A Guide to the Important Points for Cross-border E-Commerce Providers and Foreign Investors
It’s been coming. We’ve been talking about the new regime for e-commerce and other elements of the internet for ages it seems. When will Vietnam finally issue their new rules for governing e-commerce, and specifically, for governing cross-border e-commerce providers?
On September 25, less than a month ago as I write this, the Government issued decree 85/2021/ND-CP which amends and supplements the existing decree on e-commerce activities in Vietnam. (For those interested, the original decree was decree 52/2013/ND-CP dated 16 May 2013.)
Decree 85, as I’ll call it, covers familiar ground. (see Registering e-commerce websites in Vietnam, and Some Issues on E-Commerce in Vietnam, among others). But as with every piece of legislation that passes through the halls of government in this, the rising dragon of a country, we begin at the beginning.
Who is Governed by Decree 85?
Largely the same people fall within the scope of Decree 85, though there are some exceptions. E-commerce activities in fintech sectors, gambling, and information dissemination, i.e., news and entertainment providers, are governed by Decree 85 only insofar as there are no specialized regulations governing their activities. A caveat that allows for a great deal more legislation down the road, and hopefully soon, to govern these sectors that are so vital to Vietnam’s economy.
But the big question, here, and the one we’ve been discussing for a year now, is what the Government intends to do with foreign e-commerce service providers. The approach is not novel to Decree 85 and has its genesis in the earlier drafts which were distributed in the last year.
Instead of specifying which foreign actors fall within any defined category, the broad brush is painted to include those who participate in specified “e-commerce activities” in Vietnam. The locus, therefore, is on what the cross-border service provider does in Vietnam. And there are three activities which, according to Decree 85, categorize the foreign e-commerce provider as conducting ‘e-commerce activities” in Vietnam.
- They set up their e-commerce website using a .vn domain name;
- They set up their e-commerce website displaying the Vietnamese language;
- They have more than 100,000 transactions originating in Vietnam in a given year.
That’s what the Government finally ended up with. Those three requirements. That means that companies setup in Singapore or some other jurisdiction by Vietnamese investors to target Vietnam (see Vietnam’s Outward Investment Problem) will have to abide by the regulations of Decree 85.
What does Decree 85 require of Cross-border e-commerce Providers?
The next big question, then, is what do those foreign companies that are considered to be conducting e-commerce activities in Vietnam have to do? First off, they have to register their e-commerce activities pursuant to Decree 85 as it amends Decree 52. There does not seem to be a separate registration process for foreign entities so that would mean that they must comply with the notification of an e-sales website (which is fairy simple) or the registration of one of the other types of e-commerce website (which is subject to market approach conditions for foreign investors).
In addition to the proper procedure for notifying or registering their e-commerce website with the authorities, the cross-border provider who engages in this scurrilous activity of conducting e-commerce activities in Vietnam must either establish a representative office or appoint an authorized representative.
Now the setting up of a representative office is fairly straightforward, but the requirements surrounding an authorized representative are less clear. Does this authorized representative have the same rights and obligations as set out in the law on enterprises? The Civil Code provides for representation and outlines a set of rules for representatives (they may be individuals or entities and they act in the name of the principal), but the specific liability of these authorized representatives is not stated?
They do have three very specific responsibilities outlined in Decree 85.
- Cooperate with regulatory authorities to prevent transactions of goods and services in violation of the law of Vietnam;
- Fulfill the obligation to protect consumers’ interests as well as quality of goods and services as prescribed by the law of Vietnam;
- Submit statistical reports as prescribed by January 15 of each year.
What remains unclear, and is never specified in the Civil Code, is what liability accrues to the authorized representative for the bad acts of the cross-border e-c0mmerce service provider? What if the authorized representative complies with these provisions of the decree but their principal fails to act in a timely and proper manner to comply with the requirements of the authorities? Will the authorized representative be treated as a legal representative of a juridical person and made subject to civil, administrative, or even criminal liability? A dangerous ground indeed.
Market Approach Limitations
While perhaps not salient to cross-border providers of e-commerce services in Vietnam, the question of market approach restrictions is important to companies and individuals seeking to invest in the e-commerce sector. As is the case with any sector, the Investment Law sets out basic conditions for market approach based on treaties to which Vietnam is a party, and in addition other laws may add specific requirements. Decree 85 includes two.
First off, foreign investors can only invest in e-commerce in Vietnam through the formation of an economic establishment. They must form a company to conduct the investment. Individuals cannot act on their own to perform e-commerce services. This would seem to eliminate freelancers, though the implications are not entirely clear. Individuals may, however, invest in the capital stocks of a company involved in e-commerce in Vietnam.
The second major market approach limitation applies to investments in the five largest e-commerce companies in the market at any given time. This determination is based on the total visits, number of sellers, total transactions, and total transaction value of each e-commerce website. If the foreign investor has a controlling investment in one of these five companies (which is determined by share ownership, board control, or a veto right over certain reserved matters) then their investment must be approved by the Ministry of Public Security as relating to national security.
While Decree 85 contains multitudes of additional regulation (we may yet get to that in the coming weeks) this covers the main points of interest for cross-border e-commerce providers and foreign investors. The rest of the details apply to e-commerce companies already set up and operating in Vietnam and what they must do to be in compliance with regulations.