The Ministry of
Industry and Trade issued Circular No. 08/2013/TT-BCT on April 22nd 2013
providing detailed regulations on sale and purchase of goods and activities
directly related to the purchase and sale of goods by enterprise with the
foreign invested enterprises (the FIEs) in Vietnam (Circular No. 08). This
Circular No. 08 took effect from June 07th 2013 and replaced Circular No.
09/2007/TT-BTM previously issued in July 2007 (Circular No. 09) on the same
subject.
The Circular No.
08 mainly focused on retail business and raised some M&A issues when buying
shares in a Vietnamese retail company, especially the definition of the foreign
invested enterprises (the FIEs).
With some
notable significant changes, e.g. more detailed and specific regulations on the
licensing conditions and procedures that the FIEs must satisfy to involve in its’
trading and distribution business in Vietnam; on the procedure and exemption
for the Economic Needs Test (the ENT) assessment, the Circular No.08 may bring
a transparency and clarity in the licensing process and minimize the
difficulties for the FIEs.
The Circular No.
08 provides some regulations on ENT assessment with new guidance on ENT
exemption, and ENT assessment committee. The Circular No.08 gives the power to
the ENT assessment committee but does not regulate how this committee operates
and how long it takes for the assessment. One of the basis to be exempted from
ENT is the local retail master plan but there is uncertain about the content
and criteria of this master plan.
However, there
are still cloudy provisions under Circular No.08 which may limit the rights of
the FIEs and interfere its business operation in Vietnam.
Accordingly, the
FIEs is only allowed to perform the sale and purchase of goods and the
activities directly related to the purchase and sale of goods as regulated
under the investment certificate, business license, Retail establishment
license.
While the Circular
No. 09 allows the FIEs to directly purchase goods in Vietnam to export to
abroad market, the Circular No.08 limits its right and only allows the FIEs to
directly purchase the goods from Vietnamese traders who have already acquired
business registration and import or distribution license for export. Meanwhile
it is also required that the FIEs is not allowed to organize goods purchasing
networks in Vietnam for export, including opening spots for collecting export
items, except for the cases that is in line with Vietnamese laws or
international treaties to which Vietnam is a signing party. The foresaid
limitation shall cause the FIEs many difficulties in attempting to export goods
and somehow affect on investment plan of the FIEs who may want to expand the
market in Vietnam and plan to make Vietnam become its’ commodities exchange
center.
In term of the
definition of the FIEs, the legal documents in Vietnam are inconsistent and
cause many uncertainties and anxieties to the foreign investor. Each legal
document has its own definition on the FIEs that lead to many ways of law
interpretation, especially, some state authorities have a extremely negative
point of view that the Vietnamese company which has only 1% foreign-investor
ownership, shall be considered as the FIEs.
The M&A
issue is not new but still interesting when they discussed about the definition
of the FIEs and raised the risks about licensing procedures. It is relevant to
the Circular No. 08 because this Circular regulates that the Vietnamese retail
company having foreign invested capital must follows with its' regulations.
This regulation can be interpreted as even the company having only 1% foreign
capital must also comply.
The case of
Mekophar is a typical example for the inconsistency in the laws of Vietnam.
Mekophar wanted to register for distribution and trading of the medical
products however the licensing authority in Ho Chi Minh city refused its’
application dossier since this HOSE-listed company has a 4.7% foreign-invested
capital (the foreign investor bought its’ shares on the securities market) and
under the applicable law, the FIEs are not allowed to distribute and retail the
medical products. Finally, Mekophar decided to delist from HOSE stock exchange
floor to restructure its capital contribution and try to re-submit to register
for distribution and trading rights.
The HOSE delist
of Mekophar happened but until now, there has not yet had a solution for this
case. Thus, the current inconsistent definitions of the FIEs are still causing
many obstacles and difficulties for the foreign investor to access Vietnam
market.
Another notable
issue is relating to a tax document when submitting the application dossier for
second retail outlet. The Circular No. 08 requires a certificate from tax
authority to have satisfied the tax contribution and complied the tax
obligation in the 02 precedent years. This is very uncertain because under the
applicable tax law does not regulates this documents.
To be concluded,
the Circular No. 08 brings a number of positive changes but is not yet a
reform. The main problem relating to lengthy licensing procedures is still
there and there is no fundamental change.