Vietnam

• Author: Mai Thi Minh Hang - Tuan Anh Nguyen
• Pages: 546-564

546 International Franchise Sales Laws

Vietnam

I. What Is a Franchise?

A. Scope of Law

In Vietnam, the basic regulations on franchising are provided in the Commercial

Law, adopted by the National Assembly on June 14, 2005. These regulations are

elaborated in Decree No. 35/2006/ND-CP of the government, dated March 31, 2006

(Decree 35), as amended by Decree 120/2011/ND-CP of the government dated

December 16, 2011 (Decree 120) and Circular No. 09/2006/TT-BTM of the Minis-

try of Industry and Trade (MOIT) (MOIT was formerly known as the Ministry of

Trade), dated May 25, 2006 (Circular 09). Related regulations on franchising can

also be found in the Intellectual Property Law, adopted by the National Assembly

on November 29, 2005, and the Technology Transfer Law, adopted on November

29, 2006.

The Vietnamese franchise law adopts a familiar regulatory model with prior

disclosure obligations supplemented by moderate registration and relationship re-

quirements. It nevertheless demonstrates a high level of official involvement in

franchising activities, which is not unusual in developing countries. However, the

general obligations of the Commercial Law are prefaced with the words “unless

otherwise agreed,” thus raising some doubt as to the mandatory prescriptions of

Decree No. 35 and Circular No. 09.

The Commercial Law defines franchising as a commercial arrangement under

which the Franchisor grants the Franchisee the right to conduct on its own behalf

the business of selling goods or supplying services under the following conditions:

(1) the Franchisee may carry out the business in a format determined by the Franchisor

and may affix the trademarks, trade names, business logos, slogans, and advertise-

ments of the Franchisor at the Franchisee’s business premises; and (2) the Franchisor

has the right to control and assist the Franchisee in the conduct of the franchised

business. The definition does not incorporate any “fee” or “payment” requirement.

Decree 35 further expands the definition of franchising to include master fran-

chising and sub-franchising as well as area development arrangements. The defini-

tion of “franchise” includes: (1) rights received by the Franchisee from the Franchisor

to carry out the business of selling goods and supplying services under a system

determined by the Franchisor, and to affix trademarks, trade names, business logos,

slogans, and advertisements of the Franchisor at the Franchisee’s business premises;

(2) rights received by a primary Franchisee from a Franchisor under which the

primary Franchisee may sub-franchise to other Sub-franchisees; (3) rights received

by a Sub-franchisee from a Sub-franchisor (i.e., the primary Franchisee) under a

Vietnam 547

master franchise agreement; and/or (4) rights received by a Franchisee from a

Franchisor under a franchise contract, which allows a Franchisee to carry out the

franchised business at more than one location within a territory.

The legal relationship between the Franchisor and the Franchisee is established

by a franchise agreement that is made in writing and is governed by the Commer-

cial Law. Although foreign Franchisors must register “franchising activities” prior

to the offer and sale of franchise agreements to a Vietnamese Franchisee, the fran-

chise agreement itself need not be registered.

In addition to registration, Decree 35 imposes two further prerequisites to fran-

chising: (1) the business system to be franchised must have been operating for at

least one year, and (2) the goods and services of the franchise must not be on the list

of prohibited goods and services. The only prerequisite for a Franchisee is that it

must have a business registration appropriate to the subject of the franchise.

B. Applicability to Master Franchises

A Franchisor is defined to include: (a) a person who grants a franchise, and (b) a

Sub-franchisor in its relationship with a Sub-franchisee. Under Decree 35, a Master

Franchise is defined as a franchise in which the Franchisor grants to a Sub-franchisor

or Master Franchisee the right to grant a sub-franchise. That is, the terms “Master

Franchisee” and “Sub-franchisor” have the same meaning: they are a Master Fran-

chisee in relation to a Franchisor, or a Sub-franchisor in relation to a Sub-franchisee.

When a master franchise originates from abroad, the local Master Franchisee

cannot sub-franchise to a Sub-franchisee unless that local Master Franchisee has

already run the franchised business for at least one year and has obtained a written

consent from the Franchisor to sub-franchise. The purpose of this restriction, as we

understand, is to help ensure the sustainable development of a franchising network.

The theory is that the Master Franchisee should gain certain experience to run the

franchised business before sub-franchising to others.

Vietnam’s franchise law does not regulate territorial development obligations or

a contractual right/obligation to open and operate more than one franchised unit in

a Master Franchise granted by a foreign Franchisor.

C. Exemptions

The definition of a franchise is broad. Although the law does not express exceptions

to what is a “franchise,” partnership relationships, trademark licensing, and whole-

sale and distribution agreements are most likely not considered to be a franchise. A

partnership relationship is governed by the Enterprise Law, trademark licensing is

governed by the Intellectual Property Law, credit card service arrangements are

governed by the Law on Credit Organisations, and a distribution agreement is sim-

ply seen as a sale and purchase agreement governed by the Commercial Law.