Ultimate Beneficial Owner (UBO) In Enterprise.

The FATF separates legal ownership from beneficial ownership

"Legal ownership and beneficial ownership of a legal entity are two distinct concepts."

An individual may be a UBO because he or she ultimately owns or controls a legal entity, either through an ownership interest or by exercising ultimate effective control through other means.

Legal ownership and beneficial ownership may coincide. However, the legal ownership or controlling shares of a company may be held in the name of an individual or another legal entity that is not the UBO, that is, not the person who truly controls the organisation, directly or indirectly.

Therefore, any individual who exercises ultimate and effective control over a legal entity must be identified as a UBO, whether or not he or she meets the minimum ownership threshold.

Under the Decree, a UBO is an individual who meets one of the following criteria:

1. The individual directly or indirectly owns 25% or more of the enterprise's charter capital or voting shares;

a) Direct ownership means that the individual is officially and lawfully recorded in the enterprise registration as an owner, member or shareholder.

b) Indirect ownership means that the individual ultimately owns capital through one or more intermediary legal entities.

Example: Individual A owns 90% of Company X, and Company X holds 30% of Company Y. A therefore indirectly owns 27% of Company Y. Because this exceeds the 25% threshold, A is a UBO of Company Y.

2. The individual has the power to control the decision on at least one of the following matters:

(i) the appointment, dismissal or removal of the majority or all of:

• the members of the Board of Directors; and/or
• the Chairman of the Board of Directors or of the Members' Council; and/or
• the legal representative and/or the Director or General Director;

(ii) amendments or supplements to the company's charter;

(iii) changes to the company's management structure;

(iv) the reorganisation or dissolution of the company.

This criterion is based on actual control, not on the percentage owned. An individual who holds no shares may still be a UBO if he or she has the power to decide the matters above.

If the type of control is identified, the enterprise must state it clearly in its UBO registration list.

Under this criterion, an individual who holds any one of the control rights above can be identified as a UBO. An enterprise may therefore have several UBOs.

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Three points to watch when identifying UBOs

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1. UBO information needs a verifiable basis

The amended Law on Enterprises and the Decree do not say that an enterprise must hold a full set of supporting documents when it identifies an individual as its UBO.

The FATF requires UBO information to be adequate, accurate and up to date, and defines these terms as follows:

• adequate information is information sufficient to identify the natural persons who are the beneficial owners, and the means and mechanisms through which they exercise beneficial ownership or control;
• accurate information is information that has been verified by checking the identity and status of the UBO against reliable, independently sourced documents, data or information. The extent of verification may vary with the level of risk;
• up-to-date information is information that is current and updated as promptly as possible, and in any case within a reasonable time after any change.

In our view, therefore, UBO information must rest on verifiable and reliable grounds that competent authorities, reporting entities and investigative bodies can check and confirm. It should not rest on assumptions or presumptions alone.

2. Not every individual who holds a position in an enterprise has actual control in the FATF sense

Holding a title (such as Director, Chairman or Legal Representative) counts as actual control only if the individual in fact exercises decision-making, direction or control beyond the formal or statutory functions of the title, or falls under the fallback rule described in Step 3 of Section 3 below.

Individuals who control a parent company and in practice direct a subsidiary's operations may also be UBOs of the subsidiary, even if they hold no position or direct ownership in it.

3. The law does not yet set a clear order for applying the criteria

Vietnamese law does not yet say whether enterprises should identify UBOs in order of priority (applying the next criterion only if the previous one identifies no one) or in parallel (assessing all criteria at the same time).

Under the FATF's official guidance, UBOs are identified in three steps, in sequence (the "cascading approach"). The steps are not applied at the same time; each step applies only if the previous step has not identified a UBO.

• Step 1. Direct or indirect ownership: identify the natural persons who ultimately own the legal entity. The FATF does not set a fixed ownership threshold, but many countries use a threshold of about 25% to indicate significant control. In Vietnam, the threshold is ownership of 25% or more.
• Step 2. Control through other means: if no individual meets Step 1, or there is reason to believe that the persons identified in Step 1 are not the UBOs or not all of them, identify the individuals who control the legal entity through other means.
• Step 3. Senior managing official: this step applies only if Steps 1 and 2 identify no one. If Step 1 (or Step 2) has already identified a UBO, Step 3 does not apply, because it is only a fallback for exceptional cases.

An enterprise should not treat its Director or General Director as a UBO if it has already identified one or more actual UBOs through ownership or control.

The FATF also allows countries or organisations to apply Steps 1 and 2 in parallel, that is, to identify individuals with significant ownership and individuals with control through other means at the same time, so that no potential UBO is missed. If Vietnam adopts this approach, enterprises will need to wait for further guidance from the competent authorities.

The interpretive note to FATF Recommendation 10 (paragraph 5(b)(i)) sets out the cascading approach clearly: "Measures (i.i) to (i.iii) are not alternative options, but are cascading measures, with each to be used where the previous measure has been applied and has not identified a beneficial owner."

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Every enterprise must keep and register a list of its UBOs

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All enterprises, whether established before or after 1 July 2025, must prepare, manage, retain and register their list of UBOs with the competent authorities, as follows:

1. Enterprises established on or after 1 July 2025 include the list of UBOs in their application for enterprise registration.
2. Enterprises established before 1 July 2025 must update their UBO information when they next apply to change their enterprise registration (for example, to change business lines, address or legal representative).
3. In all cases, enterprises must also update their UBO information whenever it changes or when a competent authority requests it.

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Enterprises should comply proactively

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Enterprises should take the initiative to comply with the rules on identifying and declaring UBOs. This includes preparing verification documents, updating information promptly and keeping records as the law requires.

Enterprises should also seek legal advice so that the UBOs they identify reflect actual control. This reduces legal risk in their business and in their dealings with partners.