Question:
Dear Lawyer, our company is a 100% foreign-owned enterprise with a parent company established in Singapore. Can we conduct business in the rental of machinery, equipment, and other tangible goods without operators (VSIC 7730 and CPC 83109)?
Response:
Based on the information provided by the Company, the Lawyer understands that the Company is a 100% foreign-owned enterprise with a parent company established in Singapore. Therefore, the addition of business sectors for the Company must comply with the market access conditions for foreign investors (Article 64.2 of Decree 31/2021/ND-CP).
The market access conditions for foreign investors are requirements that foreign investors must meet to invest in sectors listed in the category of sectors with restricted market access for foreign investors, as published by the Government of Vietnam, based on the provisions of laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international treaties of which the Socialist Republic of Vietnam is a member.
Accordingly, the sector of renting machinery, equipment, and other tangible goods without operators is categorized as a business sector with conditional market access for foreign investors (Item B.22 of Appendix 1 of Decree 31/2021/ND-CP). The conditions for market access in this sector are stipulated as follows:
(i) Market access conditions stipulated in international treaties to which Vietnam is a member:
According to Vietnam's commitments upon joining the WTO ("WTO Commitments"), the CPC code 83109 is a sector in which Vietnam has not made commitments (meaning that Vietnamese state authorities have full discretion to approve or deny the registration of the Company's additional business sector).
Moreover, since the parent company of the Company is Singaporean, both Singapore and Vietnam are members of the ASEAN Framework Agreement on Services ("AFAS"). Therefore, the market access conditions will also be governed by Vietnam's commitments under AFAS. According to Vietnam's commitments in AFAS (the 10th package of commitments), CPC code 83109 is an unrestricted sector; however, this is conditional upon forming a joint venture with a domestic investor, with foreign ownership in the joint venture not exceeding 70%.
According to Article 17.9 of Decree 31/2021/ND-CP, foreign investors subject to international investment treaties with varying market access conditions may choose to apply the market access conditions for all business sectors according to one of those treaties. If market access conditions have been selected according to an international investment treaty, foreign investors shall exercise their rights and obligations according to the full provisions of that treaty.
Thus, the Company needs to review at the time of proposing the investment project to register the establishment of which treaty commitment it has chosen to register. In the case that:
a) The Company has chosen to register according to AFAS, due to the foreign ownership ratio in the Company being 100%, the Company will not be able to register the additional business sector of renting machinery and equipment without operators, as it does not meet the condition regarding the limit on foreign ownership in the joint venture that Vietnam has committed under AFAS.
b) The Company has chosen to register according to the WTO Commitments, as the WTO commitments do not have any market access commitments for the sector of renting machinery and equipment without operators, adding this sector will require the opinion of the Ministry of Planning and Investment and the Ministry of Industry and Trade. The approval for the Company to register this additional sector depends entirely on the opinions and decisions of the licensing authorities.
(ii) Market access conditions stipulated by Vietnamese law:
In addition to the condition regarding the foreign ownership ratio mentioned above, according to Article 5.1 of Decree 09/2018/ND-CP, which details the Commercial Law and the Law on Foreign Trade Management concerning the trading of goods and activities directly related to trading by foreign investors and foreign-invested economic organizations in Vietnam, the Company must also perform procedures to apply for a Business License for trading activities and activities directly related to trading by foreign investors and foreign-invested economic organizations in Vietnam ("Business License"). For the activity of renting goods, according to Article 8 of Decree 09/2018/ND-CP, the licensing authority (Department of Industry and Trade where the company is headquartered) must obtain the opinion of the Ministry of Industry and Trade when appraising the Business License application. According to Article 11.2 of Decree 09/2018/ND-CP, the term of the Business License granted is 05 years.
In summary:
a) If the Company has chosen to explain market access conditions according to AFAS in the investment registration and business registration documents at the time of the company's establishment, the Company will not be able to register the additional business sector of renting machinery and equipment without operators, as it does not meet the conditions regarding the limit on foreign ownership in the joint venture that Vietnam has committed under AFAS;
b) If the Company has chosen to explain market access conditions according to WTO Commitments in the investment registration and business registration documents at the time of the company's establishment, the Company may register this business sector, provided it obtains the approval of the Ministry of Planning and Investment and the Ministry of Industry and Trade. After successfully registering the additional business sector in investment and business registration, the Company must apply for a Business License at the Department of Industry and Trade where the company is headquartered. The issuance of the Business License will also require the approval of the Ministry of Industry and Trade, and the term of the Business License will be no more than 05 years.
