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Establish a 100% foreign-owned company in the retail industry!

Retail is the selling of goods to other individuals, households, or organizations for consumption purposes. It is one of the potential fields, attracting not only domestic investors but also the attention of foreign investors. Many foreign investors have been exploring access to our country’s retail market. So for foreign investors to establish a 100% foreign-owned company in the retail industry in Vietnam, what conditions and procedures are needed? According to the article below, let’s find out the current provisions of the law in this article.

1. Legal bases related to the establishment of a 100% foreign-owned company in the retail industry

The Investment Law 2020;

The Enterprise Law 2020

The Commercial Law 2005;

Decree 31/2021/ND-CP guiding The Law on Investment;  

Decree 09/2018/ND-CP detailing The Law Commercial and The Law on Foreign Trade Management on goods purchase and sale activities and activities directly related to goods purchase and sale by foreign investors and foreign-invested economic organizations in Vietnam.

Decree 01/2021/ND-CP on business registration;

Circular 01/2021/TT-BKHDT guiding on business registration;

Ordinance on Foreign Exchange Control 2005;

Circular 06/2019/TT-NHNN guiding foreign exchange management for foreign direct investment activities in Vietnam.

2. Some related concepts

Clauses 19 and 22 Article 3 of The Investment Law 2020 stipulate the concept of foreign-invested economic organizations as follows:

Foreign investor means an individual holding a foreign nationality or an organization established under foreign laws and carrying out business investment activities in Vietnam.

Foreign-invested business entity means an entity whose members or shareholders are foreign investors.

In addition, Clause 7 Article 3 of Decree 09/2018/ND-CP stipulates: “Retail is the sale of goods to other individuals, households, and organizations for consumption purposes”.

3. Conditions for establishing a 100% foreign-owned company in the retail industry

3.1 Regarding market access conditions for foreign investors

Foreign investors investing in Vietnam must satisfy market access conditions for foreign investors by Vietnamese law. Accordingly, by Section B of Appendix I of Decree 31/2021/ND-CP on the list of industries and trades restricted from market access for foreign investors, the Retail service business is one of the industries and trades with conditional market access for foreign investors. For investment and business activities in the retail sector of foreign investors, when accessing the market, depending on the nationality of the investor and specific industries, conditions will be applied according to international agreements and treaties to which Vietnam is a contracting party.

Currently, according to WTO commitments, Vietnam commits to the following services: foreign investors are allowed to establish 100% foreign-owned companies:

– Retail services (CPC 631, 632, 61112, 6113, 6121)

– Commission agency services (CPC 621, 6111, 6113, 6121)

Note, for goods such as cigarettes and cigars, books, newspapers and magazines, recorded items, precious metals and precious stones, pharmaceuticals, explosives, crude and processed oil, rice, cane sugar, and beet sugar are excluded from the scope of commitment.

3.2 Conditions for retail business activities for foreign-invested economic organizations

After establishing a company to satisfy the conditions for retail business, a foreign-invested economic organization must apply for a business license and a license to establish a retail establishment in case it establishes a retail establishment.

Under Article 9 of Decree 09/2018/ND-CP stipulates conditions for issuing Retail business license as follows:

a. A foreign investor from a country or territory which has acceded to a treaty to which Vietnam is a signatory and under which Vietnam has committed to open its market for the sale of goods and other related activities shall- Satisfy the conditions on market access in treaties to which Vietnam is a contracting party

– Meet market access conditions prescribed in international treaties to which Vietnam is a signatory;

– Acquire a financial plan deemed qualified to apply for a business license;

– Incur no overdue tax in a case where it has been established in Vietnam for at least 1 year.

b. A foreign investor not from a country or territory which has acceded to a treaty to which Vietnam is a signatory shall

– Acquire a financial plan deemed qualified to apply for a business license;

– Incur no overdue tax in a case where it has been established in Vietnam for at least 1 year;

– Meet the criteria below:

+ By special law;

+ In conformity with the extent of competitiveness of domestic enterprises within the same sector;

+ Employment creation for domestic workers;

+ Potential and actual contribution to the state budget.

c. In case of services for which Vietnam has not committed to open its market as specified in international treaties to which Vietnam is a signatory

– Meet market access conditions prescribed in international treaties to which Vietnam is a signatory;

– Acquire a financial plan deemed qualified to apply for a business license;

– Meet the criteria below:

+ By special law;

+ In conformity with the extent of competitiveness of domestic enterprises within the same sector;

+ Employment creation for domestic workers;

+ Potential and actual contribution to the state budget.

According to Article 22 of Decree 09/2018/ND-CP conditions for setting up retail outlets are as follows:

– Setting up the first retail outlet:

+ Acquire a financial plan for setting up retail outlet;

+ Incur no overdue tax in a case where it has been established in Vietnam for at least 01 year;

+ The location where the retail outlet is set up is conformable with the relevant planning in the relevant geographic market.

– Setting up retail outlet other than the first retail outlet:

+ In the case without requiring compliance with an economic needs test: Meet the conditions prescribed in Clause 1, Article 22 of Decree 09/2018/ND-CP.

+ In case of requiring compliance with an economic needs test:

++ Meet the conditions prescribed in Clause 1, Article 22 of Decree 09/2018/ND-CP;

++ Meet the criteria for economic demand inspection specified in Clause 2, Article 23 of Decree 09/2018/ND-CP.

4. Order and procedures for the establishment of a 100% foreign-owned company engaged in goods retail business

For cases where foreign investors are allowed to establish enterprises mentioned above, foreign investors shall carry out the order of enterprise establishment procedures by the provisions of  The Law on Investment 2020, The Law on Enterprise 2020, Decree 01/2021/ND-CP, Decree 31/2021/ND-CP and relevant laws.

Step 1: Apply for an Investment Registration Certificate

According to Point a, Clause 1, Article 37 of The Law on Investment 2020, investment projects of foreign investors (in this case, the establishment of a company in Vietnam to do business in the retail sector) are required to apply for an Investment Registration Certificate.

Procedures for applying for an Investment Registration Certificate shall comply with the provisions of Article 38 of, Article 36 of Decree 31/2021/ND-CP.

Refer to the procedure:

Procedures for issuance of investment registration certificates for projects not subject to the approval of investment policies

Step 2: Carry out business establishment registration procedures

According to the provisions of Article 22 of The Investment Law 2020, after carrying out the procedures for issuance of investment certificates, foreign investors shall register the establishment of enterprises according to the type of enterprise chosen by them.

Procedures for enterprise establishment registration shall be carried out by Decree 01/2021/ND-CP, Circular 01/2021/TT-BKHDT.

Refer to the procedure:  

New establishment registration for a one-member limited liability company owned by the organization

Registration of new establishment of a one-member limited liability company owned by an individual

Registration of a limited liability company with two or more members

Registration of establishment of a joint stock company

For more: Comparison of limited liability companies and joint stock companies according to The Law on Enterprise 2020

Step 3: Apply for a business license and a license to set up a retail outlet in case of setting up a retail outlet

The order of procedures for issuing business licenses to foreign-invested economic organizations according to the provisions of Articles 13, 20, and 28 of Decree 09/2018/ND-CP.

See administrative procedures:

Issuing business licenses to foreign-invested economic organizations to exercise the right to the retail distribution of goods

To issue business licenses to foreign-invested economic organizations to exercise the right to the retail distribution of goods such as rice, sugar, video recording articles, books, and magazines

Issuance of business licenses simultaneously with licenses for setting up retail establishments

5. Some issues to note when establishing a 100% foreign-owned company in the retail industry

Firstly, after completing the company registration process, the investor needs to engrave the business seal, hang the company sign at the head office, submit the initial tax return; purchase e-invoices and issue invoice issuance notices; Open an account and notify the bank account number to the tax authority.

Secondly, after establishment, the enterprise must open a direct investment capital account so that the owner/member/shareholder must be a foreign investor contributing capital to the enterprise. The opening and use of direct investment capital accounts shall comply with Ordinance On Foreign Exchange Control 2005 and Circular 06/2019/TT-NHNN.

Thirdly, according to the provisions of The Enterprise Law 2020, the owner/ member/shareholder must contribute capital to the company in full and in the right type of committed assets when registering for the business establishment within 90 days from the date of issuance of the Certificate of Business Registration, excluding the time for transportation, import of assets contributed as capital, carry out administrative procedures to transfer ownership of assets.

Fourth, for the retail field of goods, in addition to applying for business licenses and licenses for setting up retail establishments as prescribed, enterprises should note that they meet the conditions and apply for relevant licenses during operation (if any).

Fifth, reports of foreign-invested business entities in Clause 1, Article 40 of Decree 09/2018/ND-CP, as follows:

– Annually, before January 31, a foreign-invested business entity shall send a report on sale of goods other related activities using form No. 13 of Appendix with this Decree.

See sample:  Report on the implementation of goods purchase and sale activities and activities directly related to goods purchase and sale form No. 13 issued together with Decree 09/2018/ND-CP

– The foreign-invested business entity shall report, provide documents and represent matters relating to sale of goods and other related activities, and retail outlet operation at the request of competent authorities.

Read more:

Regulations on the conversion of loans to investment capital for companies with 100% foreign capital borrowed from the parent company

Procedures for granting business licenses to foreign-invested enterprises

 What is a business license, conditions, and procedures for issuing a business license in 2021

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