(The full note in PDF is available here)
Vietnam is one of the fastest growing e-commerce markets in the Asia-Pacific region, with e-commerce sales in the country reached approximately USD 13,1 billion in 2020. A catalyst for this is the lockdown and restricted access to physical outlets, but one must account for the country’s young and tech-savvy population, increase in national income as well as internet and smartphone penetration.
The booming has resulted in a new wave of foreign investment in Vietnamese e-commerce startups, especially during the last 3-month lockdown in Dong Nai, Long An, Binh Duong and Ho Chi Minh City- the most developed industrial hubs of Vietnam. However, investing in e-commerce is not quite straightforward and easy due to market access restrictions imposed upon Vietnam under its commitments under WTO and CPTPP. As such, some complex structures have been employed to enter the market.
We discuss below key legal aspects of foreign investment in e-commerce business in Vietnam that we believe would be valuable for investors’ decision-making process. We approach the discussion from the perspective of a foreign investor/venture capitalist (the Investor) who wish to invest in a Vietnamese e-commerce business entity (VietCo).
1 – But first, what is e-commerce?
Vietnamese law defines ‘e-commerce activity’ is ‘the conduction of a part or the whole process of commercial activities by electronic means connected to the Internet, mobile telecommunications network or other open networks. In essence, any broadly interpreted commercial activities e.g. – supply of services, sale of goods or other revenue generating activities, etc. among different stakeholders using Internet or telecommunication network would fall inside the e-commerce concept.
This definition is relatively close to the current understanding of e-commerce at global level. For example, according to a definition introduced by the WTO, e-commerce is ‘production, distribution, marketing, sale or delivery of goods and services by electronic means’. An e‑commerce transaction can be between enterprises, households, individuals, governments and other public or private organizations.[1]
2 – Understood, but does it affect our proposed investment in VietCo?
Yes, it does affect greatly your investment in VietCo.
Depending on which forms of e-commerce the VietCo pursues, the investment may be subject to different market access restrictions, industrial barriers, regulatory licenses and, to a great extent, discretionary judgements of relevant in-charge State bodies on their investment.
3 – Okay, then please tell me about each specific e-commerce form?
Depending on how the e-commerce activities are organized, e-commerce websites can be classified in 02 major groups:
(i) – Sales e-commerce website (Sale Web); and
(ii) – E-commerce service provision website (Service Provision Web) which can be further broken down into:
(a) – E-commerce trading floor;
(b) – Online promotion website; and
(c) – Online auction website.
Go closer, a Sale Web (‘website thương mại điện tử bán hàng’ in Vietnamese language) means an e-commerce website developed by traders, organizations or individuals to serve their commercial promotion, sales or service provision (the owner of SEW). Meanwhile, a Service Provision Web (‘website cung cấp dịch vụ thương mại điện tử’ in Vietnamese language) refers to ‘an e-commerce website developed by traders or organizations to provide an environment for other traders, organizations or individuals to conduct their commercial activities’.
In layman’s term, a Sale Web means a platform where you sell your own products/services using Internet or telecommunication platform i.e. – B2C model like https://www.zara.com. On the contrary, if you allow other sellers or buyers to trade on your website or app e.g. – https://tiki.vn/, then such website or app would be treated as a Service Provision Web.
As a matter of business practice, most e-commerce website in Vietnam falls inside either Sale Web or e-commerce trading floor (belonging to a Service Provision Web).
4 – But wait! Does it apply if VietCo plans to sell its products via a mobile app instead of a website?
Yes, a mobile app would be treated greatly similar to a website from an e-commerce perspective.
Generally, e-commerce activities cover 03 major electronic platforms, namely websites, mobile apps and mobile telecommunication network e.g. – using SMS. Nevertheless, so far only e-commerce websites and apps are heavily regulated.
Back to e-commerce mobile apps, as the Laws of Vietnam stands,[2] goods sale application means an e-commerce application on mobile equipment established by a trader or an organization or individual serving their trade promotion activities, goods sale or service provision. The owner of an e-commerce application must either notify such application to or register the same with the MOIT depending on whether it is a Sale Web or a Service Provision Web respectively.
Please read Part 2 here for more details on investment in e-commerce startups in Vietnam.
With contribution of Chi Do.
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[1] https://www.wto.org/english/thewto_e/minist_e/mc11_e/briefing_notes_e/bfecom_e.htm
[2] Circular 59/2015/TT-BCT dated 31 December 2015 of the MOIT prescribing the management of e-commerce activities via applications on mobile equipment (as amended in 2018) (‘Circular 59’).
