Key points for foreign investors entering the Vietnamese pharmaceutical market

With a large population and increasing demand for pharmaceuticals, the Vietnamese market promises great business opportunities for foreign pharmaceutical traders. As an industry that directly affects people's health and lives, Vietnamese law has strict regulations regarding the pharmaceutical business operations of foreign pharmaceutical traders. In this article, HM&P provides some key points for foreign pharmaceutical traders to consider when entering the Vietnamese pharmaceutical market.

Establishment of a foreign-invested pharmaceutical company

Currently, apart from the exclusion of pharmaceutical distribution services from the scope of WTO obligations, Vietnamese law does not contain any other provisions restricting the entry of foreign investors into the Vietnamese market through the establishment of foreign-invested pharmaceutical companies. However, it is worth noting that pharmaceutical trading is currently a conditional business under the provisions of the Law on Investment 2020. In particular, the conditions related to various types of licenses, certificates, etc. depend on each specific pharmacy business establishment. Therefore, foreign investors should carefully consider these conditions before establishing a pharmaceutical company in Vietnam.

In addition, as mentioned above, although there are no restrictions on conditions such as capital contribution percentage and joint venture requirements when establishing a foreign-invested pharmaceutical company in Vietnam, the scope of operation of foreign-invested pharmaceutical companies still has certain restrictions related to drug distribution activities and other related activities.

For details on the restrictions on foreign-invested pharmaceutical companies, investors can refer to the following article:

https://hmplaw.vn/en/restrictions-on-foreign-enterprises-investing-in-the-pharmaceutical-industry-in-vietnam

Establishment of a representative office of a foreign pharmaceutical company in Vietnam

Currently, in addition to investing in e the establishment of a company in Vietnam, foreign traders operating in the pharmaceutical industry can also establish a representative office in Vietnam, which can be considered the first step for them to access the Vietnamese market. In the case of establishing a representative office in Vietnam, its operation must be simultaneously regulated by the Law on Commerce, Decree No. 07/2016/ND-CP, the Law on Pharmacy, and implementation guidelines.

Although it can be considered the first step in the process of foreign pharmaceutical companies to entering the Vietnamese market, there are certain restrictions on the operation of representative offices in Vietnam, which revolve around the principle that representative offices only represent foreign pharmaceutical traders and perform the functions of liaison offices, market research, and promotion of business investment opportunities for the traders they represent.

Basically, the operation of foreign pharmaceutical traders' representative offices in Vietnam is quite restricted compared to representative offices in other fields. For details on these restrictions, investors can refer to the following article:

https://hmplaw.vn/en/restrictions-on-the-activities-of-representative-offices-of-foreign-pharmaceutical-companies-in-vietnam

Establishment of foreign pharmaceutical company branches in Vietnam

Currently, according to Vietnam's WTO commitments,  foreign traders are allowed to establish branches in Vietnam in certain industries, which does not mention branches of foreign pharmaceutical companies in Vietnam[1].

Therefore, it can be said that Vietnamese law does not currently allow foreign pharmaceutical companies to establish branches in Vietnam.

Clause 5 Article 8 of Decree No. 07/2016/ND-CP stated that: “If the business of the branches is inconsistent with Vietnam's obligations, or if the foreign trader is not located in any of the countries or territories that are parties to treaties to which Vietnam is a signatory, the branches may be established only if they obtain prior approval from the competent minister for the establishment of the branches”.

According to this provision, any foreign pharmaceutical company wishing to establish a branch in Vietnam must obtain the approval of the Minister of specialized management, i.e., the Minister of Health.

However, the Law on Pharmacy and the guidelines for its implementation do not contain any provisions on the establishment of branches of foreign pharmaceutical companies in Vietnam. In practice, no foreign pharmaceutical company is able to obtain an approval from a competent Vietnamese authority to establish a branch in Vietnam. Therefore, it is almost impossible for foreign pharmaceutical companies to establish their branches.

In short, foreign pharmaceutical traders can establish foreign-invested pharmaceutical companies in Vietnam to enter into the Vietnamese pharmaceutical market. Traders can even establish representative offices for the purpose of preliminary market research. However, regardless of the form, the operation of representative offices of foreign pharmaceutical traders or foreign-invested pharmaceutical companies is still limited to certain aspects of operation. Therefore, investors should pay close attention to these restrictions.