Conditions for investment in distribution services for foreign investors

Conditions for investment in distribution services for foreign investors

Investment in distribution services is one of the sub-sectors attracting a large amount of FDI capital in Vietnam. Distribution services are understood as activities related to wholesale, retail, sales agency and franchising. According to data from the Foreign Investment Agency – Ministry of Planning and Investment, in the first 3 months of 2023, FDI capital in wholesale and retail sectors ranked 3rd among the sectors and professions invested with a total registered capital of nearly 276 million USD, 2 times higher than the same period.

Foreign investors when investing in business in Vietnam will be considered to apply the provisions of Vietnamese law on market access conditions. For distribution services, Siglaw will share about investment conditions for distribution services for foreign investors according to the provisions of international treaties that Vietnam has signed as well as the provisions of Vietnamese national law.

Conditions for investment in distribution services for foreign investors according to regulations in international treaties signed by Vietnam

Conditions for investment in distribution services for foreign investors

Based on international treaties WTO, FTAs, VKFTA of which Vietnam is a member, investment in the distribution sector will set the following conditions for foreign investors as follows:

First, on the scope of investment and business. When foreigners invest in distribution services in Vietnam, they will be allowed to carry out the following activities: (i) Commission agency; (ii) Wholesale, retail; (iii) Franchising.

Second, on the scope of products distributed according to Vietnam’s commitments in treaties. Investors will not be allowed to distribute the following goods and products: Cigarettes and cigars, books, newspapers and magazines, recorded items, precious metals and precious stones, pharmaceuticals, explosives, crude oil and processed oil, rice, cane sugar and beet sugar. These products and goods are excluded from the scope of Vietnam’s commitments to foreign investors.

Except for the goods mentioned above, at present, foreign-invested companies in the distribution sector will be allowed to provide commission agency services, wholesale and retail of all products manufactured in Vietnam and legally imported into Vietnam.

Third, other conditions:

• With investment in retail distribution services, in case foreign investors establish retail establishments, the establishment of retail establishments (in addition to the first retail establishment) by foreign-invested economic organizations will be considered on the basis of economic needs testing (ENT). Specifically, the application for permission to establish more than one retail establishment must comply with existing and publicly announced procedures and the licensing must be based on objective criteria. The main criteria for the economic needs test are the number of service providers present in a geographical area, the stability of the market and the geographical scale.

• With franchising services, after 3 years from the date of accession, the establishment of branches will be allowed.

Thus, at present, there are no longer regulations on the conditions for capital ownership ratio in enterprises for foreign investors.

Conditions for investment in distribution services for foreign consultants according to Vietnamese law

Conditions for investing in wholesale and retail distribution services

First, meeting the conditions for being granted a business license. When investing in wholesale and retail distribution services falls into the following cases, investors will need to meet the conditions for being granted a business license:

• Foreign investors exercise the right to retail distribution of all types of goods.
• Foreign investors exercise the right to retail distribution of rice; sugar; recorded items; books, newspapers and magazines. In this case, only consider granting a license to exercise the right to retail distribution for foreign-invested economic organizations that have retail establishments in the form of supermarkets, mini-supermarkets, and convenience stores to retail at those establishments.
• Foreign investors exercise the right to wholesale distribution of goods that are lubricants and greases. In this case, only consider granting a license to exercise the right to wholesale distribution for foreign-invested economic organizations that carry out one of the following activities:

+ Production of lubricants and greases in Vietnam.

+ Manufacture or be permitted to distribute in Vietnam machinery, equipment, goods using special types of lubricating oil and grease.

Accordingly, to be granted a Business License, foreign investors must satisfy the following conditions:

First, in the case of foreign investors from countries or territories participating in international treaties of which Vietnam is a member and committing to open the market for the purchase and sale of goods and activities directly related to the purchase and sale of goods, they must:

• Meet the conditions on market access in the international treaties of which Vietnam is a member.
• Have a financial plan to carry out the activities for which the Business License is requested.
• No overdue tax debts in the case of having established a company in Vietnam for 01 year or more.

Second, in the case of foreign investors not from countries or territories participating in international treaties of which Vietnam is a member; in the case of business services that have not been committed to open the market in international treaties of which Vietnam is a member and in the case of business goods that have not been committed to open the market in international treaties of which Vietnam is a member tablets: Oil, lubricants; rice; sugar; recorded items; books, newspapers and magazines, need to:

• Have a financial plan to carry out the activity for which the Business License is requested;
• No overdue tax debts in case of having established an FDI enterprise in Vietnam for 01 year or more.

• Meet the following criteria:

+ In accordance with the provisions of specialized laws;

+ In accordance with the level of competition of domestic enterprises in the same field of operation;

+ Ability to create jobs for domestic workers;

+ Ability and level of contribution to the state budget.

The consideration and approval of the competent state authority in case two will depend on the following 05 main criteria:

• In accordance with the planning and development strategy of the sector, field of the region, country.
• Vietnam’s market opening negotiation process.
• Vietnam’s market opening needs.
• Vietnam’s strategy for cooperation with foreign partners.
• Diplomatic relations, national security issues, social order and safety in cases where foreign investors do not belong to countries or territories participating in international treaties of which Vietnam is a member.

Third, it is necessary to meet the conditions for establishing a retail establishment in case a foreign investor establishes a retail establishment. Specifically, the conditions for establishing a retail establishment of a foreign investor or an economic organization with foreign investment capital are stipulated as follows:

• For establishing the first retail establishment, it is necessary to: (i) Have a financial plan to establish a retail establishment; (ii) No overdue tax debts in case it has been established in Vietnam for 01 year or more; (iii) The location of the retail establishment is consistent with the relevant planning in the geographical market area.

• For establishing a retail establishment other than the first retail establishment: In case it is not necessary to conduct an economic needs test, it is necessary to meet the applicable conditions as for establishing a first retail establishment. In case it is necessary to conduct an economic needs test, in addition to meeting the applicable conditions as for establishing a first retail establishment, it is also necessary to meet the criteria for Economic Needs Testing.

When meeting the conditions, foreign investors and economic organizations with foreign investment capital will be granted a License to establish a retail establishment. For each retail establishment, investors will need to apply for a separate license for each establishment. 

Conditions for investing in franchise distribution services

To establishing a franchise, it is necessary to meet the basic conditions that the Business System intended for franchising has been in operation for at least 01 year. If the Vietnamese trader is the primary franchisee from a foreign franchisor, the Vietnamese trader must conduct business under the franchise method for at least 01 year in Vietnam before re-granting the franchise.

The franchise registration will be carried out by the Ministry of Industry and Trade if it is a franchise of a foreign trader in Vietnam. Periodic reporting to the Department of Industry and Trade is not required for domestic franchising; Vietnamese franchising abroad.

It is necessary to carry out the franchise of goods and services not on the list of prohibited business. In the case of conditional franchising of goods and services, the franchisor must have a sub-license or have sufficient business conditions.

Thus, for investment in distribution services, market entry will require foreign investors to meet stricter conditions than Vietnamese investors. With a team of experienced lawyers and legal experts, Siglaw law firm is ready to advise and answer any questions you may have regarding the conditions for investment in distribution services for foreign investors. Feel free to contact us for advice.

Siglaw Law Firm

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