DECREE 40 AND CIRCULAR 10 ON MULTI-LEVEL MARKETING

LEGAL UPDATE

Decree 40/2018/ND-CP (Decree 40) on the management of multi-level marketing (MLM) activities replaces Decree 42/2014/ND-CP (Decree 42) and entered into force on 2 May 2018. Several provisions of Decree 40 are further clarified by Circular 10/2018/TT-BCT (Circular 10).

MLM is a company strategy using a network of non-salaried individuals selling the company's products who will receive a bonus or commission from the sales.

MLM is mainly used to sell cosmetics, personal care, nutritional products, clothing and household appliances. Amway, Oriflame, and Herbalife are well-known companies that use MLM to sell their products in Vietnam. For 2017, the revenues were estimated at VND8 trillion (~USD350 million) with about 700,000 persons active for such companies.

In the past there have been issues with MLM companies in Vietnam, such as unfairness towards the customers, failure to fulfil tax obligations, and the sale of low-quality products. Consequently, the authorities have become stricter. Decree 40 intends to address these issues and provide a better legal framework for companies using MLM as well as create transparency.

Hereafter you will find an overview of some of the key points.

1. Scope of MLM Activities

Decree 40 provides for a ban on fake MLM activities for businesses, as well as the prohibition of providing false or misleading information about the benefits of participating in MLM, features and uses of goods, and activities of MLM businesses.

2. Restrictions

Pharmaceutical products, medical devices and certain chemical products cannot be sold via MLM, and neither could services. Decree 40 adds digital content products to the restricted list.

3. Multi-Level Sales Activities Registration

Decree 40 sets out several new conditions that must be met to obtain an MLM registration. A company must:

- make an escrow deposit of 5% of the charter capital, but not less than VND10 billion (~USD440,000), at a bank in Vietnam (used to be VND5 billion);

- operate an IT system to manage the MLM network;

- have a website to provide information on the MLM activities; and

- have a communication system to receive, solve questions and complaints from MLM.

4. Prohibitions

Like under Decree 42, Decree 40 also prohibits MLM companies from performing a wide range of acts to limit the risks associated with MLM, such as requiring deposits or monetary payments from MLM participants. Under Decree 40, some additional prohibitions include: organising commercial intermediary activities (seminars/training), use of participants’ IDs more than once, asking participants to renounce their rights and obligations, and transferring network of participants to other companies.

5. Transition

Companies currently licenced for MLM activities have till early February 2019 to satisfy all the new conditions.

For more information, please contact:

Mark Oakley / Managing Partner

mark.oakley@acsvlegal.com

Hieu Pham / Special Counsel

hieu.pham@acsvlegal.com

@ 2018 ACS Legal Vietnam Limited - All rights reserved

This legal update is not an davice and should not be treated as such.

Open in pdf: Update on Decree 40 and Circular 10 on Multi-level Marketing