Lawyer in Vietnam Oliver Massmann - Legal Alert TRADING AND DISTRIBUTION BY FOREIGN INVESTED ECONOMIC ORGANIZATIONS WHAT YOU MUST KNOW:

1. Lawyer in Vietnam Oliver Massmann - Legal Alert
TRADING AND DISTRIBUTION BY FOREIGN INVESTED ECONOMIC
ORGANIZATIONS WHAT YOU MUST KNOW:
Status
Following the issuance of the Investment Law (2014), the Government of Vietnam is speeding up the
drafting of a new decree (the Draft Decree) guiding trading and distribution of foreign invested economic
organizations (FIEOs) in Vietnam. The Draft Decree, once issued, will replace Decree 23 on trading and
distribution of foreign invested enterprises dated 12 December 2007 (Decree 23).
What is new in the Draft Decree?
Below are some new features introduced by the Draft Decree
1. [Effective] expansion of business lines to be subject to baby permits;
2. Demerger of baby permits from the investment registration certificate (IRC);
3. Delegation of the licensing authority with respect to issuance of the baby permits to provincial
department of industry and trade (DOIT);
4. Setting out circumstances where FIEOs are exempt from baby permits;
5. Clarification of criteria for establishing retail outlets including economic needs test (ENT);
6. More detailed licensing process.
Detailed comments on the Draft Decree
1. General understanding of baby permit requirements
For a general understanding, for some specific business sectors, the Investment Law requires foreign
investor and their local companies to satisfy 02 layers of conditions before officially entering the market.
The first one is investment conditions (điều kiện đầu tư) and the second being business investment
conditions (also know as business condition or baby permit), (điều kiện đầu tư kinh doanh). Their major
differences are presented in the below table:
Criteria Investment Conditions Business Conditions
Function Market access conditions applicable
to foreign investment
Professional conditions in order to
actually conduct business or
investment activities
Time of application Before investment in Vietnam After investment in Vietnam
Applicable Entities Foreign investors and FIEOs with
51% or more foreign ownership (if
Basically, all FIEOs and local
companies.

2. acting as an investor in another
entity)
Forms Investment registration certificates
or ‘approval’ of the DPI in case of
formation of new entities or
acquiring existing local companies
respectively
Sub-licenses such as licenses,
certificates, etc. In case of trading
and distribution by FIEOs, it is the
approval for sale and purchase of
goods of the DOIT.
Relevant Authority DPI/industrial zone authorities at
provincial levels.
State bodies of many levels. In case
of trading and distribution, the DOIT
2. Expanded coverage of baby permit requirements
The Draft Decree makes a specific list of ‘purchase and sale of goods’ and ‘activities directly related to
the purchase and sale of goods’ by FIEOs, namely:
1. Trading (import and export) rights;
2. Distribution;
3. Commercial promotion services
4. Commercial intermediary services
5. Goods leasing services
6. E-commerce services
7. Logistics services;
8. Commercial assessment services
9. Goods auction services
10. Goods and service bidding services
11. Commodity exchange
12. Other activities directly related to the purchase and sale of goods’.
For the purpose of this note, the above services/activities are collectively referred to as ‘Conditional
Businesses’
Comparing with Decree 23, albeit referring to a variety of trading related activities (e.g. - advertisement,
promotion, etc.), mainly subjects trading and distribution by FIEOs to baby permits. Hence, with
activities being specified as above, it is more likely that licensing authorities would request all
Conditional Businesses to be subject to baby permits. If this is the case, this fact can be seen as a ‘one
step back’ in terms of relaxing licensing process for foreign investment. Specifically, licensing
authorities will be given discretion in granting baby permits for Conditional Businesses which are in fact
fully opened to foreign investment.
3. Demerger of baby permits from the investment registration certificate (IRC);
Previously, investors applying to setup a trading/distribution FIE need only to obtain an IRC which
simultaneously serves as a baby permit. However, with the delegation of the IRC licensing authority
from the provincial people’s committees to DPIs under the Investment Law, it is still unclear as to
licensing process for issuance of baby permit.
The Draft Decree gives the answer. DPIs and the DOITs are responsible for the IRCs and baby permits
respectively. DOITs are required to obtain approvals of the MOIT and, under some circumstances,

3. relevant State bodies. This new licensing process, when implemented, will effectively create a 03-layer
approval for FIEs which are (i) IRCs at DPI; (ii) baby permits at DOIT and actually approvals at MOIT.
This is even more critical because in order for the DPI to issue IRCs including Conditional Businesses
they, as a matter of practice, often seek the DOIT/MOIT’s greenlight. As such, 04 rounds for approvals
would be required for some service sectors that Vietnam has been open to foreign investors for years
under its respective international treaties.
Issuance of a decree on trading rights and distribution activities of foreign invested economic
organizations (FIEOs) in Vietnam.
4. Delegation of the licensing authority with respect to the baby permits to provincial
department of industry and trade (DOIT);
As said, the DOIT will be responsible for issuing baby permits. In doing so, it must first seek greenlights
of the MOIT.
5. Baby Permit Exemption
There are roughly 04 possible scenarios where FIEOs are exempt from baby permits
a. FIEOs import/export/process or dispose products in accordance with its registered businesses or in
combination with their registered services;
b. FIEOs already licensed to conduct trading and distribution rights;
c. FIEOs already licensed to provide logistics and commercial assessment services; and
d. FIEOs with foreign owner holding not more than 35% voting shares (in case of joint stock
companies) or 35% charter capital or a lower voting ratio stipulated in charter (in case of limited
liability companies).
With respect to FIEOs in item (b) and (c) above, it is not clear as to whether such exemption applies to
FIEOs established before or after the effective date of the Draft Decree.
6. Retail Outlet Criteria
Retail outlets by FIEs are still subject to ENT criteria except for:
a. The first retail outlet;
b. A retail outlet other than the first one having area of less than 500m2 in commercial centers; or
c. Retail outlets other than the first one having total area of less than 500m2 in the same commercial
centers.
The Draft Decree introduces more specific metrics to measure ENT criteria including geographic size of
the relevant area, number of existing retail outlets, possible impacts of retail outlet to be applied on the

4. stability of market, population density and possible contribution of the retail outlets to the socio-economic
developments of the area.
7. Licensing Process
FIEOs send the application file to the licensing authority for issuance of baby permits per post, online or
direct submission.
The licensing period varies by nationalities of the investors/FIEOs. For example, investors from
jurisdictions which have entered into international treaties with Vietnam on market access, the period for
the MOIT and other State bodies to give opinions will be 07 working days only. Other investors (e.g. -
investors from BVI or other tax heavens) may suffer a 15-day licensing period. The direct licensing
authority (e.g. - the DOIT) will issue baby permits within 05 days from the date of receipt of greenlights
of the MOIT and other relevant State bodies, if any. In case of refusal, explanations must be given to the
applying entities.
***
Please contact Oliver Massmann under omassmann@duanemorris.com; in case you have questions on the
above. Oliver Massmann is General Director of Duane Morris Vietnam LLC.