MONTHLY LEGAL UPDATE – MAR 2018

NEW REGULATIONS ON SALE AND PURCHASE ACTIVITIES AND RELATED ACTIVITIES OF FDI COMPANIES

The Government has issued the Decree No. 09/2018/ND-CP detailing Law on Commerce and Law on Foreign Trade Management governing the sale of goods and other activities directly related to the sale of goods of foreign investors and foreign-invested business entities in Vietnam (“Decree 09”) on January 15, 2018; replacing the Decree No. 23/2007/ND-CP dated February 12, 2007 on the sale of goods and other activities directly related to the sale of goods of foreign investors in Vietnam (“Decree 23”). The Decree 09 especially took effect from the date of its promulgation, prompting relevant enterprises and agencies to urgently study the implementation.

In principle, in comparison with the Decree 23, the Decree 09 introduces some progressive regulations and makes favorable conditions for foreign investors and foreign-invested economic organizations to express policies of the Government of Vietnam regarding implementation of its WTO Commitments on the opening of the distribution market in Vietnam. There are a number of salient points as follows:

Narrowing the scope of activities being subject to Business License

One of the most significant advances of Decree 09 is to narrow the scope of activities being subject to Business License of a foreign-invested economic organization. While previously FDI enterprises were required to apply for Business License for exercising their rights to export, import, and conduct wholesale and retail activities, FDI enterprises now do not need to apply for a Business License for export and almost do not have to apply for this license for import and wholesale distribution (only required for importing and distributing wholesale goods for oil and lubricants).

Regarding the sale of goods activities, Decree No. 23 governed all activities in connection to the sale of good setting forth in Chapter IV, V, VI of the Law on Commerce. However, local authorities failed to implement this procedure due to ambiguity of applicable laws and regulations. Decree 09 now details the activities related to sale and purchase of goods being subject to a Business License, and scope of activities subject to this license is narrower comparing to Decree 23. Activities related to the sale and purchase of goods which are subject to a Business License in accordance with Decree 09 include:

  1. Provide logistics services; except those committed on opening the market by Vietnam in international treaties to which Vietnam is a signatory;
  2. Goods leasing (financial leasing excluded), except leasing of construction equipment with operators;
  3. Trade promotion services, except advertising services;
  4. Trade intermediation services;
  5. E-commerce services;
  6. Bidding organizing services for goods/services.

Reducing the administrative procedures and time for implementation

Instead of Provincial People’s Committee (the “PC”), now the provincial Department of Industry and Trade of the province where the FDI enterprise or its retail outlets locate is in charge of Business License. This change shall reduce the administrative procedures since previously although provincial PC used to be the licensing authority, it normally assigned the Department of Industry and Trade or the Department of Planning and Investment to proceed and report to it. It also helps to shorten processing time. Under Decree 09, time for license shall be saved 17 days comparing to the total time under Decree 23 in which the time shall be reduced to 10 working days in case of no consultation with the Ministry of Industry and Trade and other specialized Ministries, and about 28 days in case consultation with Ministries required. Meanwhile, under Decree 23, the total time for this license is 45 days.

In the past, in order to grant Business License for distribution activity, the licensing authority must consult with the Ministry of Industry and Trade. Currently, this requirement has been removed under Decree 09 when granting Business License for retail distribution activity of almost goods, except for some sensitive ones (rice, sugar, recorded items, books, news and magazines). This adjustment has reduced significantly the time for implementing the administrative procedures of FDI enterprises.

Specific provisions on cases where Vietnamese enterprises having retail outlet receive foreign investment capital

Decree 09 additionally provides specific provisions on cases where Vietnamese enterprises having retail outlet receive foreign investment capital and becoming FDI enterprises under which these companies must also apply for a Business License and Retail Outlet License(s). In this particular case, Decree 09 has added a special procedure, namely, the procedure for granting a Retail Outlet License allowing the retail outlet to continue its operation, which is considered being legal basis for foreign investors to buy retail chains in Vietnam. It is noteworthy that the procedure for granting above Retail Outlet License appears to exclude the Economic Needs Test (ENT).

License for goods not being committed to market opening, including: oil, lubricants; rice; sugar; visual records; books, news and magazine

Previously, FDI enterprises were prohibited from importing and distributing these items in Vietnam. Yet, Decree 09 creates a new legal framework allowing the import and distribution of the above items in some special cases: FDI enterprises producing oil and lubricants in Vietnam shall be considered to license for the import, wholesale distribution; FDI enterprises having retail outlets in the form of supermarkets are considered to license for retail distribution of rice, sugar, visual records, books, news and magazines at their retail outlets.

Adding some definitions

Decree 09 defines Retail outlet apart from the first one, convenience store, mini supermarket, commercial center, etc. However, the interpretation of these definitions and the difference between the definitions in Decree 09 and other related documents are controversial.

Although Decree 09 has the positive changes compared to Decree 23, there are still some shortcomings and possible bottlenecks in the implementation.

Adding some contents to Business License

Though the contents of retail outlet are removed in new form of Business License provided under Decree 09, some new contents are added to the new Business License form including: the legal representative of enterprise, information on investor/contributed capital members/ founding shareholder such as: name, place of registration or nationality, value of contributed capital and ratio, etc. Any change of the mentioned contents requires amendment of Business License. Therefore, new business license form creates more administrative procedures than the old provisions.

The way of recording the goods in the dossier and on the business license

Decree 23 provided an appendix guiding the way of recording the goods for implementing import, export, and distribution rights in accordance with group of goods with HS code which previously was used for FDI companies to work with customs authority for goods import. Decree 09 has removed this guideline and silent on how to record the goods on the Business License, causing the companies and authorities may encounter problems during the regulations implementation.

Overlapping in consultation with Ministries

Decree 09 requires the Department of Industry and Trade to consult with the Ministry of Industry and Trade in most cases of granting business license, except for the case of retailing goods other than rice, sugar, visual records, books, news and magazines. However, it is noted that as to the business activities that Vietnam did not commit to open the market to foreign investors (for example: goods leasing, trade intermediation, e-commerce…), in order to carry out these business activities, FDI enterprises have to carry out both the procedure for adding the project objectives at the investment licensing authority, and procedure for Business License, and both of these procedures are required the opinions of the Ministries including the Ministry of Industry and Trade. This causes overlap in the consultation of Ministries and extension in the administrative procedures duration, unless in fact there shall be a mechanism for the reference of issued opinion of such Ministries.

The first retail outlet is obliged to obtain a separate Retail Outlet License

This regulation is newly introduced in Decree 09 while it is not required under Decree 23. This provision will overcome the fact that many FDI companies set up several new similar businesses, each of them operates a first retail outlet to avoid application for Retail Outlet License and commercial planning checking. The concern is that FDI enterprises which are operating the first retail outlet, when adjusting the contents of the retail outlet (name, code, address of head office of enterprise; name, address, type, size of the retail outlet, etc.) shall need to apply for a new Retail Outlet License for the first retail outlet being in operation including reviewing of compliance with relevant planning in the geographic market. If the first retail outlet is operating without satisfaction of planning conditions, when applying for a Retail Outlet License pursuant to Decree 09, what will be the legal consequences of that, and responsibilities of the licensing authority as well as management authority during the course of the outlet’s operation?

Tightening management for convenience stores, mini supermarkets

 

One of the noteworthy points of Decree 09 is the addition of new regulations to manage mini supermarket, convenience stores in the context of convenience store chains, mini supermarkets involving foreign elements have been growing rapidly for recent years. In addition to the new definition of convenience stores and mini supermarkets, the Decree 09 requires convenience stores, mini supermarkets (apart from the first one), which usually have an area of ​​less than 500m2, even located in trade centers that suitable with commercial planning, to overcome the Economic Needs Test (ENT), while not required under Decree 23. The difference in governmental management in a same trade center where convenience stores, mini supermarkets are subject to ENT, while other retail outlets less than 500m2 are not subject to ENT, shows the tightened management of this developing type of business.

MONTHLY LEGAL UPDATE – FEB 2018

New regulations on foreign investment conditions in logistics services

On 30 December 2017, the Vietnamese Government issued the Decree No. 163/2017/ND-CP (“Decree 163”) replacing the Decree No. 140/2007/ND-CP (“Decree 140”) on the logistics service. Decree 163 shall take effect from 20 February 2018.

1.Classification of logistics service

Previously, Decree 140 classified logistics services into three groups with a range of services. Under Decree 163, logistics services are divided into 17 service categories with clearer and more consistent regulations comparing to Vietnam’s commitments in the Schedule of Specific Commitments in Services of Vietnam when access to the World Trade Organization (WTO). Such classification does not limit the form of logistics service since it recognizes “Other services agreed by logistics service providers and customers which are in compliance with the basic principles of Law on Commerce”.

2.Conditions of foreign investors for investment in logistics service business

In comparison with Decree 140, Decree 163 does not provide the conditions of foreign investors for investment in logistics service businesses which are already allowed 100% market access such as: Warehouse services; Transportation agency services but regulates the conditions of foreign investors for investment in other logistics service business pursuant to the Schedule of Specific Commitments in Services of Vietnam to WTO. Accordingly, the maximum foreign ownership in some logistics services are regulated as follows:

  • For cargo transport services classified as sea transport services (except for inland transport) (excluding sea transport company), cargo transport services classified as inland waterway transport services or cargo transport services classified as rail transport services (does not exceed 49%);
  • For container handling services classified as auxiliary services for sea transport and multimodal transport, except for services provided at airports (does not exceed 50%);
  • For cargo transport services classified as road transport services (does not exceed 51%);
  • For customs clearance services classified as auxiliary services for sea transport and for other services (does not exceed 100%);
  • For technical inspection and analysis services which are  provided in order to exercise authority of the Government (does not exceed 100% after three years or 100% after five years, as from the date on which the private enterprise is permitted to conduct business in such services)

Noteworthy, Decree 163 acknowledges foreign investment by way of capital contribution and share purchase and business cooperation contract beside the establishment of enterprises as prescribed in Decree 140.

Moreover, foreign invested organizations providing the unbound logistic services must obtain the business license under regulations of Decree No. 09/2018/ND-CP.

 

New Decree amending certain decrees related to business investment conditions under the State management scope of the Ministry of Industry and Trade

 

On January 15th, 2018, the Government issued Decree No. 08/2018/ND-CP amending certain decrees related to business investment conditions under the State management scope of the Ministry of Industry and Trade (“MOIT”) (“Decree 08”). According to this Decree, the Government has eliminated a total of 675 conditions among 1216 business conditions managed by MOIT. Accordingly, the following areas are mainly focused:

1.PETROL AND OIL

Decree 08 completely repeals Article 5 on the master plans on development of the petrol and oil trading system and Article 10 on the conditions for petroleum production. The planning conditions related to production location, production scale has been reduced to facilitate the enterprises in freely selecting suitable petroleum production and business models.

Decree 08 abolishes the conditions related to the storage system, transport vehicles. Accordingly, a petrol and oil trader is no longer required to own or co-own (with a capital contribution of at least 51%) regarding the storage system and to be able to satisfy at least one-third of the trader’s reserve demand. This article also applies to the local petrol transport vehicles having capacity of 3,000m3 after being granted the Business License for import and export of petrol and oil.

In addition, Decree 08 abrogates the conditions for scale expansion by requiring petrol and oil traders to own or co-own at least four (04) retail stations each year until they reach at least one hundred (100) petrol retail stations belonging to the distribution network of the trader after being granted the Business license for import and export of petrol and oil.

However, this abrogation may lead to the situation of disorder, inappropriate distribution of petrol stations, only focus on urban areas, large roads, not satisfy the demand of people in rural and remote areas.

2.FRANCHISING

The only condition applied to franchisor is the business system intended for franchising has been operating for at least one (01) year. Although it is not explicitly stated yet, it may be construed that the removal conditions applicable to both the original franchisor and the sub-franchisor. In addition, the conditions for the franchisee and the goods and services allowed to be franchised have also been abolished.

3.E-COMMERCE

Decree 08 abolishes unclear regulations related to conditions of individuals, organizations when they want to set up sales e-commerce websites, e-commerce service provision websites and credit rating of e-commerce websites.

In particular, in relation to evaluation and certification of protection of private information policy in e-commerce activity, Decree 08 annuls the conditions on having business registration or establishment decision specifying the field of operation as evaluation and certification of protection of private information policy in e-commerce; independence in organization and finance from traders, organizations and individuals who are assessed and certified for their privacy policy; having detailed activity plan approved by the MOIT; having criteria and procedures for assessing privacy policies in compliance with the regulations of the MOIT.

Moreover, Decree 08 also eliminates the conditions related to valid domain name or request for financial and technical evidence in the certification of e-contracts.

4.CHEMICALS

 Decree 08 abolishes the conditions of locations, workshops, machinery, equipment, technological processes, warehouses and conditions for testing and analyzing chemicals related to Table 1 chemical production conditions.

This relaxation seems to be a bold move as the production of chemicals is highly dangerous while safety conditions are minimized. However, if based on the provisions of Decree 113/2017/ND-CP detailing and guiding the implementation of certain articles of the Chemicals Law dated October 9th, 2017 (“Decree 113”), the abolition of these regulations is only formalistic when more stringent conditions are already stipulated in Decree 113.

5.FOOD BUSINESS UNDER THE MANAGEMENT OF THE MOIT

Decree 08 amends, supplements a number of articles and clauses of Decree No. 77/2016/ND-CP dated July 1st, 2016 of the Government on amendment and supplementation of certain regulations on investment and trading conditions on international trade in goods, chemicals, industrial explosive material, fertilizer, gas business and food business under the state management of MOIT. In particular, the Decree 08 focuses on reducing regulations related to general conditions to ensure food safety for food production and trading establishments. There are remarkable points including the abolition of conditions on business registration certificates, household business registration certificates or equivalent documents. In addition, the regulations related to production facilities, business facilities and equipment for production and business activities are also reduced, such as the conditions of ventilation, lighting, water supply systems; warehouse conditions such as full nameplate, having temperature and humidity monitoring equipment, and warehouse conditions monitoring records, etc.; unclear conditions of the conformity of equipment; conditions for the prevention of animals, insects and harmful microorganisms are also more appropriately regulated.

 

In addition, Decree 08 also abolishes some conditions related to production facilities, equipment and tools for processed milk, beer and vegetable oil production. Particularly, all provisions related to food safety conditions specifically provided for small food production and retail facilities were abolished.

Aside from the above-mentioned areas, Decree 08 also reduces the business conditions in the areas of tobacco, electricity, industrial explosive material. This Decree takes effect from the signing date.

Monthly Legal Updates – October 2014

Remarkable new points of the regulations on foreign contractor tax

By Nguyen Thu Huyen
Associate

On 06 August 2014, the Ministry of Finance issued Circular No. 103/2014/TT-BTC guiding on the implementation of the tax liabilities applicable to foreign organizations, individuals doing business or earning incomes in Vietnam (“Circular 103”), taking effects as from 01 October Continue reading “Monthly Legal Updates – October 2014”