Doing Business

Franchise Agreement and Business in Vietnam

Nora Setiawan

January 19, 2021

Doing Business

Franchise Agreement and Business in Vietnam

Nora Setiawan

January 19, 2021

Franchise is indeed a mainstream business worldwide, including Vietnam. It also has a long-term perspective in the country. Many popular foreign brands are attracted by the business expansion there, while the local Vietnamese investors are looking for the opportunity to operate the business under the well-known brands that Vietnamese are familiar with. Another fact to add, there are a lot of famous franchise brands in Vietnam, such as KFC, Lotteria, Pizza Hut, Burger King, McDonald’s, The Coffee Bean & Tea Leaf, 7-Eleven, and Baskin-Robbins. 

Therefore, the government has been working to create a friendly environment to do franchise business by easing the franchise regulations and processes, expecting the business will grow even more significantly. This article will provide you in-depth information all related to franchise business and agreement in Vietnam.

Who Can Open a Franchise Business in Vietnam?

In August 2019, the total number of both local and foreign franchise businesses in Vietnam were recorded at 213. 

Based on the franchising law in Vietnam, there are the eligibility criteria on who can open a franchise in the country:

  • Franchise business from a Vietnamese franchisor to a foreign franchisee.
  • Franchise business from a foreign franchisor to a Vietnamese franchisee.

A franchise agreement must be signed and registered. If the agreement does not exist and is not registered, both parties will be fined.

There are conditions that both franchisors and franchisees have to meet these criterias. For franchisors, the franchisor’s business must be in operation for a significant period, minimum of 1-year. In addition, the franchisor must obtain written approval from the Ministry of Industry and Trade.

On the other hand, the franchisee must register their business in relevant sectors with regard to their franchise business in Vietnam. For a master franchisee in Vietnam to sub-franchisee to another party when permitted by the franchisor, the master franchisee must also have been operating for at least 1-year before the sub-franchising is conducted.

How To Start a Franchise Business in Vietnam?

In accordance with Decree No. 8/2018/ND-CP, before individuals or organizations can start a franchise business, they must follow these requirements:

  1. The franchise system must have been in operation for a minimum of one year.
  2. A master franchisee in Vietnam must also have been operating for at least a year before there is any sub-franchise.
  3. Products and services offered by the franchise business must not be on the list of prohibited products and services issued by the Vietnamese government. Here are the prohibited items list:
  • Weapons
  • Toxic minerals
  • Addictive drugs
  • Harmful and dangerous toys to children
  • Wild animals
  • Plants
  • Environment-polluting imported scarps
  • Marriage broker services
  • Organised gambling
  • Adoption broker services
  1. Certain franchise products and services must have special business licenses.
  2. The franchisor must register its franchise with the Vietnamese Ministry of Industry and Trade, then submit required documents such as its disclosure document and franchise agreement, except for the cases in which registration of commercial franchising is not required.
  3. The franchisor must also submit an annual report and update of any franchisees’ changes to the Ministry of Industry and Trade.
  4. You must prepare the following required documents to register your franchise business in Vietnam:
  • Franchise agreement
  • Power of attorney
  • Franchise registration application form
  • Audited reports from the previous year
  • Introduction of the franchisor
  • Business certificate of the franchisor
  • Trademark or copyright certificate
  • Approval or permission document from the primary franchisor.

There is one thing that you need to remember, when you are expanding to Vietnam as a franchisor, you need to register your trademark with the National Office of Intellectual Property of Vietnam in order to keep your brand safe.

If you want to know more about how to set up a franchise business in Vietnam, you can read here.

Franchise Agreement in Vietnam

A Franchise agreement is an important part when you want to start a franchise in Vietnam. Moreover, a franchise agreement in the country is a compulsory commercial agreement that is signed between a franchisor and a franchisee. However, this franchise agreement must be in Vietnamese language. 

The agreement indicates that the franchisee can buy or sell goods and services on its own, as long as the purchase and sale of products and services are performed based on manners that is specified by the franchisor, such as trade names, trademarks, business logos, business slogans, and advertising.

It can be said that the franchisor has the right to assist the franchise or take charge of running the business.

Generally, a franchise agreement shall cover the commercial rights for franchise, also the rights and obligations of both the franchisee and the franchisor. In addition, the agreement will include how much the franchise is free along with the valid period and payment method, period of effectiveness of the agreement. Lastly, terms and conditions for contract extension or termination, and what to do when conflicts arise must be mentioned in the franchise agreement.

The franchise agreement can be renewed, but the law does not designate any conditions in terms of the contract or renewal of the contract. Nonetheless, this should be negotiated by the parties. For this reason, you should examine all agreements very carefully to avoid costly inconveniences in the future.

Taxes on Franchising in Vietnam

One thing that you should not forget is paying taxes on franchising in Vietnam. Even if you are a foreign contractor and do not register a company in Vietnam, but still collecting fees from the franchisees, therefore, you are subject up withholding tax on any fees collected, including:

  • Franchise fees
  • Royalties
  • Administrative fees
  • Advertising fees
  • Management fees

Foreign franchisors in Vietnam are also subject to the withholding taxes for services in the country, such as, Value-Added Tax (VAT) 5% and Corporate Income Tax (CIT) 5%. Conversely, domestic franchisors are subject to, Value-Added Tax (VAT) 10% and Corporate Income Tax (CIT) 20%.

The franchise business is still becoming a number one model to expand the market in Vietnam for foreign investors. However, understanding local knowledge is needed when entering the market, if you underestimate the power of local understanding, your business will not rise up like you expect.

In conclusion, a successful business incorporation in Vietnam cannot be separated from the understanding of local knowledge and regulations, as well as equipping with skills in drafting clear provisions, also discerning terms and conditions. If you need any help, do not hesitate to contact us, because Viettonkin will always be ready to assist you!

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