I. Current situation of virtual companies
At present, the issue of virtual companies is becoming increasingly prevalent and complex in Vietnam. With the business registration process becoming more streamlined to encourage entrepreneurship and private economic growth, many individuals and organizations have taken advantage of these legal flexibilities to establish companies with dishonest intentions. As a result, numerous businesses exist only on legal documents, lacking actual business premises, engaging in no real commercial activities, or being created to commit fraudulent acts such as issuing fake invoices, evading taxes, laundering money, or serving as fronts for criminal activity.
Some virtual companies are formed solely for short-term deals, ceasing operations or disappearing shortly after, which poses challenges for regulatory authorities. In fact, many major economic crime cases involve virtual companies, often fronted by individuals with no financial capacity or are paid to lend their names as legal representatives without any involvement in the company's operations.
Such situations significantly affect the business environment causing losses to the State budget, and potential risks to public security. It also undermines public and investor confidence in the transparency of the economy. Thus, there is an urgent need to consider and tighten business registration conditions, strengthen post-registration inspections, and improve the legal framework to effectively prevent and handle virtual companies.
II. Definition of virtual companies
Currently, Vietnamese law does not provide an official definition of "virtual company" in any legal regulations. However, based on regulatory practice and commonly observed characteristics, a virtual company can be understood as a business that is legally established on a legal document but does not exist or operate in reality, or is used for fraudulent or illegal purposes.
III. Legal provisions on virtual companies
1. Regulations under Vietnamese Law
Although there is no specific legal definition of virtual companies, various legal documents govern actions associated with establishing or using businesses for non-commercial or illegal purposes. Main legal provisions include:
- Law on Enterprise 2020: Articles 19, 20, 21, and 22 regulate business registration procedures, requiring information such as headquarters location, legal representative, etc. Enterprises must operate in line with the registered business purposes. However, there are currently no clear provisions for verifying actual business activities after registration.
- Law on Tax Administration 2019: Taxpayers, including enterprises, must declare information truthfully and accurately. Tax authorities are empowered to inspect and audit compliance, thereby identifying virtual companies that lack actual operations.
- Penal Code 2015 (amended in 2017): Several offenses may be associated with virtual companies, such as Tax Evasion (Article 200), Illegal Trading in Invoices (Article 203), Money Laundering (Article 324), and Fraudulent Appropriation of Property (Article 174) if the virtual company is used as a tool for fraud.
2. Common cases of virtual companies
Virtual companies often obtain the following characteristics:
- Lack of a physical office or use of a wrong/borrowed address;
- No actual commercial activities or revenue generation;
- No staff or business infrastructure;
- Such companies engage in issuing or purchasing fake invoices;
- Legal representative does not truly manage operations (name lending);
- It is established to facilitate illegal activities such as tax evasion, money laundering, fraud, etc.
3. Sanctions and fines
Although the term virtual company is not explicitly defined in law, acts associated with virtual companies, such as submitting false documents, no conducting actual commercial activities, selling fake invoices, or evading taxes, are subject to legal fines:
- Administrative fines: Under Decree No. 122/2021/ND-CP:
+ Fines from 20 million VND to 30 million VND for providing inaccurate or dishonest business registration information (Article 43);
+ Fines from 50 million VND to 100 million VND for unregistered business activities or continuing business after license revocation (Clause 4, Article 46).
- Revocation of Business Registration Certificate: Article 212 of the Law on Enterprise 2020 allows revocation if a business:
+ Submitting fraudulent or inaccurate registration information;
+ Ceasing operations for one year without notifying the business registry or tax authorities.
- Tax fines: Under Decree 125/2020/ND-CP, violators may be fined up to 100% of the evaded tax amount.
- Criminal liability: Virtual companies may face criminal prosecution for offenses such as:
+ Tax evasion (Article 200);
+ Illegal invoice trading (Article 203);
+ Fraud of property (Article 174).
IV. Questions regarding virtual companies
1. Are virtual companies subject to fines?
Virtual companies are subject to administrative or criminal fines as outlined above.
2. Are the owners of virtual companies legally liable?
Owners or legal representatives of virtual companies may be held legally liable depending on the severity and consequences of their violations.
3. If a legitimate business accidentally transacts with a virtual business, will it be affected?
Tax risks:
- If a legitimate business uses fake invoices from a virtual company, the costs will be disqualified for corporate income tax purposes.
- Input VAT may not be deductible.
- The company may face retroactive tax collection, fines, and interest under the Tax Administration Law 2019.
Civil/Legal risks:
- If a contract is signed with a virtual company that later defaults, litigation may be ineffective as the company has no assets or legal presence.
Criminal Risks (in severe cases):
- If the legitimate business knowingly collaborates with a virtual company to launder money, issue fake invoices, etc., it may be considered an accomplice and subject to criminal liability.
4. Can virtual companies obtain a business license?
A virtual company may still obtain a Business Registration Certificate if it meets the basic legal requirements (as per Article 27.1(a), Law on Enterprise 2020).
5. How to verify whether a company is a virtual company?
- Checking legal information:
+ Accessing the National Business Registration Portal: https://dangkykinhdoanh.gov.vn
Accordingly, if the company does not exist or its license is revoked, it is likely a virtual company.
- Tax and invoice verification:
+ Using the General Department of Taxation's website: http://tracuunnt.gdt.gov.vn
+ Entering the company’s tax code to check if it’s active or has fled operations.
- Unusual signs in transactions:
+ Offering to sell fake VAT invoices;
+ Large transactions without office or staff;
+ Inability to provide licenses, invoices, or valid contracts.
- Checking through third-parties:
+ Contacting the local tax authority;
+ Consulting auditors, accountants, or lawyers;
+ Reaching out to past partners or customers.
V. Legal advisory services on virtual companies
The above information has been provided by NPLaw to support clients in understanding legal issues related to virtual companies. Should you have any further inquiries or legal concerns, please contact NPLaw for direct consultation and assistance.
