By Tran Thi Bich Ngoc*

On 1 January 2009, Vietnam throws open its door to foreign invested enterprises ("FIE") as the last limitations on foreign investor equity lapses in the sectors of trading (import/export) and distribution (commission agents, franchising, wholesale, and retailing). The implementation legislation (Decree 23/2007/ND-CP implementing the Commercial Law ("Decree 23"), Circular 09/2007/TT-BTM guiding the implementation of Decree 23 ("Circular 09"), as amended by Decree 05/2008/TT-BTM ("Circular 05") stipulates the licenses required in these sectors and outlines the procedures necessary to obtain them.

The licensing procedures for import and distribution are separated. An FIE can conduct activities in both areas, but must register for each one separately. An FIE importer that has not registered the relevant distribution activities must seek another entity to distribute its imported goods.

FIEs wishing to conduct import/export activities without engaging in distribution are required to either obtain an investment certificate (for newly-established FIEs) or amend their current investment certificate/license to include import/export in their approved business lines.  

To conduct distribution activities, FIEs are required to meet more stringent application procedures. Newly-established FIEs must first obtain written approval from the Ministry of Industry and Trade before they can obtain an investment certificate. Existing FIEs must obtain a separate license in addition to their investment certificate/license. This license is referred to as a business license. For newly-established FIEs, the approved investment certificate will act concurrently as their business license.

Economic Needs Test

For retail activity, setting up a chain of retail outlets should play the key role in forming the retail network.  However, the licensing for retail outlet opening appears to be tightly controlled.  For the purposes of retail activities, FIEs must apply for a business license for their first retail outlet. This application process is fairly straightforward. Each additional retail outlet, however, requires a new license and as part of that application must undergo what is called the Economic Needs Test.

The Economic Needs Test ("ENT"), as currently constituted, comprises an administrative review of (i) the number of existing retail sales outlets in a particular geographic area, (ii) the market stability, (iii) the population density, and (iv) the relevant urban development scheme. Approvals for satisfaction of ENT are made by the relevant provincial People's Committee, on a case-by-case basis.

Putting the ENT criteria into practice, these criteria would not be sufficiently concrete, but seem to be inviting more interpretation by the relevant State bodies. This might contravene to the country's commitments on enhancing transparency for its legal system, and eventually make lawyers in these areas work harder, to pave the way for trading and distribution investors.

(*) Please contact the author at ngoc.tran@indochinecounsel.com or our partners if you wish to have more information or specific advice for the topic of this article.