FOREIGN INVESTORS INVESTING IN THE E-COMMERCE SECTOR IN VIETNAM NEED TO COMPLY WITH WHICH REGULATIONS?

With the advantage of large capital, many foreign investors are currently intensifying their investment activities in Vietnam in the e-commerce sector, aiming to explore a market full of potential and promise. Vietnamese law currently has clear regulations on the conditions and procedures for foreign investors to invest in Vietnam in the e-commerce sector. In this article, OTIS LAWYERS will provide some important notes for foreign investors when investing in Vietnam in this important investment field.

Regarding access conditions to the Vietnamese market

According to the provisions in Section B.55 of Appendix I issued together with Decree 31/2021/NĐ-CP, e-commerce activities belong to the list of sectors and industries subject to conditions for access to the market for foreign investors. Therefore, foreign investors need to fully understand the conditions for market access in the e-commerce sector in Vietnam, as stipulated in international conventions of which Vietnam is a member, as well as Vietnamese law.

Regarding international conventions: While the WTO does not make commitments regarding market access in the e-commerce sector, the CPTPP specifically stipulates that Vietnam reserves the right to apply and maintain any measures not compatible with Vietnam's obligations under Article XVI of the General Agreement on Trade in Services (GATS) of the WTO. Thus, it can be understood that in the e-commerce sector, Vietnam may stipulate market access conditions that foreign investors must comply with.

Regarding Vietnamese legal regulations: Based on Article 67c of Decree 52/2013/NĐ-CP, foreign investors choosing to invest in the e-commerce sector in Vietnam must meet two conditions regarding (i) Investment form and (ii) Security assessment opinion of the Ministry of Public Security in cases where foreign investors control at least one enterprise among the top five enterprises leading the e-commerce market in Vietnam in terms of e-commerce services. Specifically, as follows:

Firstly, regarding the investment form: Although e-commerce activities can be conducted through "electronic means connected to the internet, mobile telecommunications networks, or other open networks", foreign investors wishing to invest in Vietnam in the e-commerce sector still need to establish an economic organization in Vietnam or through capital contribution, share purchase, or capital contribution. Thus, fundamentally, foreign investors' investment in the e-commerce sector in Vietnam must go through a business entity (which may be an entity established or contributed capital, share purchase, capital contribution by the investor), and investment through a business cooperation contract form is not yet permitted.

Secondly, in cases where foreign investors control from one enterprise upwards among the top five enterprises leading the e-commerce service market in Vietnam according to the list announced by the Ministry of Industry and Trade, foreign investors must obtain the security assessment opinion of the Ministry of Public Security. For this case, investors need to pay attention to two issues: (i) What is "control", and (ii) Which enterprises belong to the top five enterprises leading the e-commerce service market in Vietnam.

For the first issue, according to the provisions in Clause 3, Article 67c of Decree 52/2013/NĐ-CP, foreign investors control enterprises operating e-commerce services when they fall into one of the following cases:

“a) It owns more than 50% of charter capital or 50% of voting shares of the enterprise;

b) It has the right to directly or indirectly decide to appoint, dismiss or discharge the majority or all of the members of the Board of Directors, Chairperson of the Board of Members, Director or General Director of the enterprise;

c) Investors have the right to decide on important issues in the business operations of the enterprise including selecting technology platforms, forms of business organization; selecting industries, professions, areas, forms of business; choosing to adjust the scale and sectors, professions of business; selecting forms, methods of mobilizing, allocating and using the business capital of the enterprise."

For the second issue, according to the provisions in Clause 5, Article 1 of Circular 01/2022/TT-BCT, the Ministry of Industry and Trade will annually announce the list of enterprises leading the market in the e-commerce service sector before March 15. Currently, this regulation does not specify the channel or means by which the Ministry of Industry and Trade will announce information about leading enterprises. However, investors can refer to e-commerce reports or white papers on e-commerce conducted by the E-commerce and Digital Economy Agency under the Ministry of Industry and Trade. In 2023, the "Vietnam E-commerce Report 2023" recorded a group of 05 leading enterprises in the e-commerce market including: Baemin, Be, Gojek, Grab, and Lazada.

Another issue that investors need to note comes from the provisions in Clause 2, Article 67a of Decree 52/2013/NĐ-CP. Specifically, this provision requires foreign traders, organizations with websites providing e-commerce services in Vietnam to register e-commerce activities and establish representative offices in Vietnam as prescribed by law or designate representatives by authorization in Vietnam. However, investors should note that this regulation applies to foreign traders, organizations with websites providing e-commerce services in Vietnam (or in other words, providing services across borders) without conducting investment activities in Vietnam. In case of investment in Vietnam, foreign investors must establish economic organizations or contribute capital, purchase shares, or contribute capital to economic organizations in Vietnam, as mentioned above.

Regarding subsidiary licenses, legal procedures for each type of e-commerce activity

In addition to being a sector and profession that foreign investors are conditionally allowed to access the market, according to the provisions in Section 59 of Appendix IV of the Investment Law 2020, e-commerce activities are also a business sector and profession with conditions.

Specifically, after foreign investors establish enterprises or contribute capital, purchase shares, or contribute capital to enterprises, enterprises with foreign-invested capital providing e-commerce services must carry out procedures for granting Business licenses to operate in accordance with the provisions at Point h, Clause 1, Article 5 of Decree 09/2018/NĐ-CP. This is the first "pass" for enterprises with foreign-invested capital to operate in the e-commerce sector in Vietnam.

A characteristic point of the e-commerce sector is the diversity of types of activities. According to Decree 52/2013/NĐ-CP as amended and supplemented by Decree 85/2021/NĐ-CP, e-commerce activities can be divided into five types, including: e-commerce websites for sales, e-commerce trading floors, online promotions, online auctions, and electronic contract authentication activities. Accordingly, depending on the type of e-commerce activity that enterprises with foreign-invested capital operate in Vietnam, subsidiary licenses, and procedures to be implemented will vary.

According to current regulations, if enterprises with foreign-invested capital operate e-commerce activities in Vietnam through sales websites, the procedure to be implemented is to notify e-commerce websites for sales if the website has online ordering functions. Meanwhile, if enterprises with foreign-invested capital provide e-commerce services through e-commerce trading floors, they need to carry out two procedures including: (i) Granting a license to establish a trading goods exchange and (ii) Registering to establish a website providing e-commerce trading floor services. Similarly, this is understood for other types of e-commerce activities, in which specific procedures for online promotions, online auctions, or electronic contract authentication activities are also specifically regulated in Decree 52/2013/NĐ-CP.

The above are some important notes for foreign investors to consider when investing in the e-commerce sector in Vietnam, related to market access conditions and procedures, licenses needed to be achieved when operating in Vietnam so that investors can consider and pay attention when conducting investment activities in Vietnam in this field.

For any questions or comments, please contact:

OTIS AND PARTNERS LAW FIRM

Office address: 2nd Floor, CT3 Building, Yen Hoa Park View Urban Area, No. 3 Vu Pham Ham Street, Yen Hoa Ward, Cau Giay District, Hanoi

Email: [email protected]

Hotline: 0987748111