Commercial agency is one of 04 commercial intermediary activities of a trader regulated by Vietnamese laws (along with trader representative, commercial brokerage, purchase, and sale of goods by mandated dealers). What is a commercial agency and what are notes about a commercial agency under Vietnamese laws?
Through this article, BLawyers Vietnam would like to answer the above question.
I. Commercial agency and scope of the commercial agency
According to Article 166 of Commercial Law 2005, a commercial agency means a commercial activity whereby the principal and the agent agree that the agent acting in name of the principal to purchase goods or sell goods for the principal or provide services of the principal for customers to receive remuneration.
In which, the principal is a trader who delivers goods to the agent to sell or gives money for the purchase of goods to a buying agent, or is a trader who authorizes the performance of services to a service-providing agent. The agent is a trader who receives goods to act as a selling agent, receives money for purchase to act as a buying agent, or is an authorized party to provide services. The Commercial Law also clearly stipulates that the traders include legally-established economic organizations and individuals conducting commercial activities independently, regularly, and with business registration.
Thus, the scope of a commercial agency is the commercial activities that the agent performs under the authorization of the principal to enter a contract with a third party.
II. 03 notable issues about the commercial agency
1. Regarding the form of the commercial agency
Currently, Vietnamese law only mentions the 03 most common types, however, including:
- Off-take agency: This is a form of agency in which the agent sells or purchases a specific quantity of goods or provides a full service for the principal.
- Exclusive agency: This is a form of agency in which, within a given geographical area, the principal only assigns an agent to buy or sell one or more items or to provide one or more certain types of services.
- General agent for the purchase and sale of goods and services: This is a form of agency whereby an agent organizes a system of affiliated agents to carry out the purchase and sale of goods and provide services for the principal.
2. Regarding the agency contract
An agency contract must be made in writing or another form with equivalent legal validity. This is an important issue, that affects the validity of the contract, so the parties in the contract need to pay attention.
In addition, the contract should stipulate the rights and obligations of the principal and the agent to determine the scope of work of the parties and mitigate risks of dispute.
In case one party wants to terminate the agency contract, they must notify the other in writing with a statutory notice period. In case of terminating the agency contract, the agent shall have the right to request the principal to pay compensation for the period during which it has acted as an agent for such principal unless otherwise agreed by both parties. In case the agency contract is terminated at the request of the agent, the agent shall not have the right to request the principal to pay compensation for the period during which it has acted as an agent for the principal.
In addition, the agent receives an agency remuneration paid to the agent in the form of commission or price difference.
3. Tax issues for the agency contract
(i) Value added tax under the deduction method
For activities of distribution and supply goods agency, wholesale, and retail of all kinds of goods, VAT must be paid when receiving money from selling agent goods to buyers according to the law with the VAT rate of 10% (except for the tax-free goods and services, or the goods and services, which are subject to 0% or 5% tax). Currently, according to Resolution No. 43/2022/QH15 and Decree No. 15/2022/ND-CP, the VAT rate is being reduced to 8%.
For the enterprises that are agents selling at the earned commission price, they are only subject to VAT when receiving agency remuneration at the VAT rate of 8%. In addition, the enterprises are also subject to the CIT according to regulations.
(ii) Value added tax under the direct revenue method
For the activities of distribution and supply goods, wholesale, and retail of all kinds of goods (except for the value of agent goods selling at the earned commission price), the tax rate is 1% and for the activities of agents selling at the earned commission price will be subject to a tax rate of 5%.
(iii) Personal income tax for business
Particularly for individuals and business households that are agents, when performing activities of distribution and supply of goods, wholesale, and retail of all kinds of goods (except for the value of agent goods selling at the earned commission price), they shall declare and pay the VAT tax rate of 1% and the PIT tax rate of 0.5%.
In summary, the commercial agency in Vietnam is not a brand-new commercial intermediary activity in Vietnam but there have been lots of notable regulations.
For further information, please contact:
Minh Ngo Nhat, Partner, BLawyers
minh.ngo@blawyersvn.com
