Stricter Requirements For Multiple-Level Marketing Activities

In March 2018, the Government issued a new Decree (Decree 40/2018) on multiple level marketing (MLM) activities. Decree 40/2018 takes effect from 2 May 2018 replacing Decree 42/2014. In general, Decree 40 inherits many regulations of Decree 42/2014 and its implementing Circular (Circular 24/2014). That said, Decree 40/2018 introduces various new and stricter requirement on MLM activities. In particular,

A MLM enterprise must now register its activities with provincial competent authorities, where there are MLM activities conducted by its consultants. A MLM enterprise must appoint an individual representative in each province where it does not have branch or representative office. Under Decree 42, a MLM enterprise only needs to notify provincial competent authorities where there are MLM activities conducted by its consultants.
A MLM company must now make an escrow deposit of VND 10 billion or 5% of the charter capital, whichever is higher instead of VND 5 billion with a local bank or a foreign bank branch in Vietnam. The deposit is to secure for the MLM company’s obligations with respect to the members of the MLM network.

Decree 163/2017 on logistic services in Vietnam

Decree 163 of the Government on logistics services was issued on 30 December 2017 (Decree 163/2017). It is going to take effect on 20 February 2018 and replace Decree 140 of the Government on logistics services dated 5 September 2007 (Decree 140/2007). Below are salient changes in Decree 163/2017.

Decree 163/2017 no longer requires the logistics services providers to meet the condition of adequate equipment and personnel. That condition was applied to some logistics services, but under Decree 163/2017, the logistics services providers have only to meet conditions specific to the logistics service that they provide.

Decree 163/2017 allows foreign investors to apply, at their discretion, investment conditions regarding logistics services under an international treaty where multiple treaties are applicable.

Decree 163/2017 classifies logistics services in accordance with Vietnam’s commitments to the WTO. By contrast, Decree 140/2007 has its own classification of logistics services which is not consistent with the description of logistics services under the WTO Commitments. And the investment conditions and foreign ownership limit provided in Decree 163/2017 are generally consistent with the WTO Commitments. Therefore, it is easier to compare the Decree 163/2017 with the WTO Commitments.

The table below sets out the applicable foreign ownership limit under Decree 163/2017, to the extent possible, in comparison with Decree 140/2007:

Decree 9/2018 on for sale of goods and “other related activities” by foreign invested enterprises (FIE) in Vietnam

On 15 January 2018, the Government issued Decree 9/2018 on sale and purchase of goods and other directly-related activities by FIEs. Decree 9/2018 took effect immediately and replaces the outdated Decree 23/2007. Several issues arise from this Decree 9/2018. Unfortunately, most of these issues will likely make the operation and investment by FIEs in the sectors covered by Decree 9/2018 more (sometimes much more) challenging. In particular,

Processing activities by an foreign invested enterprises (FIE) in Vietnam

It is not clear under Vietnamese law if an FIE needs to obtain a Trading Licence (Giấy phép kinh doanh) to provide commercial processing services (gia công thương mại) to other companies. Under Decree 23/2007 on goods purchase and sale activities and other related activities of FIEs, commercial processing is regarded as an activity relating to sale and purchase of goods. Accordingly, technically, if an FIE wishes to involve in commercial processing, such FIE should obtain a Trading Licence.

On the other hand, after Decree 23/2007, Ministry of Trade issued Circular 4/2007 under which, an FIE can process goods if (i) the processing activity is consistent with the objectives set out in the Investment Certificate of this FIE; (ii) the processed goods are not banned or suspended from import and export or if the processed goods are subject to import and export licence, the FIE can enter into the processing contract only when the import and export licence is obtained; and (iii) FIE has completed its capital construction investment and has commenced production and business activities. It appears that a Trading Licence is not required under Circular 4/2007.

Two regulations regarding processing activities of an FIE may cause certain confusion. Although Decree 23/2007 is a higher legislation, in practice, it appears that Circular 4/2007 still applies and FIEs do not obtain Trading Licence for their processing activities.

This post is contributed by Le Minh Thuy, a trainee lawyer at Venture North Law.

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Vietnam Business Law