Important notes for foreign companies in the retail sector in Vietnam
2024/04/26
- US CPA
- Masaya Sakai
General trading and retail activities are conditional business investment areas in Vietnam. Therefore, foreign companies that develop retail business must meet additional legal business investment requirements, such as applying for a business license for retail business, in addition to registering the company’s business license with the Department of Planning and Investment, as they do for other businesses. However, not many companies have a clear understanding of the business conditions and obligations involved in operating a retail business in Vietnam. This report will explain important precautions regarding licensing and business activities for foreign companies engaged in retail distribution activities (when not establishing retail outlets) to ensure smooth and legal business activities in Vietnam.
1. Concept of foreign companies and retail business
First, a “foreign company” refers to an economic organization that has employees or shareholders who are foreign investors1. In addition, “foreign investor” refers to an individual with foreign nationality or an organization established under foreign laws and regulations that carries out business investment activities in Vietnam. Therefore, even if a foreign investor holds only 1% of a company’s capital, it will still be considered a foreign company in Vietnam and will be subject to the relevant restrictions.
Next, “retail” and “retail distribution” are generally one of the forms of “product buying and selling activities and activities directly related to buying and selling”, and specifically, it refers to the sale and purchase of products by individuals, households, and others for consumption purposes. Refers to the activity of selling products to organizations2.
2. Regulations regarding business licenses for retail businesses
2.1 Conditions for issuing a business license
Foreign companies are required to apply for a business license when carrying out retail distribution activities (if not establishing retail stores)3. The conditions for issuing licenses are specifically stipulated in Article 9 of Decree 09/2018/ND-CP, and foreign companies must basically meet the following two conditions:
(1) Develop a financial plan for running a retail business and explain its funding sources and financial capabilities. Companies are required to provide a detailed explanation of their financial plans based on future financial support plans, including the company’s business performance and sources of working capital from investors and banks.
(2) If a foreign company has been established in Vietnam for more than one year, the delinquent tax liability will be waived. To meet this requirement, foreign companies must apply for a business license.
You will need to confirm and complete your tax obligations with the tax authorities before proceeding. However, foreign companies that have just been established or have been established for less than a year are not required to meet this requirement.
2.2 Expiry date of business license for retail business
According to Vietnam’s commitments when it joined the WTO, retail distribution activities are an area open to foreign investors. For retail business of some specific products such as rice, sugar, sound recordings, books, newspapers, magazines, etc., the business license period is 5 years, but for other products, the business license for retail business is limited to 5 years4. It is indefinite.
2.3 Business License Modification
A foreign company must undergo business license adjustment procedures if the following contents of the business license are changed5:
a) Company name, company code, head office address and legal representative
b) Investors, investing members, founding shareholders
c) Products for retail distribution.
d) Other contents
In particular, in cases a and b above, foreign enterprises must carry out the following procedures:
(i) carry out the procedure for adjusting the enterprise registration certificate within 10 days from the date of the change;
(ii) submit an application to amend the business license within ten (10) business days from the date of issuance of the business registration certificate reflecting the changes;
If the above procedures are not carried out or the business license adjustment procedure is delayed beyond the above deadline, a fine of VND 20,000,000 to VND 30,000,000 will be imposed as an administrative violation6.
3. Other precautions during business activities
3.1 Periodic report
Foreign companies that have obtained a business license are obligated to report periodically to the competent commerce and industry bureau by January 31 immediately following the year of acquisition on the status of their activities of purchasing and selling goods and related activities7. Failure to provide regular reporting for 24 consecutive months risks revocation of business license8. To avoid this risk, foreign companies must meet their periodic report filing obligations on time.
3.2 Temporary closure of retail business
According to Decree No. 09/2018/ND-CP, foreign companies are allowed to temporarily suspend retail operations for a period of up to 12 months. However, the following procedures are required for temporary suspension.
(i) To submit to the Department of Planning and Investment the procedures for suspending business operations.
(ii) within 10 working days from the date of issue of the certificate of suspension of business and operations issued by the Department of Planning and Investment, send a copy to the business license issuing authority for uploading to the database9;
Therefore, if a foreign company wishes to temporarily suspend its retail operations, it must pay attention to the maximum period for which suspension is permitted and related procedures.
Conclusion
The above are some points to note regarding the licensing and operation of foreign retail distributors under current laws and regulations. Companies currently operating a retail business or considering expanding into this field in the future will find this report useful in helping them comply with legal regulations and eliminate related legal risks.
1. Investment Law Article 3, Section 22
2. Clause 7, Article 3 of Decree No. 09/2018/ND-CP
3. Clause 1, Article 5 of Decree No. 09/2018/ND-CP
4. Clause 2, Article 11 of Decree No. 09/2018/ND-CP
5. Articles 11 and 14 of Decree No. 09/2018/ND-CP
6. Point a, Clause 2, Article 70 of Decree No. 09/2018/ND-CP
7.Article 40 of Decree No. 09/2018/ND-CP
8. Decree No. 09/2018/ND-CP No. 43, Paragraph 1 đ Points
9. Article 44 of Decree No. 09/2018/ND-CP
That’s all
*This article was translated by Yarakuzen.
