Vietnam Business Forum, 2016
CONSOLIDATED COMMENTS ON DECREE DETAILING THE COMMERCIAL LAW REGARDING GOODS PURCHASE AND SALE ACTIVITIES OR GOODS PURCHASE AND SALE RELATED ACTIVITIES OF FOREIGN-INVESTED ENTERPRISES IN VIETNAM
Prepared by Vietnam Business Forum
Sqt / Articles/ Reference / Content / Comments / Recommendations1 / About “Pursuant to the Government Constitution Law of Dec. 25, 2001” / It is written in the draft that the draft was made “Pursuant to the Government Constitution Law of Dec. 25, 2001”, however pusuant on the Government Constitution Law signed on June 19, 2015, the Government Constitution Law
2001 has been expired since the January 1st, 2016- the date Government Constitution Law 2015 went into effect. We consider the appropriate Law to pursuant on is the Government Constitution Law signed on June 19, 2015.
( Quoted from Government Constitution Law signed on June 19, 2015, Number : 276/2015/QH13) :
Chapter VII
Enforcement terms
Article 49. Effect
This law takes effect from May 1st, 2016.
Government Organization Law No. 32/2001/ QH10 lapsed from the date this law comes into force.
Article 50. Detailed regulations
The Government shall specify the provisions prescribed in this Law.
This law was passed by the National Assembly of the Socialist Republic of Vietnam XIII, 9th session on June 19, 2015.
2 / Article 3 / Interpretation of terms / The draft decree just provide that economic organization has to peform procedues to apply for Business License, Wholesale establishment license or Retail establishment license but does not provide definition and scope of rights that the economic organisation is allowed to perform within scope of each kind of license. / The draft Decree should supplement the definition on Business License, Wholesale establishment license, Retail establishment license. In which, the allowable rights of enterprise within such licenses’ scope should be clearly interpreted.
3 / Article 3.7 / It seems that there are differences between the definition of “wholesale” in this Draft Decree and Decision No. 337/QD-BKH dated 10 April 2007 (“Decision 337”) which might lead to confusion in the application of such definition.
Under Decision 337, “wholesale” means the sales of brand-new or used goods (i) to the retailers, the manufacturers, traders, organizations or operational users, other wholesalers, or (ii) relating to agency activities and brokers thereof. Under this definition, the purchasers might include individuals or organizations. However, the definition in the Draft Decree only mentions business entities or other organizations.
In addition, the definition of “wholesale” in this Draft Decree adds another criterion which is the purpose of use of goods while the definition in Decision 337 focuses only on the type of purchasers. / It is recommended to harmonize the two definitions to avoid confusion during the application of those legal documents.
4 / Article 3.11 / The definition of “retail sale establishments other than the first retail outlet” is very broad and inappropriate.
If an economic organization with foreign investment capital or investor establishes another outlet to sell the product other than products which have been licensed to trade in its first retail outlet, the ENT should not be applied. / The definition is proposed to be revised:
“Retail sale establishments other than the first retail outlet are retail sale facilities (trading in the same products of the first retail outlet) set up by a same economic organization with foreign investment capital in Vietnam, or set up by a same foreign investor in Vietnam, or bearing the same business name with the first retail sale outlet set up in Vietnam.”
Draft Decree has not yet stipulated the operation “border-gate transfer of goods”.
In fact, these activities are a trading form and should be not considered as a business line. The MOIT has issued several Official Letters (one of which is Official Letter No. 316/XNK-TMQT) to prohibit a FIE, which is licensed for import and distribution rights, to engage in border-gate transfer of goods in reference to Decree 23. However, we assess that no provision in Decree 23 expressly provided this prohibition. / Draft Decree should include a provision permitting a FIE, which has been licensed for import and distribution rights, to conduct the operation “border-gate transfer of goods”
5 / Article 3.11Article 8 / In case of retail outlet in the form of a franchise, the identity of applicant of the retail outlet establishment permit (“Retail Permit”) is confusing. It is unclear as to whether it is to be identified as the franchiser or franchisee.
According to Article 3.11, “Retail sale outlets other than the first retail outlet” are “[…] the retail outlets bearing the same business name with the first retail outlet set up in Vietnam.”
Under this definition, we understand that the establishment of the second or succeeding retail store in Vietnam under a franchise agreement shall be subject to the Retail Permit, however, the current language of the Draft Decree is not clear as to which entity is to be identified as the applicant of the Retail Permit (whether the franchiser or franchisee). It might lead to a misunderstanding that if a foreign-invested enterprise (FIE) (which already obtained the Business Permit with the distribution right allowing the establishment of the first retail outlet) franchised its business, the franchised retail outlet shall be deemed as the second retail outlet rather than the first retail outlet. In this case, it may be interpreted that it is the franchiser which must obtain the Retail Permit for franchising and the retail outlets which are owned by the franchisees. / It is recommended to make clear in Article 8 that in case of establishment of retail outlet in the form of a franchise, the franchisee shall be the applicant for the Retail Permit, not the franchiser.
6 / Article 4 / “Sales and purchases of goods for the purposes of investment goals and lines of business not related to sales and purchases of goods and activities that are directly associated with sales and purchases of goods.” / We understand that the mentioned article clarifies cases that Foreign-owned business entities licensed to initiated investment goals and lines of business not related to sales and purchases of goods, and activities that are directly associated with sales and purchases of goods, may undertake the acts of sales and purchases of goods for the purposes of the licensed investment goals and lines of business, withouthaving to go through the procedures for business registration licensing, wholesale outlet establishment licensing, and retail sale outlet establishment licensing. / In number 1, “Exportation, importation, fiduciary import and export, in-country import and export, temporary import and re-export, and temporary export and re-import for the purposes of the licensed investment goals and lines of business”, we wonder if the” purposes of the licensed investment goals and lines of business” include the purpose of “exporting, importing products, materials for sample manufacturing”, if not, we suggest :1/ clarify the “purposes of the licensed investment goals and lines of business”, 2/ clarify process to necessary documents to do export, import goods without business registration licensing.
In number 4, “Importation of goods for marketing and promotion purposes; Where imported goods fall under the list of goods for which foreign-owned business entities have no rights for importation or distribution of, said foreign-owned business entities shall lodge an application using templates of the Ministry of Industry and Trade for such importation, and may only start the importation once they receive consent from the Ministry of Industry and Trade.”, we suggest adding “Export” to the action as there are situation when we have to export products, materials made in Vietnam to third country for sampling. ( the current law only allow the exportation, importation of sample max to 2 pieces of products, 25m of materials “ for textile).
7 / Article 5.1 / In order to coduct goods trading activities and activities directly related to goods trading subject to the scope of this Decree for business purpose, the economic organization having foreign investment capital is required to apply for issuance of Business License, Wholesale establishment license, Retail establishment license in accordance with Article 15,16,28 and 29 of this Decree, except for cases mentioned in Clause 2 of this Article. / Accordingly, Business License, Wholesale establishment license, Retail establishment license thus is granted to the Economic Organization only. In case such economic organization having its branch located in other province to peform a part or entire its business activity, whether the branch is required to apply for Business License, Wholesale establishment license, Retail establishment license or not?
Furthermore, a mongs above cases, in which case the economic organization has to set up and register for a new investment project in this new location. / New Decree should supplement the guidance on licenses applied to economic organization’s branch located in other province.
Accordingly, in case business scope of the branch is within the scope of business of granted Business License of economic organization, the economic organization and branch is not required to apply for issuance of the Business License. However, in case of branch attached with wholesale establishment or retail establishment, economic organization, it should be required to apply for issuance of wholesale establishment license or retail establishment license with Provincial Industry and Trade Department.
The Decree should be considered to ensure the consistent between the setting up of wholesale establishment, retail estatblishment with the requirement for set up and register of investment project in order to require for relevant Investment Registration Certificate to be included in the application for wholsesale establishment license or retail establishment license accordingly.
8 / Article 5. 2.b / Waivers of procedures for business registration licensing, wholesale outlet establishment licensing and retail sale outlet establishment licensing / Pursuant to Article 23 of Law on Investment:
It implies that all economic organizations with foreign investment capital with:
(a) less than 51% of its chapter capital is held by a foreign investor(s), or a partnership has a majority of partners being foreign individuals in respect of economic organizations being a partnership;
(b) less than 51% of its chapter capital is held by an economic organization(s) prescribed in paragraph (a);
(c) less than 51% of its chapter capital is held by a foreign investor(s) and an economic organization(s) prescribed in paragraph (a).
shall be permitted to exercise their rights for exportation, importation and wholesale distribution (without the requirement for a wholesale outlet to be set up) of goods in alignment with pathways released by the Ministry of Industry and Trade without requesting business permit and/or wholesale outlet establishment permit.
According to which, it is understand that retail distribution establishment permit shall not be exempted. The economic organizations with foreign investment capital as above mentioned must lodge file for issuance of retail distribution establishment permit to MOIT in accordance with Article 11.2.a of Draft Decree. / Article 23.2 of Law on Investment allowed all economic organizations with foreign owned capital prescribed in points (a), (b) and (c) to carry out the investment procedures in accordance with regulations applicable to domestic investors upon investment for establishment of an economic organization; investment in the form of capital contribution or purchase of shares or portion of capital contribution to an economic organization; or investment on the basis of a BCC contract.
It is recommended to create favourable conditions to all economic organizations with foreign investment capital with foreign participation of less than 51% to implement rights for exportation, importation, wholesale and retail distributions, not only without obtaining business permit and/or wholesale outlet establishment permit, but also retail outlet establishment permit.
It seems unclear what constitutes the phrase “wholesale distribution right without requirement for establishment of wholesale store.”
According to Article 5.2(b) of the Draft Decree, the FIEs as described in Article 23.2 of the Law on Investment that only exercise rights for exportation, importation and wholesale distribution (without establishment of wholesale stores) of goods in accordance with the schedules announced by the Ministry of Industry and Trade (MOIT) shall not be required to obtain the Business Permit, Retail Permit or Wholesale Permit.
According to Article 3.9 of the Draft Decree, “[w]holesale establishments” are outlets used legally by business entities for the purposes of wholesale activities. Under this definition, the head office of the enterprise seems to be the wholesale establishment if the wholesale activities are conducted at the head office. Therefore, if it is confirmed that the head office where the enterprise conducts the wholesale activities is also the wholesale establishment, the application of this exemption under Article 5.2(b) of the Draft Decree is vague.
The readers might find it difficult when identifying or trying to understand this expression. / It is recommended to make this exemption clearer. For instance, the Business Permit and the Wholesale Permit shall not be required if the FIEs under Article 23.2 of the Law on Investment exercise the wholesale distribution right without establishment of the wholesale stores, or if the FIEs conduct wholesale activities at the head office only.
9 / Article 5.2.c / Shareholders or partners/members have their own voting rights in General Meeting of Shareholders or in Meeting of Members’ Council in proportion with their contributed capital. / The notion: “Have no right to approve decisions of the business entity as defined in the Articles of Association of the business entity” seems not precise enough. / .
“…who are shareholders or partners in the business entity, but have no right to approve decisions of the business entity…” / It might be difficult for the readers to understand the expression “…who are shareholders or partners in the business entity, but have no right to approve decisions of the business entity…” and to apply this in practice.
This sentence might lead to the following unclear points:
(i)Which decisions are considered as the entity’s decisions (i.e., General Meeting of Shareholders’ decisions, Board of Management’s decisions, in case of joint stock companies (JSC) or Members Council’s decisions or General Director’s decisions)?;
(ii)How to understand the “right to approve”, whether it refers to (aa) the foreign shareholders holding the dividend preference shares or redemption preference shares, or (bb) foreign shareholders/members owning shares/capital contribution below the threshold for passing a resolution as set forth in the entity’s charter (say, 51% or 65%)? / Please make the intention of the law-makers clearer by providing for specific details.
Economic organization having foreign investment capital (Except for cases mentioned in Point b of this Article) performing goods trading activities and activities directly related to goods trading, having foreign investor is shareholder or member of economic organization,but having no right to pass the decision of economic organization in accordance with charter of economic organization” / This regulation does not clearly interpret in which case that member of economic organization or shareholder having no right to pass the decision of economic organization. / The replaced decree should further explain on which case “foreign investor is shareholder or member of economic organization,but having no right to pass the decision of economic organization in accordance with charter of economic organization”.
10 / Article 6 / Article 6. The conditions for economic entities of foreign-invested business license issued
1. Foreign invested economic entiries from countries and territories which sign international treaties and Vietnam is a member of the treaties and in international treaties that Vietnam has committed to open market, related to sale and purchase of goods and activities directly related to the purchase and sale of goods;
2. Satisfying the conditions of market access limitations specified in international treaties to which Vietnam is a member;
3. Have been granted by competent authorities at the place where investors make nationality registration/registration of the establishment license to operate in areas where national law/regional laws provide regulations on the obligatory issuance of the license;
4. They have been granted with business registration certificate/investment certificate/ investment license/registration certificate on establishment of economic entity;
5. Having the financial resources to ensure business operations:
a) In case of foreign invested economic existing less than 01 years, financial source is determined on the basis of the charter capital for companies, cooperatives, unions of cooperatives, investment capital for private entity or business capital for other organizations conducting business investment activities; / This is the trading right therefore the requirement of the charter capital is unnecessary. Moreover, the loss should not be a condition to limit the right to expand or to look for other changes in business. Therefore, Article 6.5 should be deleted.
The conditions of capacity and experience (Article 6.6) also should be deleted because it is unreasonable to require them to have experience while they are applying for this right (have not carried it out it before) / Proposal 1: To remove Article 6.5 and Article 6.6
11 / Article 6.3 / This clause requires that the foreign investors must be licensed by the relevant domestic regulatory agencies where the investors register their nationality/incorporation in the lines of business that the law of such jurisdiction requires that such licensing is needed. It might create unnecessary burden of evidence on the part of investors and management burden on Vietnamese authorities beyond the scope of Vietnam laws (i.e., for Japanese investors, Vietnamese authorities are required to check whether Japan laws require investors to have license or not).
In addition, if the foreign investors were granted 10 licenses but all are irrelevant to the sale business to be opened in Vietnam, the review and submission of such licenses might be required. This seems to be unnecessary and does not facilitate the licensing process in Vietnam. / This requirement should be removed.
12 / Article 6.4 / (i) Under the Law on Investment 2014 and the Law on Enterprise 2014, the FIEs are required to obtain both enterprise registration certificate (ERC) and investment registration certificate (IRC). This item is missing “investment registration certificate”. In addition, Article 51.1 of the Draft Decree also mentions the “investment registration certificate”.
(ii) It is difficult to identify what is “economic organization establishment registration certificates”. Under the laws of Vietnam, there is no such certificate. / Please add the “investment registration certificate” and clarify what constitutes “economic organization establishment registration certificates”.
We understand that the procedure for obtaining the Business Permit/Wholesale Permit/Retail Permit will be conducted after the establishment of the FIEs in Vietnam (i.e., after obtaining the ERC/IRC in all cases). If this is the case, there are risks for the foreign investors who invest the first time in goods trading and directly relevant activities on goods trading in Vietnam only. They could fail to obtain the Business Permit/Wholesale or Retail Permit after obtaining the ERC/IRC. In that case, they cannot conduct any planned business activities and must conduct the dissolution procedures. / To mitigate the risks, it is recommended that: