For foreign firms, registering a business and registering a franchise in Vietnam are two different things. In this article, we explore how firms can go about registering a franchise in Vietnam.
Normally, when a foreign firm starts a business in Vietnam, it must obtain an Investment Registration Certificate (IRC) by submitting an application dossier to the Ministry of Planning and Investment . In general, the application dossier is likely to take two to four months to prepare, and approval for the IRC, which is at the discretion of the relevant department, is generally announced within 15 days.
If a new foreign-invested company is being established together with an investment project, when the IRC is issued, the foreign investor will also have to apply for an Enterprise Registration Certificate (ERC). Although the laws stipulate that the licensing authority must issue an ERC within three working days, in practice, it often takes longer.
There is, however, an alternative for franchises. With an often shorter timeframe, simpler procedure, and reduced need for customization, registering as a franchise may be a better option.
1. Franchise registration requirements
Vietnamese traders or foreign traders aiming to engage in commercial franchising activities must undergo the process of registering such activities with the authorities. This is outlined in Decree 35/2006/ND-CP and supplemented by Decree 120/2011/ND-CP.
2. Completing a franchising registration dossier
Foreign firms that wish to operate a franchise in Vietnam must complete a registration dossier. This is outlined in Circular 09/2006/BTM and consists of the following components:
An application for the registration of franchising activities, utilizing form MD-1 outlined (an example is outlined in the circular).
+ A sample franchise brochure that encompasses the following information:
- Details about the franchisor, its organizational chart, members of the board of directors, the department responsible for franchising, and information in litigation related to its franchising activities in the past year;
- Information concerning franchise trademarks/services and intellectual property rights;
- Information about the initial costs to be borne by the franchisee, the additional financial obligations of the franchisee, and the franchisee’s initial investments;
- The franchisee’s obligations in terms of procuring or leasing equipment to comply with the franchisor’s specified business systems, as well as other financial obligations of the franchisee;
- Obligations of the franchisor before and during the contract, including training obligations, additional training courses, and decisions regarding the selection of business premises;
- An overview of the general market for the goods/services covered by the franchise agreement, along with market development prospects;
- Information about the franchisor’s franchise system, such as the number of operating franchises, discontinued franchisees, the number of signed, transferred, and terminated franchise contracts, among others; and
- A sample franchise contract encompassing the contract’s title, term duration, conditions for contract renewal, conditions for contract cancellation, obligations arising from contract cancellation, contract modification, conditions for contract transfer, regulations regarding cases of death, and disqualification of the franchisor/franchisee. (see also: Franchise Agreements in Vietnam: A Quick Guide)
+ The certificate of establishment or an equivalent document verifying the legal existence of the foreign trader.
+ Documentation proving the protection titles of industrial property rights in Vietnam or abroad.
+ Audited financial statements for the previous year.
+ Evidence of sub-franchise approval (if applicable).
3. Fees and costs for registering a franchise in Vietnam
In the past, the cost of establishing a franchise in Vietnam was US$703, as stated in Decision No. 106/2008/QD-BTC. However, this Decision was revoked in 2017. Presently, registration of franchising activities no longer incurs any costs or fees.
4. Processing franchise registrations in Vietnam
In accordance with Article 18 of Decree 35/2006/ND-CP (with certain provisions invalidated by Decree 120/2011/ND-CP), the current authority for registering franchises lies with the Ministry of Industry and Trade. This is usually with the support of provincial Departments of Industry and Trade.
The procedure for processing a franchise registration is as follows:
- The registration dossier is submitted to the Ministry of Industry and Trade or the Department of Industry and Trade in the province in which the application is being lodged.
- Within five working days of receiving complete and valid documentation, the relevant agency will register the commercial franchising activities in the commercial franchising register. They will also provide written notification to the trader regarding approval of the registration.
- In cases where the application is incomplete or deemed invalid, the relevant agency must issue a written notice to the intended franchisor. This notice will request them to supply additional information. It will be sent within two working days of receipt of the application.
- If the relevant agency refuses to register the franchise they must provide written notification to the intended franchisor. In this communication, they must clearly state the reasons for the refusal.
The registration procedures for contracts concerning the licensing of industrial property shall adhere to the provisions outlined in the legislation pertaining to industrial property.
5. Changing a franchise’s registered information
A notice of change of information needs to be sent to the authorities when there is a modification in the registered information, for example, a name change. This must be done where the original registration took place and within a period of 30 days. This includes modifications to any of the following documents.
From Decree No. 35/2006/ND-CP:
- Certifications validating the legal status of the franchisor; and
- The title of protection for industrial property rights in Vietnam or abroad, if applicable.
From Circular 09/2006/TT-BTM:
- The trade name of the franchisor;
- The address of the franchisor’s head office;
- Telephone and fax numbers (if applicable);
- The date of establishment of the franchisor;
- Indication of whether the franchisor is the original franchisor or a secondary franchisor;
- The business type of the franchisor;
- The field of the franchise;
- Details regarding the registration of commercial franchising at a competent authority;
- The right to utilize trademarks of goods/services and any other intellectual property possessed by the franchisee; and
- Comprehensive information regarding the registered goods/service marks and rights to intellectual property objects in accordance with the relevant laws.
6. Compliance and penalties
According to Article 75 of Decree 98/2020/ND-CP, which addresses infringements related to commercial franchising, penalties can be imposed for incompliance. Franchising without a contract, for example, may incur a fine ranging from VND 1,000,000 (US$43) to VND 3,000,000 (US$128). The following violations could lead to a fine ranging from VND 3,000,000 (US$43) to 5,000,000 (US$213):
- Providing inaccurate information in the contents of the commercial franchising registration dossier;
- Non-compliance with the primary contents of the franchise contract, providing dishonest or incomplete information when introducing the franchise;
- Providing incomplete or inaccurate information during franchising activities; and
- Neglecting to submit reports or provide documents as required.
The following violations may result in a fine ranging from VND 5,000,000 (US$213) to 10,000,000 (US$416):
- Failure to register commercial franchising activities;
- Engaging in franchising without meeting the prescribed conditions; and
- Neglecting to inform the relevant agency of changes in franchising activities.
The following violations may result in a fine ranging from VND 10,000,000 (US$416) to VND 30,000,000 (US$1248):
- Trading goods subject to conditional circulation regulations or goods requiring permits, without ensuring the necessary conditions or permits; and
- Continuing franchising activities after the expiration of the franchise contract’s term.
Remedial measures may include the compulsory return of illegal profits obtained from committing the infringements that are specified in Article 75.
It should be noted that if an organization violates these regulations, the fine imposed will be twice that of an individual.
Vietnam offers a promising environment for foreign investors looking to expand their businesses through franchising. With a well-defined framework for franchise registration and the support of the Ministry of Industry and Trade, the process of establishing a franchise in Vietnam has become more streamlined and investor-friendly.
Moreover, Vietnam’s growing economy, vibrant consumer market, and favorable investment policies make it an attractive destination for franchise expansion. By adhering to the registration requirements and leveraging the opportunities available, foreign investors can tap into the immense potential that Vietnam offers, fostering successful and mutually beneficial franchising ventures.
Author: Uyen Nguyen
Source: Vietnam Briefing