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Franchise regulations in Vietnam

While franchising is very common in international trade practice, in Vietnam it was dealt with for the first time in the new Commercial Law which came into effect on January 1, 2006. Since the beginning of this year, the legal framework governing franchising activities has been completed with Government Decree n° 35-2006-ND-CP dated March 31, 2006 Providing Details on Implementation of Commercial Law with Respect to Franchising Activities and Trade Ministry Circular n° 9-2006-TT-BTM dated May 25, 2006 Providing Guidelines on Registration of Franchising Actitivities.
Under the Commercial Law 2006, franchising is defined as a commercial activity whereby a franchisor authorizes and requires a franchisee to conduct on its own behalf the sale and purchase of goods or provision of services according to the following conditions : (i) the sale and purchase of goods or provision of services must be conducted according to the busisness organisation as specified by the franchisor and be associated with trademark, trade name, business know-how, business statements, business logo and advertising of the franchisor ; (ii) the franchisor has the right to control and assist the franchisee in the conduct of the business.
Follow is some important features of franchise regulations in Vietnam:
 
Conditions to conduct franchising activities
Franchisors are subject to the following conditions:
  • Franchisor must be a lawfully established enterprise either in Vietnam or in a foreign country;
  • The franchise business system must have been in operation for at least one year. In case of primary franchise granted by a foreign to a Vietnamese business entity, sub-franchising can only be granted after the franchise business has been operated by the Vietnamese entity for least one year;
  • The franchising activity must have been registered with competent authority;
  • Goods and services which are subject of the franchise contract must not be prohibited from circulation in Vietnam; or if circulation is restricted or conditional the necessary conditions for circulation must be satisfied (i.e. business license).
Franchisees must have a business registration which is appropriate for the franchise business.
Franchise contract
 
Franchise contracts must be made in writing or in other legally equivalent form. They are required to be in the Vietnamese language, except for outbound franchise (in such cases the parties may choose another language). The term of a franchise contract and the franchise fee are open to negotiation between the franchisor and the franchisee.
Unless the parties otherwise agree, a copy of franchise contract and a copy of the franchise description document must be sent by the franchisor to the franchisee at least 15 days before the signing date of the franchise contract. The franchise description document should be presented in the form provided in Appendix III of Circular 9, which requires many details, including information about the franchisor, trademarks/intellectual property rights, initial costs of the franchisee, other financial obligations of the franchisee, initial investment of the franchisee, obligations of each party, the market, the franchising system, financial report of the franchisor…
Where the Vietnamese law is applicable, the franchise contract may include : (i) details of franchise rights; (ii) rights and obligations of the franchisor; (iii) rights and obligations of the franchisee; (iv) franchise price, periodic franchise fee and method of payment; (v) Term of franchise contract; (vi) renewal, termination of franchise contract and settlement of dispute.
Licensing of industrial property rights should constitute a seperate part in a franchise contract and should be in compliance with the law on industrial property.
 
Registration of franchising activity
 
Franchising activities must be registered with compent authority by the franchisor prior to granting franchise (i.e. registration of each contract is not required). The Ministry of Trade is responsible for registration of outbound and inbound franchising activities, while the Department of Trade and Department of Tourism of cities and provinces are competent for registration of domestic franchising.
The application file for registration should include:
  • Application according to a form provided in Circular 9 (the form varies slightly depending on whether the application is made with the Ministry of Trade or Department of Trade);
  • Franchise description document according to a form also provided in Circular 9;
  • Notarized copy of the business registration or a lawfully equivalent document;
  • Notarized copy of certificates of protection of industrial property rights in Vietnam or in foreign countries if the franchise include licensing of industrial property rights;
  • Approval from the primary franchisor to the sub-franchise in case of sub-franchise.
The registration body has obligation to register the franchising activity or issue a refusal within 5 business days calculating from the date on which a complete application is filed and inform the applicant in writing of its decision. All information about registration of franchising activities should be published in the website of the Ministry of Trade.
(31/10/2006)