reveals issues that fundamentally impact the viability or value of the deal.

In short, due diligence empowers buyers to tailor legal protections and manage risks in a commercially sensible way.

Conclusion

Due diligence is the bedrock of any successful cross-border M&A transaction in Vietnam. By uncovering legal, regulatory, and operational risks early, it empowers buyers to make sound decisions, negotiate stronger terms, and lay the groundwork for a smooth post-acquisition transition.

At Corporate Counsels, part of Le & Tran, our M&A team delivers comprehensive due diligence solutions tailored to Vietnam’s regulatory and commercial landscape. Recognized by Chambers, Legal500, and Benchmark Litigation, our M&A Lawyers provide actionable insights that empower confident dealmaking. For expert support in cross-border M&A due diligence in Vietnam, contact us at letran@corporatecounsels.vn.