Franchising in Vietnam
With a population of over 90 million (65% of whom are under 35 years old), a fast growing per capita income, and a very dynamic emerging consumer class with a strong preference for foreign brands, Vietnam has emerged as one of the most attractive countries in Asia for franchisors seeking to expand their business. The Vietnamese market has become even more enticing since the country joined the World Trade Organization in 2007.
Even though franchising in Vietnam is still in its infancy, franchising activities have steadily increased since the adoption of the Commercial Law in 2005, which, for the first time, provided a legal framework for franchising. Despite the global economic slowdown, there has been a high level of interest from international franchisors in recent years. According to the state authority in charge of the management of franchise activities, the Ministry of Industry and Trade, as of January 2015, there were over 120 foreign franchisors registered in Vietnam. The dominant business sectors are food service, retail, education, and entertainment, with food and beverage franchises accounting for 30% of the registered franchises.
Franchising is governed by Section 8, Chapter VI of the 2005 Commercial Law (Articles from 284 to 291) and its implementing instruments, including:
- Decree No. 35/2006/ND-CP of the Government, which details the implementation of the Commercial Law with respect to franchising activities (Decree 35).
- Circular No. 09/2006/TT-BTM of the Ministry of Industry and Commerce, which provides guidelines on registration of franchising activities (Circular 9).
- Article 95 of Decree 185/2013/ND-CP of the Government, which provides guidelines on administrative sanctions for violations in commercial activities, the production of, and trading in, fake or banned goods and protection of consumer rights (Decree 185).
Conditions for Franchising
The following conditions must be satisfied before a franchisor can legally conduct franchising activities in Vietnam:
- The franchise system must have been in operation for at least one year. In the case of a Vietnamese subfranchisor, the Vietnamese business entity must have operated the franchised business for at least one year before it may begin subfranchising.
- The franchising activity must be registered with the Ministry of Industry and Trade.
- The goods and services that are the subject of a franchise agreement must not be on the List of Goods/Services Banned from Business (which is issued by the government). If they are on the List of Goods/Services Subject to Business Restriction (a separate list also issued by the government), a special business license must be obtained before franchising can begin.
- Franchisees must have a business registration that is appropriate for the franchised business.
The Franchise Agreement and Disclosure Document
A copy of the form of franchise agreement and the franchise disclosure document must be provided to the franchisee at least 15 days before the agreement is signed.
All franchise agreements must be in writing or in another legally equivalent form. With the exception of an outbound franchise, the agreements must be in Vietnamese. The franchisor and franchisee can negotiate the term of the franchise agreement and the franchise fees.
In order to satisfy Vietnamese law, a franchise agreement should include: (1) details of franchise rights; (2) the rights and obligations of the franchisor; (3) the rights and obligations of the franchisee; (4) the franchise price, periodic franchise fee, and method of payment; (5) the term of the franchise agreement; and (6) renewal, termination, and dispute resolution procedures. The licensing of industrial property/intellectual property rights may be dealt with in a separate agreement and is governed by the Law on Intellectual Property.
The required franchise disclosure document (called "Introduction of the Franchise Business") is very different from the US Franchise Disclosure Document and should be prepared in accordance with Circular 9, which requires specific details. Its compulsory contents include:
- Part A, which must contain general information about the franchisor, including its trade name, address, telephone/fax (if any), date of establishment, whether the franchisor is a primary or secondary franchisor, form of business, business lines and information about registration of franchise activities, and details about trademarks/intellectual property rights.
- Part B, which must contain certain corporate operational information about the franchisor, such as its organizational structure, information about members of its Directors' Board, its experience in the field of franchise business, litigation related to the franchising activities, initial costs of the franchisee, other financial obligations of the franchisee, initial investment of the franchise; obligations of each party, the market, the franchising system, and financial reports of the franchisor.
The franchisor also must promptly inform all franchisees about any important change in the franchising system that may affect the franchisees' business.
Registration of Franchising Activities
A franchisor must register with the competent authority before granting franchises in Vietnam. The Ministry of Industry and Trade (formerly the Ministry of Trade) is responsible for registration of outbound and inbound franchising activities, while the Department of Industry and Commerce of cities and provinces are responsible for registration of domestic franchising. A franchisor that fails to register its franchise activities is subject to administrative sanctions, including fines ranging from 10 to 30 million Vietnam dongs (approximately US $460-$1,380).
The franchise registration filing must include:
- Introduction of the Franchise Business containing the information as required by Circular 9 and described above.
- Copy of the certificate of business registration or a lawfully equivalent document.
- Copy of certificates of protection of industrial property rights in Vietnam or in foreign countries if the franchise includes a license of industrial property rights.
- Approval from the primary franchisor to the subfranchisee in case of a subfranchise.
- Other documents required by the competent authority (including the franchise agreement or form of agreement).
Documents issued in a foreign country must be notarized and legalized.
Once registered, a franchisor must report any changes in the general information about the franchisor and/or changes affecting the relevant industrial property rights (i.e., changes in Part A) to the competent authority within 30 days after the date of change. In addition, by each January 15, a franchisor must file an annual report with the competent authority on the matters contained in the disclosure document.
Dang Thi Hong Nga is a partner of D&N International in Hanoi, Vietnam. She represents many Vietnamese and international franchise systems and regularly advises about international expansion to Vietnam. Robert A. Smith is a partner and chair of the Franchise Group at Wiley Rein LLP. Maureen A. O'Brien is special counsel at Wiley Rein LLP.
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