Vietnam - Impact Of Decree 09/2018/ND–CP On Licensing Process For Foreign Owned Companies.
Legal News & Analysis - Asia Pacific - Vietnam - Regulatory & Compliance
25 September, 2018
Decree 09/2018/ND–CP (“Decree 09”) was issued and came into effect on 15 January 2018, superseding Decree No. 23/2007/ND-CP (“Decree 23”). Decree 09 details a number of provisions of the Law on Commerce and Law on Foreign Trade Management on international sale and purchase of goods and related activities of foreign invested enterprises in Vietnam.
Decree 09 originally aims to facilitate the process of licensing in Vietnam, usually regarded as quite cumbersome by providing clarity on business license requirements, regulatory timeframe and relevant authorities.
However, implementation of Decree 09 has proven to be more dif cult than expected and several provisions and areas still need to be clari ed by the authorities in a much anticipated circular.
Decree 09 has a direct impact on the daily operations of foreign owned companies (“FOC”) in Vietnam as it modi es the licensing requirements and process for trading and retailing activities and the competent authority.
I. SCOPE OF APPLICATION OF DECREE 09 AND IMPACT ON OBTENTION OF THE LICENCE OF BUSINESS AND TRADING (“LBT”)
The erstwhile Decree 23 failed at providing any details or administrative procedure for its implementation, leading to many ambiguities and rejection of investment applications due to ambiguity of applicable laws and regulations. Decree 09 of cially aims to clarify LBT application
process by FOC operating in Vietnam, in line with the provisions of the 2014 Law on Investment.
a. Scope of entities required to obtain a LBT
Decree 09, in its article 5, expands the scope of companies required to apply for LBT, namely for the following business activities:
- Retail distribution;
- Import and wholesale distribution with respect to lubricants;
- Logistics services, except those as committed in applicable international treaties;
- Goods leasing (financial leasing not included), except leasing of construction equipment with operators;
- Trade promotion services, except advertising services;
- Trade intermediation services;
- E-commerce services; and
- Bidding organizing services for goods/services.
Amongst these sectors of activity, several were exempt from LBT requirement under Decree 23. As such, e-commerce services (which can capture most e-commerce websites operated byFOCregardlesswhethersuchactivitiesrelate to sale and purchase of goods or not), commerce intermediary services and commercial promotion services, being considered as directly relating to sale and purchase of goods, are now subject to LBT requirement.
In addition, a FOC is now required to provide a confirmation from the tax authorities on no remaining overdue debt when applying for a LBT, as set out in article 12.3 of Decree 09.
b. Scope of entities not required to obtain a LBT
Article 6 of Decree 09 sets forth exemptions to LBT requirement: any company that does not fall within the scope of article 5.1 of Decree 09 shall be exempted from obtaining a LBT.
In pursuance of such barrier-lifting provision, LBT is no longer needed for companies conducting export, import and wholesale distribution activities of goods permitted under Vietnam’s WTO commitments (save lubricants which still require right to import/wholesale and LBT to be granted on a case by case basis).
II. IMPACT OF DECREE 09 ON RETAIL ACTIVITIES
Chapter 3 of Decree 09 provides regulation for setting up a retail outlet in Vietnam. This section has undergone major changes compared to Decree 23.
Under the erstwhile Decree 23, a FOC was not required to apply for a retail outlet establishment license(“ROEL”)fortheopeningofthe rstoutlet. Decree 09 now requires a FOC to be granted a ROEL for the rst outlet. Article 22 of Decree 09 sets out the conditions to be complied with to set up a retail outlet in Vietnam.
Article 23 of Decree 09 provides rules governing the Economic Needs Test (“ENT”). Any FOC who wishes to establish a retail outlet beyond the rst one must still pass the ENT, save if the retail outlet is less than 500 m2 in size, located in a shopping mall and not classi ed as convenience store or mini supermarket.
Decree 09 sets out the timeline for the ENT process:
(i) the ENT assessment is to be conducted by a committee of representatives of the local authorities, including those from the Department of Planning and Investment and the Departments of Industry and Trade (“DOIT”), (“ENT Committee”);
(ii) the ENT Committee is to release its opinion within 30 days from its establishment;
(iii) within 3 working days from the date of receipt of the ENT opinion, the DOIT is to submit the application together with the ENT evaluation opinion to the Ministry of Industry and Trade for consideration;
(iv) the Ministry of Industry and Trade is to release its opinion (approval/refusal) on the application within 10 working days.
Decree 09 adopts a more restrictive approach than Decree 23 to the concept of additional retail outlet. It now includes retail outlet under the same brand operated by another FOC, leading to more situations where ENT will be needed.
Finally, rice, sugar, media recordings, books, newspapers/magazines, foreign supermarkets, and convenience stores may receive retail distribution right, subject to appraisal.
III. COMPETENT AUTHORITY
Decree 09 sets forth in its articles 8 and 46 to 49 the responsibilities of the various authorities. Authority to issue licenses has shifted from Provincial People’s Committees to the DOIT. In addition, some cases may require the DOIT to consult the Ministry of Industry and Trade (such as the ENT process) or other relevant ministries (as prescribed under articles 46 and 47).
IV. TRANSITIONAL PROVISIONS
Article 50 of Decree 09 sets forth transitional provisions for FOC already operating in Vietnam:
- Enterprises granted with LBT/ROEL before Decree 09 are allowed to continue operating under these licences.
- Enterprises operating trading/retailing activities under Enterprise Registration Certi cate (“ERC”) or/and Investment Registration Certificate (“IRC”) are required to apply for the LBT/ ROEL under Decree 09 when carrying out the amendment procedure to these ERC and IRC.
For further information, please contact:
Ngoc Huong DANG, Partner, DS Avocats
Victor Bonnecarrere, DS Avocats