Part 1: Subjects and conditions for foreign countries franchising in Vietnam

Franchising is a prevalent business form in foreign markets. In Vietnam, franchising activities have grown rapidly in the fields of food, restaurants, catering, and, more recently, education and entertainment. Through franchising activities, the franchisee has the right to legally use the business process, trademark, slogan, etc. from the Franchisor. However, unlike domestic franchising activity, foreign franchising activity in Vietnam is strictly regulated and requires registration procedures with a competent state authority.

1. Understanding of franchising under Vietnamese law

According to Vietnamese commercial law, franchising is a commercial activity in which the franchisor grants the franchisee the right to conduct the purchasing and sale of goods according to the conditions agreed by the two parties, specifically:

– The franchisee’s activities, such as purchasing and selling goods or providing services, shall be executed under the franchisor’s method. Franchisee is allowed to label goods, trade names, use business secrets, business slogans, logos, advertisements, etc. of the franchisor.

– However, the law allows the franchisor to have control over the franchisee throughout the business process to ensure that the franchisee is not going against what was agreed to harm the franchisor’s brand.

2. Foreign countries’ franchising subjects in Vietnam

Franchise activities, or commercial franchising services, are currently recognized in the WTO Schedule of Commitments under CPC code 8929. According to WTO commitments, Vietnam is now accessible to foreign investor (franchisor) performing commercial franchising activities in the country.

Before 2009, Vietnam’s WTO commitments still maintained restrictions on this service industry. As a result, in order to perform the commercial franchising in Vietnam, investor were required to establish joint ventures with Vietnamese enterprises in which the percentage of foreign capital could not exceed 49%.

3. Conditions for Franchisor and Franchisee

To perform franchising operations in Vietnam, the foreign franchisor shall ensure the following conditions are met:

– The expected franchised business system has been in operation for at least one year;

– Registered commercial franchising with the Ministry of Industry and Trade.

For franchisee, currently, Vietnamese law does not set specific conditions for franchisee. Therefore, the business side in Vietnam – the legally established franchisee – is allowed to participate in franchising activities.

These are the most basic conditions, but depending on the specific case, the Ministry of Industry and Trade will require the parties to provide the following documents when registering commercial franchising in Vietnam: documents to prove intellectual property rights, the financial capacity of the franchisor.

4. Handling commercial franchising violations in Vietnam

Parties participating in commercial franchising activities who commit the following violations shall be administratively sanctioned under the law for handling administrative violations, based on the nature and seriousness of their violations:

– Doing business in franchising when the prescribed conditions are not met;

– Franchising prohibited goods and services;

– Violating the obligation to provide information in commercial franchising activity specified in this Decree;

– Information in the franchise introduction contains deceptive content;

– Violations of regulations on franchising activities registration;

– Failure to pay tax as prescribed by law without reaching the level of criminal prosecution;

– Failure to comply with requests of competent state authorities when conducting examination and inspection;

– If a trader doing business through franchising commits violations, causing damage to the material interests of related organizations and individuals, he/she must compensate for the damage in accordance with the law.

Franchising activities in Vietnam are currently quite strictly managed, therefore before performing any operations in Vietnam, the franchisor and the franchisee shall survey and evaluate the possibility of registering that franchise model in Vietnam or not. In the next article, we will share with you the issues surrounding the franchise contract and the procedures to be able to register for franchising in Vietnam.

Writing Time: 15/03/2023

The article contains general information with a reference value; if you want legal opinions on the issues you are facing, kindly inform our Lawyers via email at info@cdlaf.vn