This content is from: Local Insights

Vietnam: Foreign-invested distribution companies

In December 2015, the Ministry of Industry and Trade (MOIT) released official letter 12933/BCT-KH concerning the distribution activities of foreign-invested companies in Vietnam

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Ha Hoang LocTruong Huu Ngu

In December 2015, the Ministry of Industry and Trade (MOIT) released official letter 12933/BCT-KH concerning the distribution activities of foreign-invested companies in Vietnam. The two-page guidance presents additional obstacles for foreign investors wishing to engage in this attractive business area by acquiring shares in local trading companies.

First, the MOIT guides that, after being acquired by a foreign investor, a domestic distribution company will have to obtain a special business license that would not otherwise have been required. The MOIT does not set any threshold with respect to foreign ownership in the distribution company to apply this requirement. This could lead to a conservative and strict interpretation by local authorities such that even a distribution company with only one share owned by a foreign investor would be subject to this stringent rule. The MOIT also fails to exclude listed firms whose foreign shareholding fluctuates during each trading day.

Second, the MOIT stresses that a foreign-invested company may only carry out the distribution business after obtaining the special business license. Thus, a foreign-acquired company must suspend its distribution business during the time from the acquisition closing date to the date of issuance of its special business license. It will take 18 working days in law – and possibly much longer in practice – to obtain the license. The business interruption costs on distribution companies were not taken into consideration when the official letter was issued. In practice the licensing authorities have refused to receive an application for the business license before the relevant company becomes a foreign invested one.

Nevertheless, on March 2 2016, the MOIT proposed to the government that the current governmental decree guiding the distribution activities of foreign-invested companies (Decree 23/2007) be replaced. The MOIT is scheduled to submit this draft decree to the government in July 2016. This is an opportunity for the local business community and foreign investors to voice their concerns over the ministry's official letter. It is hoped that the MOIT will consider both local businesses and investors when drafting the new decree.

Ha Hoang Loc and Truong Huu Ngu

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