.jpg)
Introduction
In the midst of the global economic downturn post-pandemic, retail investment in Vietnam is still forecasted to be a potential growth. As markets grow and consumer behaviors continue to shift, businesses in the retail sector find themselves at the forefront of innovation and adaptation. This article endeavors to provide a comprehensive exploration of the prevailing laws in Vietnam applied for foreign-invested companies and the new opportunity that awaits retail enterprises in 2024.
2. Governing regulations
2.1 Conditions for retail activities
In general, the retail industry in Vietnam has been accessible to foreign investors since the establishment of the World Trade Organization (WTO) and later Free Trade Agreements (FTAs) between Vietnam and various nations or regions. Commencing on January 1, 2009, investors gained the freedom to engage in distribution activities, encompassing wholesale and retail, without constraints on contribution capital ratios.
However, it is imperative to note that retail operations remain subject to certain conditions for foreign-invested companies (FICs) in Vietnam. Such conditional business lines can be undertaken only by established FICs that fulfill all legal requirements. Consequently, the initiation of retail activities mandates the procurement of a business license, commonly referred to as a trading license. Besides, entities retailing products through physical outlets are additionally obliged to secure a license for each newly established store.
It is noteworthy that an FIC is entitled to wholesaling and retailing of goods produced in Vietnam and goods imported legitimately to Vietnam. Investors are advised to consult their trusted advisors beforehand to ascertain whether the goods intended for retail align with the lists delineating items prohibited from import, temporarily halted from importation, or deemed ineligible for importation as specified in international treaties to which Vietnam is a signatory.
2.2 Setting up an FIC in retail businesses
2.2.1 Create a retail company
Establishing a retail company in Vietnam presents foreign investors with two primary avenues. The first entails initiating a new company by registering for an investment project and subsequently proceeding with enterprise registration, specifying retail as the designated business line. Alternatively, investors may opt for the acquisition of capital or shares in existing companies engaged in retail operations, commonly referred to as target companies.
Drawing from our experiential insights, it is advisable for investors to consider registering additional business sectors pertinent to retail. This strategic approach minimizes the need for subsequent amendments to the Enterprise Registration Certificate and/or the Investment Registration Certificate when expansion demands arise. By proactively including relevant business sectors during the initial registration process, investors can streamline administrative procedures and foster a more agile framework for future business development initiatives.
2.2.2 Obtain business license for retail activities
Following the above setting up process, the imperative next step involves the application for a business license, given that retail is categorized as a conditional business sector in Vietnam. The competent authority in this case is the Department of Industry and Trade (DOIT) within the jurisdiction where the company's headquarters is situated. Notably, the DOIT is mandated to secure approval and consultation from the Ministry of Industry and Trade (MOIT) and other relevant ministries, as dictated by legal prerequisites, prior to the issuance of business licenses.
The prescribed timeline for completing the business license acquisition process spans from one to two months according to regulatory provisions. However, practical realities may extend this timeframe, contingent upon various factors. These include the nature of retailed products, the intricacies of the business plan, financial projections, and the company's responses to queries and challenges posed by regulatory authorities.
2.2.3 Acquire licenses for setting up retail outlets
Subsequently, the FIC shall apply for the license to establish a retail store. It is crucial to underscore that, as mentioned earlier, each newly established outlet necessitates a separate license.
In cases where the first retail outlet is situated in the same central-affiliated cities as the company's headquarter, the FIC has the prerogative to concurrently apply for both the business license and the license for the establishment of the retail outlet. For clarity, the central-affiliated cities in Vietnam encompass Hanoi, Ho Chi Minh City, Danang, Hai Phong, and Can Tho.
For the establishment of the first retail outlets, the FIC must adhere to the following requirements:
Demonstrate a robust financial plan to facilitate the setup of retail outlets.
Maintain a clean tax record, with no overdue taxes, if the FIC has been operational in Vietnam for a minimum of one year.
Ensure that the location chosen for the retail outlet aligns with the planning of the relevant geographic market, ensuring conformity with regulatory guidelines.
Unless the outlet area is less than 500m2 and located in a shopping mall and not classified as convenience store or mini supermarket, from the second outlet, the FIC shall fulfill all criteria for an ENT (Economic Needs Test), including:
The scale of the relevant geographic market being affected by the to-be retail outlet;
The number of existing retail outlets in the relevant geographic market;
Impact of the retail outlet on the market stability and operating activities of other retail outlets and traditional markets in the relevant geographic market;
Impact of retail outlet on traffic density, environment hygiene, and fire safety in the relevant geographic market;
The potential contribution of the retail outlet to the socio-economic development of the relevant geographic market.
The Council for ENT assessment will be established by the provincial People's Committee where the retail outlets are located and upon the proposal of the local DOIT.
For this step, it is essential to highlight that whether the outlet falls under the Economic Needs Test (ENT) assessment or not, MOIT approval is mandatory. Consequently, investors should anticipate allocating a minimum of 23 working days for this process in an uncomplicated and optimal scenario. However, based on our practical experience, the actual timeline may extend to approximately 3 months or more. This variability is contingent upon several factors, including the complexity of the ENT assessment and the responsiveness of the regulatory framework.
3. New opportunity in 2024
Vietnam has recently solidified its position as a contracting member in two new-generation free trade agreements: the EVFTA, a comprehensive pact with 27 European Union members, and the CPTPP, a strategic alliance involving Vietnam and 11 other parties. Regarded as pivotal treaties, these agreements present Vietnam's commitment to opening its market at the most extensive and elevated level for foreign investors.
Delving into the realm of the distribution sector, especially retail, Vietnam has made significant strides. As part of its commitment, after 5 years from the effective dates of the CPTPP and EVFTA, the stringent ENT assessment requirement for retail outlets beyond the initial establishment will be eliminated. This transformative move, effective from January 15, 2024, for CPTPP member investors and August 1, 2025, for EVFTA member investors, simplifies the expansion of retail chains, liberating them from the ENT criteria.
In the current landscape, investors are strategically leaning towards opening retail outlets within department stores, maintaining areas under 500m2, or entering joint ventures with local entities in Vietnam to leverage exemptions from ENT requirements. The removal of ENT constraints presents a monumental opportunity for investors to harness the untapped potential of Vietnam's burgeoning economy. As we look toward the future, the prospect of an unencumbered retail expansion beckons investors to explore and capitalize on the country's remarkable growth trajectory.
Conclusion
In summary, the prospects for the retail industry in Vietnam in 2024 are rife with potential. Although chances will bring together challenges, as the retail sector in Vietnam continues to evolve, good preparation with strategic adaptability and foresight will be instrumental for success in the upcoming year.
#CPTPP #Vietnam #Exports #Growth #Opportunities #CPTPPSuccess #VietnamThrives #ExportBoom #CPPTPTurns5
Opmerkingen