30 April, 2018
Multi-level marketing (MLM) activities are allowed under the law in Vietnam. However, in recent years, a few MLM companies in Vietnam have been accused of not being fair to customers, not fulfilling tax obligations, and/or at times trading in low-quality products. A report from the Ministry of Industry and Trade (MOIT) showed that from June 2015 to November 2016, the MOIT inspected and initiated investigations into 65 MLM companies and imposed fines totaling VND 11 billion (approximately USD 485,000) for violations. By the middle of March 2018, the MOIT had revoked the licenses of 17 MLM companies and another 17 MLM companies had voluntarily stopped their operations. Currently, there are 33 MLM companies operating in Vietnam.
With the aim of tightening the existing MLM regulations and giving MLM companies a better legal framework under which to operate, the government issued Decree No. 40/2018/ND-CP on Management of Multi-Level Marketing Activities (Decree 40) on March 12, 2018. The new decree, which will take effect on May 2, 2018, revises and replaces Decree 42/2014/ND-CP dated May 14, 2014 (Decree 42). Some of the highlights of Decree 40 are provided below.
New Registration Requirements
Decree 40 adds a few new requirements to the conditions a company must satisfy to obtain an MLM license: The MLM company must operate an IT system with a server in Vietnam to manage its MLM network; it must have a website with full information on its MLM activities; and it must have a communications system to receive and resolve queries and complaints from MLM participants.
In addition, the MLM company needs to have charter capital of at least VND 10 billion (approximately USD 440,000), and make an escrow deposit equivalent to 5% of its charter capital (but not less than VND 10 billion – an increase from the VND 5 billion required under Decree 42) into a bank account. The escrow serves as security for the MLM participants and funds may be used toward payment of unpaid penalties to Vietnamese authorities, and/or compensation for damages should the MLM company breach any of its obligations to the MLM participants.
Additional Restrictions
As was the case under Decree 42, only goods (not services) are permitted to be traded under the MLM model, and certain types of goods, including pharmaceuticals, medical devices, and various chemicals, are prohibited. Decree 40 also adds digital content products to the list of prohibited goods.
To combat the risks associated with some forms of multi-level marketing, Decree 40, like the previous Decree 42, prohibits MLM companies from performing a wide range of acts, such as requiring deposits or monetary payments from MLM participants. The following acts are newly prohibited under Decree 40:
- Conducting promotions using an MLM network in which participants in the promotion have more than one position/ID number (in other words, where participants could benefit from having multiple virtual identities).
- Organizing commercial intermediary activities (for example, engaging a commercial agent or broker) for the purpose of maintaining, expanding, or developing MLM networks.
- Receiving or accepting documents from MLM participants in which the participants renounce some or all of their rights or release enterprises from their obligations toward participants under provisions of Decree 40.
- Failing to use the management system registered with the MOIT to manage MLM participants.
Implementation
Within nine months from May 2, 2018 (i.e., by February 2, 2019), companies which were licensed for MLM activities under the previous Decree 42 must satisfy all conditions for doing business under Decree 40 (for example, their IT system must have a server placed in Vietnam, and they must have a system to receive and resolve queries and complaints from MLM participants).
For further information, please contact:
Tu Ngoc Trinh, Tilleke & Gibbins
ngoctu.t@tilleke.com
