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 Decree 9/2018 took effect immediately and replaces the outdated Decree 23/2007.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,
- Many business activities and sectors which used to be exempt from Trading Licence requirements are now subject to Trading Licence requirement. These business activities and sectors include logistics, leasing, (2) commercial promotion services (dịch vụ xúc tiến thương mại), commercial intermediary services (dịch vụ trung gian thương mại), and e-commerce activities. This is because under Decree 9/2018, these activities or sectors are considered as “directly-relating” to sale and purchase of goods. In the past, although arguably some of these sectors could technically be covered by Decree 23/2007, in practice, the authorities only issue Trading Licence under Decree 23/2007 for import and trading activities by FIEs. It is not clear why the Government (or the MOIT) decides to expand the scope of Decree 9/2018 since the Government has stated that it will create favourable business environment for companies by cutting red tape and required licences and permits.
- The definition of “e-commerce services” under Decree 9/2018 can capture most e-commerce websites operated by FIEs regardless whether such activities relate to sale and purchase of goods or not.
- Trading Licence requirement will apply to any FIE including public joint stock companies which has a foreign investor (Top-level FIE) regardless of the level of foreign ownership and engages in the business sector and activities covered by Decree 9/2018. Trading Licence requirement applies to some companies which is majority owned by a Top-level FIE and/or a foreign investor (see more below). As such, to avoid obtaining a Trading Licence and, in case of retail business, retail licences, a foreign investor may have to rely on the “layering structure”.
- A Trading Licence records details of the shareholders and members of the relevant FIE. As such, a transfer of shares or capital contribution in an FIE which has been issued a Trading Licence will require amendment to the Trading Licence again. It is not clear how this requirement could apply to an FIE which is a listed company whose shares are traded on stock exchange in practice. The Enterprise Law 2014 and the Investment Law 2014 generally exempt a public company from registering changes to its foreign shareholders/investors due to this impracticality.
- In order to obtain a Trading Licence, an FIE must now obtain a confirmation from the tax authority that it has no outstanding tax. This may create an opportunity for the tax authority to require additional tax payment from an FIE who wishes to apply for a Trading Licence.
- Definition of an additional retail outlet of an FIE includes retail outlet under the same brand operated by another FIE. This should include retail outlets operated by way of franchising or trademark licensing.
- It is not clear why the Government has to put this Decree into immediate effect given that it has been delayed for nearly two years.
This post is contributed in parts by Nguyen Nu Hong Duong, an intern at Venture North Law.
Update 24 January 2018 - Comment regarding additional retail outlet is added.