Establishment of FDI company to carry out the E-commerce Services in Vietnam

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SBLAW would like to provide some advice on establishment of Foreign Invested Company to carry out the E-commerce Services in Ho Chi Minh City, Vietnam (hereinafter referred to as the “NewCo”).

 

1.PRELIMINARILY COMMENTS OF SBLAW INVESTMENT REGISTRATION PROCEDURES

 

According to Investment Law 2014, an investment in the form of the establishment of an economic organization will require a Foreign Investor to go through a two-step licensing process.

The first one is investment conditions and the second being business conditions (also known as business condition or baby permit). In summary, under applicable laws the following procedures need to be implemented:

  • Step 1: Apply and obtain an Investment Registration Certificate (IRC) for the investment project.
  • Step 2: Registration of a Foreign Invested Company conducting the investment project by obtaining Enterprise Registration Certificate (ERC) of the FIC; and
  • Step 3: Upon obtainment of IRC and ERC, the Foreign Invested Company has to apply additional Business Licenses for operating conditional activities as required by laws of Vietnam. For instance:

The NewCo has to register its E-Commerce Trading Floor Website (marketplace platform) with competent authority for officially conducting e-commerce services in Vietnam.

The NewCo has to register its E-Commerce Mobile Application with competent authority for officially conducting e-commerce services in Vietnam.

 

2.OTHER REQUIREMENTS SHOULD BE TAKEN INTO ACCOUNT

  • Foreign Ownership Limitation

Currently, having no activity so-called “E-commerce Services” stated in the Vietnam’s WTO Commitments on Services (“WTO Commitment”), therefore, having no provisions on foreign ownership limitation and/or market access restriction applicable to “Employment Services” in respect of foreign investment. It means this business is not committed by State of Vietnam to open market to foreign investors. In addition, Vietnam’s local laws and regulations are also silent on allowed foreign ownership limitation applicable to “E-commerce Services”.

In light of the above, and our practical experiences, we have below comments for your reference

  • Pursuant to the WTO Commitment, there is no clear legal basis to confirm the activity “E-commerce Services” is not permissible for foreign investors.
  • Based on applicable laws of Vietnam, the activity “E-commerce Services” is not subject to List of prohibited or restricted business in Vietnam.
  • Pursuant to the WTO Commitment and applicable laws of Vietnam, there is no clear legal basis to confirm the allowed foreign ownership limitation applicable to activity “E-commerce Services”, e.g. 49%, 51%, 100% or otherwise, assuming that activity shall be allowed to foreign investors.
  • Based on our practical experiences, there are Foreign Invested Company having 100% capital owned by Foreign Investor are allowed to incorporated in Vietnam.
  • Investment capital

The Vietnam law does not imply a minimum of required charter capital/investment capital for FIC carrying out “E-commerce Services” in Vietnam. However, the investment capital should be consistent with scale and purpose of investment project. The range varies from US$ hundred-thousand for the medium to US$ millions for big ones. The Foreign Investor could contribute investment capital by cash or fixed-assets like machinery, equipment, etc. or combination of those means.

  • Residency requirement to Legal Representative of Vietnam-based company

According to Vietnam Law on Enterprises, the Legal representative of Vietnam-based company is required to residing in Vietnam, as a resident. Under point of view of Tax Authority, a person can be deemed as “resident” if such person lives at least 183 days per year in the country; or if such person has obtained a so-called “Temporary Residence Card” in Vietnam. Thus, technically, if the foreign Legal Representative has “Temporary Residence Card” and made a “Power of Attorney” for assigning his/her rights and obligations to another person (usually another manager of the company), such foreign Legal Representative does not need to be physical presence (living) in Vietnam; however, he/she still must responsible for any decisions that their proxy made for and on behalf of them.

More importantly, once the Legal representative is deemed as a “resident in Vietnam”, annually he/she must to declare and finalize all of his/her global incomes and to pay taxes in Vietnam. For avoidance of this burden, some enterprises choose the “legal work-around” that they register two (02) Legal Representatives, the local one resides in Vietnam while the foreigner does not. The local Legal Representative which lives in Vietnam shall be limited his/her rights/obligations/duties against the company, e.g. he/she is not allowed to sign commercial contracts but corporate reports, etc. Therefore, the company’s operations and managerial matters shall be decided by the non-residing foreign Legal Representative.

In summary, we kindly suggest two (02) below options for your consideration:

In case of having 01 foreign Legal Representative, Work Permit and Temporary Residence Card must be apply and obtain for this person; OR

Having from 02 Legal Representatives upward, at least one of them is local and reside in Vietnam.

  • E-Commerce Trading Floor Website
  • Pursuant to Article 9.3 of Decree 52/2013/ND-CP defines “E-commerce trading floor is an e-commerce website permitting traders, organizations and individuals that are not the website owner to conduct part or the whole of the process of buying and selling goods or services on that website (not include online securities trading websites)”. In addition, Article 13 of Circular 47/2014/ND-CP stipulates that “traders or organizations operating in trade promotion or enterprise support, having e-commerce websites providing at least one of the following services: (i) E-commerce exchange services, (ii) Online promotion service, and (iii) Online auction services must register their e-commerce website to Ministry of Industry and Trade (Department of E-commerce and Information Technology)”.