Investments in the not-so-far east Vietnam – Part 4: Trade, Distribution, and Export
While European companies are eagerly awaiting the entry into force of the Vietnam-EU Free Trade Agreement, the legal framework for foreign investment in Vietnam is steadily improving. With improved and clearer regulations for investment and entrepreneurship in Vietnam, the country is becoming increasingly interesting for international investors, especially as Vietnam is already one of the most sought after FDI locations in the region.
Step by step and with a special focus on the concerns of companies interested in investing, we will explain the key legal bases in Vietnam under the title “Investments in the not-so-far east”.
Part 4: Trade, Distribution, and Export
• Vietnam’s accession to the WTO, the reform of corporate and investment law, and the restructuring of the licensing requirements for trade and distribution in Vietnam facilitate access to the Vietnamese market for foreign investors.
• The commercial and sales law options of Vietnamese commercial law in many respects correspond to the framework conditions that Western companies are familiar with, for example from European legal systems.
• Nevertheless, several special rules have to be kept in mind, especially with regard to licensing requirements.
The legal framework for trade, distribution, import and export in Vietnam has changed extensively over the past decades. The reason for this is the efforts of the Vietnamese government to bring its own economy closer to the international movement of goods and capital. This objective included Vietnam’s accession to the World Trade Organization (WTO), various reforms in the area of commercial, corporate and investment law and the negotiation of the free trade agreement with the EU.
This article is intended to give an overview of the resulting commercial law options as well as questions of import and export law design options.
Foreign companies can set up investment-oriented subsidiaries in Vietnam and use them locally as production and sales locations. We have already explained the details of incorporation and investment approval in the first two parts of this series of contributions.
Apart from that, Vietnamese law provides for further design options that allow foreign companies to operate in Vietnam to varying degrees without having to found a new company.
A relatively simple variant can be the establishment of a representative office in Vietnam. Representatives are not independent companies and therefore can not appear as contract partners on the spot. Their role is strictly limited to managing current contracts of the respective company as well as the business partners in Vietnam. A representative office may not carry out its own advertising, sales or even commercial activities (see Articles 17 f., Art. 91 (2), Art. 103 (2), Art. 118 (2) and Art. 131 (2)),
Since Vietnam’s accession to the WTO, foreign companies have been allowed to open Vietnamese branches in most industrial and service sectors. In fact, there are no regulatory requirements for setting up branches for most businesses.
In contrast to the representative office, a branch office has the advantage that it possesses its own legal personality – which is not limited in terms of liability – and may therefore be fully operational (see Article 19, Article 91 (1), Art. 1, Art. 118 para. 1 and Art. 131 para. 1 of the Commercial Code).
In addition, according to the Vietnamese commercial agent and distribution law, local agents can also be used for sales. The Vietnamese Commercial Code distinguishes between business representatives (Article 141 et seq.), Commercial agents (Article 150 et seq.), Commercial agents (Article 155 et seq.) And trade agents (Articles 166 et seq.). According to the legal conception, these marketing options largely correspond to the power of attorney (§ 54 HGB), the commercial agent relationship (§§ 84 ff. HGB), the commercial broker (§§ 93 ff. HGB) and the commission business (§§ 383 ff. HGB) German law.
Import and export
In principle, customs duties are levied on goods imported into Vietnam. This means that, in principle, products or raw materials that foreign companies want to import for their business operations in Vietnam must always pass through customs clearance, which unfortunately can often lead to delays and unclear regulatory action in Vietnam.
Reduced rates apply to imports from other WTO countries (including Germany), from ASEAN countries and from countries with which a free trade agreement exists. Especially in view of the ratification of the free trade agreement with the EU, customs conditions will improve in the coming years, especially for European companies. The complete abolition of tariff barriers to trade is planned within seven years of the entry into force of the agreement.
Certain exemptions from customs duty also apply to approved foreign investment projects in Vietnam under the Investment Act.
By contrast, exports from Vietnam are generally duty-free. Few special duties apply to certain natural raw materials.
Licensing requirements
Foreign trade (ie import and export), as well as sales and retail of foreign companies in Vietnam, are traditionally subject to strict licensing requirements. Prior to Vietnam’s accession to the WTO and the reform of Vietnamese investment law, foreign trade and distribution were each subject to separate licensing and registration requirements. In this regard, recent reforms have already helped to make trade in Vietnam significantly easier for foreign companies.
In addition, on 15 January 2018, a new regulation reorganizing the requirements for approval of foreign trade and distribution in Vietnam came into force (see Regulation No. 09/2018 / ND-CP). Thereafter, foreign companies are no longer required to have a separate license to import, export and distribute to wholesalers in respect of such goods, the trade of which is permitted under the WTO Accession Agreement.
If a company wants to trade with other goods in Vietnam, a so-called business license is required, which is awarded by the provincial industrial and commercial authorities for a period of 5 years. The business license must also be obtained for logistics services, commercial leasing, and brokerage services, as well as for the operation of online trading platforms. Finally, a retail business license and the operation of retail retail space is required.
Under the new regulation, the licensing procedure for the business license will now take no more than 28 days.
Conclusion: Trade and distribution in Vietnam are getting easier
The legal framework for trade, distribution, import, and export are strongly contoured by Vietnam’s market opening policy. The high frequency of these innovations and sometimes quite attractive legal reforms makes it sometimes difficult for foreign investors to stay abreast of developments. This is especially true in view of the constantly changing tariffs for imports to Vietnam.
Nonetheless, Vietnamese commercial law, in particular, invites the use of fundamentally familiar regulatory concepts and, at the same time, being able to exercise a wide variety of opportunities for shaping interests in trade and distribution in Vietnam. In addition, Vietnamese commercial law is characterized by far-reaching availability and, in the case of international contracts, fundamentally allows for a free choice of law, which may make the drafting of a contract noticeably easier in individual cases.
Overall, it remains to be hoped that the promising and advantageous reform approaches will also be reflected in the procedural reality in Vietnam. In the future, the licensing procedures and customs clearance will open the way for successful engagement in Vietnam more reliably and quickly.
Written by Erik Ahrens from our partner Germela (https://www.germela.com/)