Legal Update [March, 2018]

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1 Legal Update [March, 2018] 1 Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.

2 KEY NEW POINTS OF DECREE 09/2018/ND-CP ON TRADING ACTIVITIES OF FOREIGN INVESTED ENTERPRISES Notes & Disclaimer: Date: 22 February 2018 Decree No. 09/2018/ND-CP on trading activities of foreign owned enterprises is effective from 15 January 2018 (its issuance date), replacing Decree 23/2007/ND-CP. This is only for your reference and will not be considered as our advice any in any circumstances. We will not be responsible for any actions which may rely on any contents herein. In case you need legal advice for a specific course of action relating to this matter, please kindly contact us. No. BUSINESS LICENSE 1. Trading activities REQUIRING Business License Business License is required for: 1 Engaging in the retail sale of any goods; (d) (e) (f) (g) (h) Importing and wholesaling oils and lubricants; Providing logistics services that have NOT been committed to be opened to foreign investment under Vietnam s international treaties; Leasing goods, not including financial leases, except for leasing construction equipment with operators; Providing commercial promotions, not including advertising; Providing commercial intermediary activities; Providing e-commerce services; Providing services for bidding for goods or services. IMPORTANT NOTE: Other trading activities can be conducted without a Business License, including exporting and importing, and 11 Article 5.1 2

3 wholesale of any goods (except for the import and wholesale of oils and lubricants). Such activities are only required to be recorded in the Investment Registration Certificate and the Enterprise Information National Portal Entities required to have Business License for trading activities 3 Foreign invested enterprises (FIEs) - regardless of the foreign shareholding; Enterprise having 51% or more of the charter capital held by an enterprise(s) in which foreign investors hold 51% or more. IMPORTANT NOTE: This includes local enterprises which becomes enterprises listed in Items and immediately above after M&A transactions. Accordingly, upon becoming enterprises listed in Items and above, the enterprises must apply for Business License and Establishment License of Retail Outlet (Outlet License) for their retail outlets (if any). 3. Competent licensing authorities Department of Industry and Trade (DOIT) of the relevant province will be responsible for the issuance, re-issuance, amendment and revocation of Business License. Consulting the Ministry of Industry and Trade (MOIT) before the issuance or amendment of Business License is required only in the following cases, among others: 4 (1) Retail sales of rice, sugar, recorded items, books, newspapers and magazines (other relevant ministries may also be consulted); (2) Importing and wholesaling oils and lubricants; (3) Providing logistics services that have NOT been committed to be opened to foreign investment under Vietnam s international treaties; (4) Providing e-commerce services; 2 Article 6 3 Article 5 4 Article 8 3

4 IMPORTANT NOTE: For retail sales of other products, consulting the MOIT and other ministries is, at least from the legal provisions, NO LONGER required. 4. Conditions to be granted Business License 5 (d) New conditions: Have no overdue taxes for those entities applying for Business License that have been set up in Vietnam for at least one year. Trading activities may be open to foreign investors coming from countries which are NOT members of international treaties to which Vietnam is a party, subject to some additional criteria, including: (1) Competitiveness of local enterprises engaging in the same fields; (2) Capacity to create jobs for local employees; (3) Contribution to the State s budget. IMPORTANT NOTE: Consulting the MOIT is required in this case. 6 Service businesses which have not been committed to open may be open to foreign investors, subject to some criteria similar to Item immediately above. Trading in oils, lubricants, rice, sugar, recorded items, books, newspapers and magazines may be open to foreign investors, subject to some criteria similar to Item (2) immediately above and the following: (1) For oil and lubricants: may consider granting the import and wholesale right to FIEs engaging in (i) the manufacture of oils and lubricants; or the manufacture or distribution of machines, 5 Article 9 6 Article 6.2 4

5 equipment, and goods using specialized oils and lubricants; (2) For others: may consider granting the retail right to FIEs which already have supermarkets, mini supermarkets, and convenience stores for the retail sale of goods in such outlets. 5. Term of the Business License For cases, and (d) of Item 4 above: 5 years. 7 For the others: No provision. 6. Application dossiers new requirements 8 It may be interpreted that there is NO limit for the term of Business License. This would be subject to practical application and interpretation of competent authorities. Detailed explanation including the following contents: (1) Satisfaction of conditions on issuing Business License; (2) Business plan, including: (i) (iii) (iv) Description of content and method of implementation; Business plan and market development; Demand for labor; Assessment of socio-economic impact and efficiency of business plan. (3) Financial plan (attached with relevant respective financial documents 9 ), including: (i) Report on the results of business activities based 7 Article Article 12 9 According to Article 3.16, Decree 09, financial document can be one of the followings: (i) Commitment of financial support of parent company or financial institution; (iii) Guarantee on the financial capacity of the investor or foreign-invested economic organization; Other documents evidencing the financial capacity of the investor or foreign-invested economic organization. 5

6 on the latest audited financial (annual) statement in case the applicant has been established in Vietnam from one year; Explanation on capital, capital sources and capital mobilization plan. (4) Status of trading activities and relevant activities and financial status until the application time of enterprises with retail outlets in Vietnam which become entities required to have Business License (as mentioned in Item 2 above). Documents proving no overdue taxes in cases where the applicant has been established in Vietnam for at least one year; Estimated timeline for obtaining Business License 8. Refusal of granting Business License Normally: 10 working days In case of consulting the MOIT and relevant ministries: around one month. DOIT refuses to issue Business License in one of the following cases: Not qualifying conditions required in Decree 09; Operation term of the project of conducting trading activities and relevant activities expires; or FIE requests the issuance of Business License within 2 years from the date its Business License was revoked. ESTABLISHMENT LICENSE OF RETAIL OUTLETS (OUTLET LICENSE) 9. Definition of a retail outlet in addition to the first one (Additional Store) 11 An Additional Store is a store which is: Established in Vietnam by foreign investors or the FIE already has retail outlet(s) in Vietnam; or 10 Previously, Decree 23 required a document from the relevant tax department regarding the performance of corporate income tax obligations for the two preceding years. 11 Article 3.9 6

7 Established under the same name or brand with at least one retail outlet owned by an FIE in Vietnam. 10. Entities required to obtain Outlet License Please refer to Item 2 above. 11. Term of the Outlet License 12 Equal to the remaining term of IRC establishing retail outlets; In case of no IRC, equal to the term in the documents relating to retail outlet s location; Competent licensing authorities 14 The DOIT of the relevant province will be responsible for issuance, re-issuance, amendment and revocation of Outlet License. IMPORTANT NOTE: Consulting the MOIT before issuance and amendment of the Outlet License is required. 13. Conditions to establish retail outlets 15 (d) Having financial plan to establish a retail outlet; Having no overdue taxes in case the applicant have been established in Vietnam for at least one year; Location of the retail outlet must comply with the relevant master plans of geographical market region (Geographical Region); and Meeting the criteria of the Economic Needs Test (ENT) if required; 14. ENT exemption Any retail outlet: having area of less than 500m 2 ; established in a trade center; AND 12 Article According to Article 3.17, Decree 09, documents of the location for establishing retail stores can be one of the following: (i) Memorandum or Lease Contract regarding retail store s location; Document proving that the foreign-invested economic organization has the right to use such location; 14 Article 8 15 Article 22 7

8 NOT in the form of a convenience store or mini supermarket. 15. ENT criteria (1) Scale of the Geographical Region being affected when the retail store operates; (2) Quantity of retail stores currently operating in the Geographical Region; (3) Impact of retail stores on market stability and business operation of retail stores and traditional markets in the Geographical Region; (4) Effect of retail stores on traffic density, the environment, fire prevention, and fire fighting in the Geographical Region; (5) Contribution of retail store to the socio-economic development of the Geographical Region, particularly: (6) Creating jobs for local employees; (7) Contributing to development and modernization of retail sector in the Geographical Region; (8) Improving the environment and living conditions of population in the Geographical Region; and (9) Contribution to the State s budget. 16. Application dossiers new requirements 16 Detailed explanation on retail outlet to be established, including the following items: (1) Explanation on the location (attached with documents of the location), including: (i) Description of relevant gross area and area used for establishing retail outlet; Explanation on satisfaction of the conditions required; 16 Article 27 8

9 (2) Explanation on business plan, including: (i) (iii) Business plan and market development; Demand for labor; Assessment of socio-economic impact and efficiency of business plan. (3) Explanation on financial plan (attached with financial documents 17 ), which shall include: (i) Report on the result of business activities based on the latest audited financial (annual) statement in case the applicant has been established in Vietnam for at least one year; Explanation on capital, capital sources, and capital mobilization plan. 17. Notes of procedures for obtaining Outlet License Documents proving no overdue taxes in case the applicant has been established in Vietnam for at least one year; and Explanation for satisfaction of ENT criteria as provided. Applying for Outlet License occurs after the Business License is obtained. Exemption: obtaining the Outlet License for the first retail outlet which is located in the same province with the applicant s head office may occur at the time of application for the Business License. In the cases where ENT is required: clearer procedure to set 17 According to Article 3.16, Decree 09, financial documents can be one of the following: (i) Commitment of financial support of parent company or financial institution; Guarantee on the financial capacity of the investor or foreign-invested economic organization; (iii) Other documents evidencing the financial capacity of the investor or foreign-invested economic organization. 9

10 up ENT committee that will be responsible for assessing retail outlets locations based on the provided ENT criteria. 18 The ENT committee s assessment results are grounds for the MOIT and relevant DOIT to consider issuing Outlet License. Applying for Outlet License for existing retail outlets (of local enterprises becoming entities required to have Business License): 19 separate procedure with dossiers similar to other cases of applying for Outlet License. There is NO procedure to set up ENT committee during this process. 18. Estimated timeline for obtaining Outlet License Practical note: As verbally confirmed by an MOITs officer (which would be subject to further interpretation and application of competent authorities): an enterprise may apply for Outlet Licenses for all of its retail outlets concurrently; existing retail outlets may continue operating, but the enterprise should submit an official letter to DOIT when applying for Outlet License to note and ask for DOIT s confirmation on this matter. In case of first outlet and ENT exemption, 20 working days In the cases ENT is required: around 2 3 months In the cases of existing retail outlets (of local enterprises becoming entities required to have Business License and Outlet License): around 2 months 19. Refusal of granting or extending the Outlet License The DOIT may refuse to grant or extend the Outlet License in the following cases: (i) Not meeting the qualifying conditions required in Decree 09; The operating term of the project for establishing retail outlets expires; 18 Articles 24 and Article 38 10

11 (iii) FIE requests for issuance of Outlet License within 2 years from the date its Outlet License was revoked. 11

For more information about any of these legal briefs, please contact the authors: Mr. Hong Bui Corporate, M&A Hong.bui@lntpartners.com Dr. Net Le Banking & Finance Net.le@LNTpartners.com Ms.

12 For more information about any of these legal briefs, please contact the authors: Mr. Hong Bui Corporate, M&A Dr. Net Le Banking & Finance Ms. Quyen Hoang Corporate, M&A Dr. Tuan Nguyen Competition, Pharmaceutical Dr. Vinh Nguyen Dispute Resolution Mr. Binh Tran Real Estate & Infrastructure Mr. Su Tran Dispute Resolution Mr. Thuy Nguyen Corporate, M&A For further information, please contact: Ho Chi Minh City Head Office Unit 03, Level 21, Bitexco Financial Tower No.02 Hai Trieu Street, District 1 Ho Chi Minh City, VIETNAM Tel: Fax: Hanoi Office Level 12, Pacific Place No 83B Ly Thuong Kiet, Hoan Kiem District, Hanoi, VIETNAM. Tel: Fax: LNT & PARTNERS ( LNT ) is a full-service independent Vietnam law firm, which focuses on advisory and transactional work in the areas of corporate and M&A, competition, pharmaceutical, real estate, infrastructure and finance as well as complex and high-profile litigation and arbitration matters. The firm is among Vietnam s most prominent, representing a wide range of multinational and domestic clients, including Fortune Global 500 companies as well as well-known Vietnamese listed companies. For more information about any of these legal briefs, please contact the individual authors or your usual LNT contact. Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners. 12

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