This content is from: Local Insights

Vietnam: Retail business for foreigners

Vietnam has kept distribution services, including retail business, open to foreign investors for years without any restriction. The only exception to this has been certain kinds of goods, such as rice, oil, medicines and cigarettes, which are monopolised by domestic enterprises, and the need for an application for the Economic Need Test (ENT) required for the opening of each individual retail shop by foreign-invested enterprises (FIEs).

However, the government recently voiced its intention to put more control on foreign investment in the retail business by, among other things, using the technical barrier of the ENT and imposing stricter control on FIEs operating in retail business.

In particular, on February 10 2017, the deputy prime minister issued instructions on measures to manage and develop the retail market and his comments on the draft of the decree to replace decree 23/2007/ND-CP, the main legislation governing the trading business of FIEs. The Ministry of Industry and Trade, Ministry of Finance, and Ministry of Planning and Investment were instructed to cooperate with other relevant ministries to, among other things: (i) instruct provinces and cities to comply strictly with regulations on licencing and administering the distribution and retail activities of FIEs via the strict application of ENT criteria, to control the development of retail networks of FIEs; (ii) inspect the operations of trading FIEs to prevent transfer pricing and tax evasion; (iii) refrain from granting exceptions for FIEs to trade goods which have not been committed by Vietnam; and, (iv) supplement regulations for controlling new investments by foreign investors, including investment by way of acquisition of domestic retail enterprises; and supplement the definition of 'foreign investor' and 'foreign-invested economic organisations' as prescribed under the Law on Investment in relation to the administration of investors and FIEs which enter into the retail market.

Given the above policy, the new decree which will replace decree 23 is expected to impose stricter conditions for foreign investment in retail business. Foreign investors should carefully monitor these developments when starting their retail business in Vietnam. Special care should be taken if they plan to use the acquisition scheme to obtain existing retail shops from domestic retail businesses because the authorities seem to have started keeping a particularly close eye on this kind of transaction.

HuongNguyen Thi Thanh Huong

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