Vietnam Tightens Multi-Level Marketing Regulations
In March 2018, the government issued Decree 40/2018/ND-CP (“Decree 40”) replacing Decree 42/2014/ND-CP (“Decree 42”) on the management of multi-level marketing (MLM) activities. Decree 40 is already in effect since May 2, 2018. Companies have nine months from May 2nd to meet all the conditions under Decree 40.
Along with the application for a registration certificate, MLM companies need to submit the following documents:
- Copy of enterprise registration certificate;
- Personal identification documents for partners/founding shareholders/owners;
- Details of goods traded;
- IT infrastructure to manage the network of participants;
- Documents proving that the MLM company has a website;
- Details of information and communication system to handle participant complaints; and
- Other documents such as award plans, operation details, training programs, and contracts.
Conditions for registration
The MLM registration certificate will be valid for five years from the issuance date and can be extended. MLM firms need to fulfill certain conditions before registering in Vietnam:
- The entity must be established in Vietnam;
- The entity should not have had their multi-level sales registration certificate revoked for any previous violations;
- Charter capital of VND 10 billion (US$ 430,000) or more;
- Partners/founding shareholders/owners must not have held similar positions in other MLM companies that had their license revoked;
- Escrow deposit equivalent to five percent of the charter capital but not less than VND 10 billion;
- Contracts, operation rules, awards, and training should be as per Decree 40;
- Has an information technology system to handle sellers and a website to provide information about the firm; and
- Has a communication system to manage seller complaints.
Under Decree 40, several activities have been prohibited or restricted for firms and participants to ensure a transparent and fair environment.
Goods such as pharmaceuticals, medical devices, digital content products, and various chemicals are prohibited in the multi-level sales industry.
Firms and participants need to ensure that products sold are not fake or of substandard quality.
MLM companies cannot sell or transfer a network of participants to other firms. M&A cases are exempted.
Information about benefits
Firms and participants need to ensure that they do not provide any false or misleading information about the awards, benefits, commissions, and features offered by the company.
Organizing seminars or training
Firms cannot organize seminars or training sessions for existing or new participants without the permission of government authorities.
For promotional and sales activities, participants cannot have more than one identification number or position in the same network.
MLM companies cannot ask the participants to relieve them from any obligations or give up their rights in the network.
MLM firms cannot accept any deposits from the participants or ask them to buy a certain number of goods for participating in a multi-level sale.
Under Decree 40, MLM companies need to submit reports every six months to the Ministry of Industry and Trade as well as the Department of Industry and Trade (DOIT) of the province/city where they are located.
Companies need to provide information about the network, revenue, national/local operations, commissions, taxes, promotional programs, seminars and training sessions.
The report for the first six months must be submitted by July 31st every year, while the second report needs to be submitted by January 20th of the following year. If they do not file their reports in time, they can be fined anywhere between VND 40,000,000 to VND 60,000,000 (approximately US$ 1,720 to US$ 2,580). In addition, government authorities can also confiscate their products and additional profits.
In the last few years, the government has fined and revoked the licenses of numerous MLM firms in Vietnam due to fraudulent activities and tax violations. Going forward, Decree 40 will help in minimizing fraudulent activities, protecting the rights of participants, and increase government oversight.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices in China, Hong Kong, Indonesia, Singapore, Vietnam, India, and Russia.
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