Vietnam updates regulations to attract foreign investment in retail industry.
On 22 April 2013 the Ministry of Industry and Trade (MOIT) issued Circular 08/2013/TT-BCT (Circular 08) outlining an attempt to bring back foreign investors’ confidence in the Vietnamese retail market and enhance the foreign investment in this sector.
The Circular 08 provides detailed regulations on import, export and trading of goods by Foreign Investment Enterprises (FIE) in Vietnam, and will go into effect from 7 June 2013. This is a replacement of the previous Circular 09/2007/TT-BTM (Circular 09) which was issued in July 2007.
Circular 08 has further specified regulation on licensing processes and the assessment process of the Economic Needs Test (ENT) for foreign investment enterprises (FIE) that wish to start a retail/trading business or open up an additional retail outlets in Vietnam.
FIEs will have to apply for a business license which will be issued based upon the activities that they are planning to undertake in Vietnam. FIEs are only permitted to set up ONE retail outlet. Establishing additional retail outlets will be the subject to an ENT assessment by the licensing authorities.
Exemption for smaller retail outlets
Circular 08 provides exemptions from the ENT application process for certain retailers. FIE that wish to open additional retail outlet with a floor space of less than 500sqm. will be exempt from the ENT assessment, provided that the the outlet will established in certain areas designated by the local government, such as shopping centers, office buildings or other city areas that have been designated for trading activities.
More transparent Licensing and ENT assessment procedures
Circular 08 has set out clear details of the requirements for the business license applications for distribution and retail activities and the ENT assessment, in order to ensure the licensing process will be more transparent. Each province and/or centrally governed city will form an Economic Needs Assessment Committees ( ENAC) that will determine whether or not the additional outlets meet the ENT requirements. The ENAC will consist of representatives from different regulating bodies at the relevant provincial level. There is no indication on how long the application process will take.
Rules for foreign M&A
Circular 08 also confirms that when a foreign company takes a majority share in a Vietnamese trading company, the company will be the treated as an FIE and will be subject to the additional licensing procedures and requirements as stated in the Decree 23 and the Circular 08. This may lead to additional licensing steps and business restrictions.
FIEs rights to export imported goods
FIEs that have export rights are now also allowed to export goods imported by and purchased from other companies, while FIEs with import rights can sell their imported goods to other FIEs with export rights
There will be an increase level of government scrutiny concerning the performance of the existing business operated by FIEs. When applying for amendment of its Investment Certificate, the FIE will need to submit a dossier that includes evidence from tax authorities over the past two years.
The new regulations and guidelines as mentioned in Circular 08 will reduce some difficulties and uncertainties for FIEs, and improve the transparency of the relevant application processes. The exemption provided is a significant development that could help foreign investors to expand and increase their commitment to the Vietnamese market.