Economic Needs Test Under Decree 09/2018/ND-CP
Under Decree 09/2018/ND-CP (Decree 09), effective on 15th January 2018, detailing the Law on Commerce and Decree 23/2007/ND-CP (Decree 23) on international goods sale and purchase and related activities of foreign-invested enterprises. Decree 09 has removed some constraints caused under Decree 23 and the regulations of the 2014 Law on Investment, clarified on requirements and regulatory timeframe, however, it still includes administrative burdens on foreign-invested enterprises.
Economic Need Test (ENT) is not required to the first retail store but still applies to the second retail outlet onwards which is more specific and larger scope for determination of retail store other than the first store. Accordingly, the store other than first retail store also includes the stores established under same brand name or trademark with an existing retail store of the foreign investor in Vietnam.
Even the ENT is not a compulsory condition for the establishment of the first store, but foreign-invested enterprises still have to satisfy certain conditions for establishment and operation of the first store in Vietnam. Pursuant to current regulation, the foreign-invested enterprises must meet three conditions: (i) that is to submit a financial plan to set up a retail store; (ii) certification of having no overdue tax debt; and (iii) the location of the retail establishment in accordance with the “relevant planning in the geographical market area”.
The content of the permit includes a description of the retail establishment, the address, the description of the area used and the relevant general area; business planning and market development; labor demand; Impact assessment, socio-economic efficiency of the business plan and documents of the tax authorities certifying that the enterprise has no overdue debt and financial obligations.
For businesses wishing to set up retail outlets in addition to the first retail outlet, Decree No. 09 expands the scope of retail outlets subject to ENT by stating that ENT is only exempted if a proposed retail outlet is less than 500 m² and located in a trading center, and is not mini-supermarket or convenience store. The last requirement is newly introduced in Decree No. 09, and will increase targeted regulation on many retail supply chains.
The authorities competent to administer ENT will work through an ENT Committee which shall be established within 07 working days from the date of receipt of the request for establishment of the ENT. The ENT Committee will issue the ENT results 30 days from the date of establishment of ENT Committee. The local Department of Industry and Trade will submit the application together with the ENT results to the Ministry of Industry and Trade within 03 working days from the date of receipt of the ENT results. MOIT will issue its decision 10 working days after the date of receipt of the application dossier. Afterward, the Store Establishment License will be granted within 03 working days from the date of receipt of the MOIT’ decision.
It is important that the demand of the foreign investors to have absolute freedom in establishing their retail distribution chain in Vietnam should be balanced with Vietnam’s Government’s demand to protect the small retailers against the foreign retailers with their huge financial potential, and by doing so Vietnam regulations need to comply with not only WTO but also other upcoming international trade commitments.