Nowadays, foreign-invested enterprises have to meet several legal requirements to enter the Vietnamese market. The license for the sale of goods and activities directly related to the sale of goods (“Trading license”) is one of the pivotal conditions that foreign-invested enterprises must meet. In the following article, we will provide some key points of the Trading license that the foreign-invested enterprises need to know.
1. Under what circumstances must the foreign-invested enterprises must obtain the Trading license?
Pursuant to Clause 1 Article 5 of Decree 09/2018/ND-CP, a foreign-invested economic organization must obtain a Trading license when conducting the following activities [1]:
- Performing the right to retail trade, except for rice, sugar, recorded music; books, newspapers, and magazines;
- Performing the right to import, wholesale distribution of lubricants;
- Performing the right to the retail distribution of rice, sugar recorded items; books, newspapers, and magazines;
- Providing logistics services; except for those sub-sectors of logistics for which Vietnam has committed itself to open its market in accordance with international agreements to which Vietnam is a signatory;
- Leasing of goods, except financial leasing and leasing of construction equipment with operators;
- Providing commercial promotion services, except advertising services;
- Providing commercial intermediary services;
- Providing e-commerce services;
- Providing tendering services;
Under the definition in Clause 22 Article 3 of Law on Investment 2020, the foreign-invested economic organization means any economic organization that has a foreign investor as a shareholder or member. Therefore, the company that has a foreign investor as a member or shareholder is considered a foreign-invested economic organization and is required to go through the procedures for obtaining a business license when engaging in the above activities, regardless of the percentage of capital contributed by foreign investors in the company. However, such requirements create obstacles for public companies. In particular, public companies may have foreign shareholders holding a very small percentage of the shares of the company, but still be considered as foreign-invested enterprises under the Law on Investment. As a result, public companies are required to obtain a trading license when engaging in the above activities. In fact, there are examples of public enterprises engaging in the sale of goods and activities directly related to the sale of goods without a trading license, which may lead to the risks mentioned in Section 4 of this article.
However, the following companies are required to obtain a trade license when carrying out the above activities.
- The enterprise prescribed in Point b and c Clause 1 of Article 23 of the Law on Investment; and
- The enterprise that establishes a retail outlet in Vietnam after being invested to become a foreign-invested enterprise or an enterprise prescribed in Point b and c Clause 1 Article 23 of the Law on Investment.
(To determine whether an enterprise is subject to Point b and c Clause 1 Article 23 of the Law on Investment, please refer to our guidelines in Section 8, Legal Guidelines: Investment in Vietnam: Some typical obstacles at: https://www.hmplaw.vn/en/investment-in-vietnam-some-typical-obstacles-en)
Enterprises must be aware that they are not required to obtain a trading license when exercising the right to import or wholesale distribution of goods other than lubricants.
2. Will an enterprise that engages in retail distribution activities through retail outlets be granted a License to establish a retail outlet or a Trading license in advance?
Currently, At present, foreign-invested enterprises may engage in retail distribution activities through retail outlets or without retail outlets. In order to open a retail outlet, the enterprise must obtain a retail outlet establishment license.
According to Clause 3 Article 5 of Decree 09/2018/ND-CP, the foreign-invested enterprise must obtain the license for the establishment of a retail outlet after being granted the Trading license.
Therefore, before engaging in retail distribution activities through retail outlets, the enterprise must first obtain a Trading license.
However, if the first retail outlet is located in the same province or centrally-affiliated municipality as the enterprise's head office, the foreign-invested enterprise has the right to apply for a Trading license and a retail outlet establishment license at the same time[2].
3. How long is the term of the Trading license?
The term of the Trading license will depends on the specific case. Normally, the Trading license will be take effect from the date of issuance until the date it is revoked under Article 43/2018/ND-CP.
However, in some cases, the Trading license will have a term of five-year, unless it is revoked under Clause 1 Article 43 of the Decree 09/2018/ND-CP. The cases where the Trading license will have a five-year term are as follows[3]:
- The foreign investor is not located in a country that is a member of an international treaty to which Vietnam is a signatory;
- The service being conducted is not committed to open in Vietnam’s commitment to market access in international treaties to which Vietnam is a signatory;
- The goods licensed for trading are lubricants, rice, sugar, recorded music, books, newspapers, and magazines.
4. What are the sanctions for a foreign-invested enterprise that engages in the sale of goods activities and activities directly related to the sale of goods before obtaining of the Trading license?
It is a violation of the law for an enterprise to engage in sale of goods activities or activities directly related to the sale of goods without a trade license. At that time, foreign-invested enterprises may be administratively sanctioned according to the provisions of Decree 98/2020/ND-CP. Accordingly, enterprises may be subject to a fine ranging from 30,000,000 VND to 40,000,000 VND for organizing or participating in the distribution of goods in Vietnam in violation of the provisions of Vietnamese law and treaties to which the Socialist Republic of Vietnam is a party. In addition, enterprises may also be subject to corrective measures to forcibly surrender illegal profits obtained by carrying out goods distribution activities or activities directly related to goods distribution without a Trading license as required by law.
