How to Structure Earn‑outs and Deferred Consideration in Vietnam M&A (2026)

Last updated: August 24, 2026

Earn‑outs in Vietnam have become a central negotiating tool in cross‑border M&A, allowing buyers and sellers to bridge valuation gaps by tying part of the purchase price to future performance. As Vietnam’s deal market matures and reforms to the tax framework continue to be developed, including consultation on the taxation of capital and share transfers, the structuring of contingent consideration now carries sharper legal and fiscal consequences. This guide sets out the procedural steps, enforceability position, escrow mechanics, tax planning and common pitfalls that private equity sponsors, corporate acquirers, sellers and in‑house counsel need to execute a defensible deal. Recommendations below reflect Vietnamese statutory sources and regulatory practice, flagged where a measure remains at draft stage.

1. Overview: what is an earn‑out and when to use one?

An earn‑out is a contractual mechanism under which a portion of the consideration for a target is paid only if the business achieves defined post‑closing performance benchmarks. Deferred consideration is the broader category, any part of the price paid after completion, whether contingent on performance or simply staged over time. In Vietnam, both are structured as ordinary contractual obligations, most often as a schedule to the share purchase agreement (SPA) or asset purchase agreement.

1.1 Types of contingent consideration

• Revenue or profit milestones. Payment triggered when the target reaches agreed turnover or EBITDA thresholds over a defined period.
• KPI‑based earn‑outs. Non‑financial metrics such as customer retention, regulatory licences obtained, or product launches.
• Seller employment or retention‑linked payments. Consideration tied to a founder or key manager remaining with the business, common where continuity drives value.

1.2 Commercial pros and cons

Earn‑outs allow a buyer to defer risk and align the seller’s incentives with post‑closing performance, while giving the seller upside if forecasts prove accurate. They are especially useful where forecasts are uncertain, where the seller stays on to manage, or where the parties simply cannot agree on a single valuation. The trade‑offs are real: earn‑outs create ongoing measurement disputes, complicate integration, and can distort management behaviour toward short‑term metric‑chasing. For the seller, an earn‑out transfers control of the value driver to the buyer, raising the risk that post‑closing decisions depress the very metric being measured. Careful drafting, the subject of the rest of this guide, is what separates a workable earn‑out from a litigation waiting to happen.

2. Eligibility and enforceability of earn‑outs in Vietnam under Vietnamese law

Vietnamese law recognises broad freedom of contract under the Civil Code, and there is no prohibition on contingent or deferred consideration. The enforceability of earn‑outs in Vietnam therefore turns on the same principles that govern any commercial contract: clear and lawful terms, genuine consent, and consistency with mandatory rules and public order. The structure of the deal, share transfer versus asset transfer, also affects both enforceability and the regulatory pathway, because share deals engage the Law on Enterprises and the Law on Investment differently from asset deals.

2.1 Are earn‑outs enforceable?

Yes, earn‑outs are generally enforceable as contractual obligations, provided the terms are certain and do not conflict with mandatory law. The practical risk is not that a Vietnamese tribunal will refuse to recognise the concept, but that a vaguely drafted earn‑out will fail for uncertainty. Vietnamese courts and arbitral tribunals will enforce well‑defined payment obligations, but they are reluctant to fill gaps where the calculation methodology, accounting standard or measurement period is ambiguous. The lesson from disputes over post‑closing adjustments is consistent: precision in definitions is the single biggest determinant of enforceability.

Where the metric, the adjustments and the release conditions are spelled out with illustrative examples, tribunals are far more likely to enforce them; where they are left to “good faith” or oral understanding, outcomes become unpredictable.

2.2 Remedies and dispute resolution

Parties to cross‑border transactions commonly prefer arbitration over domestic court litigation for earn‑out disputes. Arbitration offers confidentiality, party‑appointed expertise in financial matters, and, importantly, a foreign arbitral award may be recognised and enforced in Vietnam under the New York Convention, to which Vietnam is a party, subject to the grounds for refusal set out in Vietnamese law. Domestic courts remain available and can grant specific performance and damages, but proceedings are public and can be protracted. For earn‑outs, a well‑drafted clause will specify the arbitral seat, the rules, the language, and an escalation ladder, negotiation, then expert determination for pure accounting disagreements, then arbitration for legal disputes.

Reserving expert determination for calculation questions keeps technical measurement disputes out of full arbitration and can speed resolution.

2.3 Regulatory issues, foreign investment and approvals

Foreign acquirers must factor in investment registration and, in conditional sectors, approval requirements under the Law on Investment, together with any registration of capital contribution or share purchase (the “M&A approval”) required where a foreign investor acquires shares or capital in a Vietnamese company. In addition, transactions meeting the notification thresholds must be notified to the National Competition Commission for merger control clearance under the Law on Competition before closing; failure to do so (“gun‑jumping”) can attract penalties. Where an M&A approval or capital contribution registration is needed, the earn‑out structure should be disclosed consistently across the SPA and the regulatory filings to avoid mismatch during clearance.

3. Step‑by‑step: negotiating and documenting an earn‑out

The following sequence reflects the practical order in which experienced transaction counsel build an earn‑out. Each step feeds the next, and skipping ahead, for example, agreeing a headline earn‑out figure before defining the metric, is the most common source of later disputes.

Step 1: Define the measurable earn‑out metric and period

The metric is the foundation of the entire structure. Choose a benchmark that is objective, auditable and within a reasonable degree of the seller’s control if the seller remains involved. Revenue is simpler to verify but easier to manipulate through discounting; EBITDA better reflects value but invites disputes over which costs are deductible. Whatever metric is chosen, the agreement must define it precisely and set out every exclusion and normalisation adjustment.

• Normalisation. Exclude one‑off gains and losses, related‑party transactions on non‑arm’s‑length terms, and the accounting effects of the acquisition itself (transaction costs, purchase accounting adjustments).
• Exclusions. Carve out revenue from new lines the buyer introduces, or costs the buyer imposes for group purposes.
• Period. Fix a clear measurement window, commonly 12, 24 or 36 months post‑closing, and specify whether it is a single cumulative test or annual tranches.

A short worked example embedded in the schedule dramatically reduces later argument, because it shows the parties’ shared intention on how the formula operates in practice.

Step 2: Draft calculation and reporting mechanics

Specify the accounting framework, Vietnamese Accounting Standards or, where permitted or agreed, IFRS, and lock it against future changes so that a mid‑period standards update does not distort the metric. Set out who prepares the earn‑out statement, in what format, by what date, and what supporting schedules must accompany it. Give the receiving party a defined review window and the right to appoint an independent auditor. Reporting cadence matters: quarterly management reporting during the earn‑out period lets both sides monitor trajectory and reduces the shock of a year‑end statement.

Step 3: Agree on payment triggers, caps and ceilings

Define exactly what triggers payment, a binary threshold, a sliding scale, or a linear formula between a floor and a cap. Almost all earn‑outs carry a maximum aggregate cap to bound the buyer’s exposure, and many include a floor below which nothing is paid. Where multiple tranches exist, set out the waterfall clearly: which condition is tested first, and how partial achievement is treated.

Step 4: Payment mechanics, currency, withholding and exchange risk

Deferred payments to a foreign seller raise currency and cross‑border transfer questions governed by State Bank of Vietnam rules on foreign exchange management and payment accounts. Decide the payment currency, allocate FX risk explicitly, and confirm the permitted channel for remitting funds abroad. Because withholding may apply to payments to non‑resident sellers, specify whether amounts are stated gross or net of tax and who bears any withholding, this single allocation clause prevents a large downstream dispute.

Step 5: Escrow and security, holdback versus escrow versus deferred shares

Security protects the seller’s expectation of payment and the buyer’s ability to claw back for breaches of warranty. The three principal tools are a bank escrow account, a contractual holdback, and deferred equity or a security interest. Escrow offers neutrality and clear release rules; a holdback is simpler but leaves the seller dependent on the buyer’s cooperation; deferred shares align interests but complicate valuation. For cross‑border earn‑outs in Vietnam, a bank escrow account is a common approach where a cooperating bank is available, and it is examined in detail in Section 5 below.

Step 6: Dispute resolution, audit rights and anti‑avoidance covenants

Close the loop with the protections that keep the metric honest. Grant the seller audit and information rights over the relevant financials. Include anti‑avoidance covenants requiring the buyer to operate the business consistently during the earn‑out period, not to divert revenue to affiliates, and not to take deliberate steps that suppress the metric. Pair these with the escalation ladder from Section 2.2 so that accounting disagreements go to an independent expert and legal disputes to arbitration.

4. Required documents and practical drafting checklist

Assembling the full documentary suite early prevents closing delays, particularly around escrow account opening, which is often the critical‑path item. The table below sets out the core documents and who prepares each.

4.1 Contract clause checklist

Beyond the documents themselves, the earn‑out agreement in Vietnam should contain, as a minimum, the following clauses:

• Definitions and metric. The measured figure, accounting standard, exclusions and normalisation adjustments.
• Measurement period and testing dates. Cumulative or annual, with precise cut‑off dates.
• Calculation and reporting. Preparation, delivery, review windows and audit rights.
• Payment trigger, cap and floor. Formula, currency, and gross/net tax allocation.
• Escrow and security. Funding, holding and release mechanics.
• Anti‑avoidance and operating covenants. Business‑conduct obligations during the period.
• Dispute resolution. Expert determination and arbitration escalation.

5. Escrow in Vietnam M&A: mechanics, release triggers and agent selection

Escrow is the workhorse of deferred consideration. A properly structured escrow gives the seller confidence that funds exist and the buyer confidence that payment is conditional on performance and warranties. Escrow in Vietnam M&A is shaped by State Bank of Vietnam rules on account opening, KYC and foreign exchange control, which is why the bank onboarding step so often dictates the closing timetable.

5.1 Types of escrow

• Bank escrow accounts. A common model for cross‑border deals: a licensed bank holds funds under an escrow agreement and releases them per agreed conditions.
• Third‑party arrangements. Less common in Vietnam given the developing framework, but occasionally used where a foreign escrow agent holds funds offshore.
• Offshore escrow. Where currency controls or local banking practice complicate a domestic account, parties may hold the escrow offshore in a neutral jurisdiction, subject to the transfer being permissible under applicable rules.

5.2 Typical release triggers and waterfall

Release conditions must be objective and documentable so the bank can act mechanically. A typical waterfall releases funds to the seller upon delivery of an agreed earn‑out certificate confirming the metric was met, or returns funds to the buyer where warranty claims or metric shortfalls arise. Where the parties dispute the metric, the escrow agreement should freeze the relevant portion until the expert determination or arbitration concludes. Partial releases for annual tranches, and a longstop date for final distribution, keep the arrangement from lingering indefinitely.

5.3 Selecting an escrow agent and KYC practicalities

Not every Vietnamese bank offers escrow services on cross‑border terms, and appetite varies. Choose a bank early, confirm it will act on the proposed release mechanics, and begin KYC well ahead of signing, corporate documents, ultimate beneficial ownership evidence and, for foreign parties, notarised and legalised (or apostilled, where applicable) documents all take time to assemble. Confirm the bank’s position on the escrow currency and on outbound remittance to a foreign seller. Building a one‑to‑three‑week buffer for onboarding, extendable if KYC queries arise, avoids the most predictable closing delay in Vietnamese earn‑out deals.

6. Tax on earn‑outs in Vietnam and accounting considerations

Tax is where deferred consideration most often surprises the unprepared, and the tax on earn‑outs in Vietnam depends heavily on characterisation, the residency of the recipient and the identity of the payer. The analysis should be settled before signing, not discovered at payment.

6.1 Tax characterisation: income versus capital, CIT and PIT withholding

The threshold question is whether an earn‑out payment forms part of the consideration for the sale of shares or assets, or income in the seller’s hands. For corporate sellers, gains on transfers of capital or shares are generally within the corporate income tax (CIT) net; for individual sellers, personal income tax (PIT) rules on securities and capital transfers apply. Note that the applicable rate and taxable base differ depending on whether the transfer is of shares in a joint‑stock company or of capital in a limited liability company, and on whether the seller is resident or non‑resident, the current statutory rates and bases should be confirmed with the General Department of Taxation or local tax counsel.

Where the payment is tied to the seller’s continued employment, there is a risk it is recharacterised as employment income, attracting a different and often higher PIT treatment. Drafting the earn‑out clearly as consideration for the shares, rather than remuneration, helps support the intended characterisation, though substance ultimately governs.

6.2 Indirect share transfers and offshore structures

A recurring area of uncertainty concerns indirect share transfers, that is, the sale of an offshore holding company that indirectly holds a Vietnamese target. The tax treatment of such transfers has been the subject of ongoing policy discussion and consultation as part of the broader reform of Vietnam’s tax laws. The direction of travel internationally, and in a number of consultation materials, has been toward seeking to tax gains where the underlying value derives substantially from local assets. The practical implication for earn‑outs in Vietnam is that offshore deal structures with deferred consideration may face Vietnamese tax scrutiny or exposure on later contingent payments.

Conservative structuring, modelling the after‑tax outcome under more than one assumption and confirming the current position with tax counsel, is prudent, as the legislative position continues to evolve.

6.3 Withholding, VAT and reporting obligations; suggested mitigations

Payments to non‑resident sellers can trigger tax and reporting obligations, and the timing of a deferred payment can affect when a taxable event crystallises. VAT is generally not a feature of share transfers but may arise in asset deals depending on what is transferred. Reporting and declaration obligations attach to both the closing and subsequent contingent payments. Suggested mitigations include: fixing the gross/net position in the contract, obtaining a tax opinion covering each payment tranche, applying any relevant double tax treaty relief where the seller is treaty‑resident, and retaining full documentation of the characterisation to support the filing position.

Costs are highly deal‑specific; obtain fee quotes from your chosen advisers and escrow bank.

7. Regulatory and tax alerts to watch

Two threads dominate the current outlook for deferred consideration. First, the ongoing reform of Vietnam’s tax framework, including consultation on the treatment of capital and indirect share transfers, could extend Vietnamese tax reach to offshore transactions deriving value from Vietnamese assets, directly relevant to any earn‑out paid through an offshore structure. Second, continued implementation of the Law on Investment, the Law on Enterprises and the merger‑control regime under the Law on Competition continues to shape approval and notification requirements and the disclosure of post‑closing payment structures during clearance. Until any tax reform is enacted, counsel should structure conservatively, model both current and potential future treatments, and rely on official consultation and gazette sources when advising clients.

Consistency between the SPA earn‑out mechanics and regulatory filings remains essential to avoid clearance friction.

8. Common pitfalls and how to avoid them

• Vague metric definitions. “EBITDA” without a defined adjustment schedule is an invitation to dispute. Fix the standard, exclusions and a worked example.
• Accounting mismatch. Failing to lock the accounting framework lets a standards change move the metric. Freeze the basis at signing.
• Missing audit rights. Without inspection rights, the seller cannot test the buyer’s figures. Grant defined access.
• Weak anti‑avoidance covenants. Absent operating covenants, a buyer can lawfully suppress the metric. Require ordinary‑course operation and bar revenue diversion.
• Currency and withholding surprises. Silence on gross/net allocation and FX risk produces large downstream disputes. Address both expressly.
• Escrow KYC delays. Late bank onboarding derails closing. Start KYC early and build a buffer.
• Overlooking merger‑control notification. Failing to notify a notifiable deal to the National Competition Commission before closing risks gun‑jumping penalties. Assess thresholds early.
• Ignoring evolving tax rules. Structuring solely on current rules risks unmodelled exposure. Test the impact of pending reforms.

9. Practical templates and sample clauses

The following concise snippets illustrate the drafting approach. They are guidance only and are not a substitute for counsel‑prepared documentation.

• Definition of earn‑out metric. “‘Earn‑out EBITDA’ means the earnings before interest, tax, depreciation and amortisation of the Target for the Measurement Period, determined in accordance with [VAS/IFRS] as applied at Completion and adjusted as set out in Schedule [X] (Normalisation Adjustments).”
• Calculation methodology. “The Buyer shall prepare and deliver the Earn‑out Statement within [30] days of the end of the Measurement Period, together with reasonable supporting detail. The Seller may, within [20] Business Days, require an independent auditor to review the Statement.”
• Escrow release trigger. “The Escrow Agent shall release the Escrow Amount to the Seller upon receipt of the agreed Earn‑out Certificate confirming achievement of the Threshold, absent a Dispute Notice served within [10] Business Days.”
• Dispute / arbitration. “Any dispute arising out of the calculation shall be referred to an independent Expert; any other dispute shall be finally resolved by arbitration seated in [seat] under the [rules], in [language].”

10. Quick checklist for closing day and post‑closing monitoring

1. Confirm the escrow account is opened, KYC cleared and funding instructions ready.
2. Verify board and shareholder resolutions authorise deferred payments and escrow funding.
3. Ensure the earn‑out schedule, calculation annex and reporting templates are executed with the SPA.
4. Confirm the tax opinion and gross/net allocation are settled and documented.
5. Confirm any required investment registration, M&A approval and merger‑control clearance are in place.
6. Fund the escrow and record proof of payment (SWIFT / domestic forms).
7. Diarise reporting dates, review windows and the final testing date.
8. Establish the quarterly monitoring cadence and preserve access for audit rights.
9. Track any tax developments that may affect later payment tranches.

Conclusion

Structuring earn‑outs in Vietnam successfully is a matter of precision: define the metric objectively, lock the accounting basis, secure payment through a bank escrow, allocate tax and currency risk expressly, and model evolving tax rules before you sign. Get those elements right and contingent consideration becomes a reliable bridge across a valuation gap; get them wrong and it becomes a multi‑year dispute. Given the enforceability, escrow, merger‑control and tax complexities, and the shifting regulatory landscape, buyers, sellers and in‑house teams should take tailored advice from experienced Vietnam M&A counsel before committing to any deferred consideration structure.

Explore the M&A Lawyers Vietnam, M&A hub for related guidance across the transaction lifecycle.

This article is general guidance only and does not constitute legal or tax advice. Specific transactions should be assessed by qualified Vietnamese counsel.

Sources

1. Vietnam Legal Normative Documents Database (VBPL)
2. General Department of Taxation (Vietnam)
3. Ministry of Finance (Vietnam)
4. State Bank of Vietnam (SBV)
5. Ministry of Finance / former Ministry of Planning and Investment (investment portal)
6. Supreme People’s Court of Vietnam