LEGAL UPDATE

A new draft decree (Draft Decree) intends to amend and supplement Decree No. 40/2018/ND-CP (Decree 40) that provides a regulatory framework for multi-level marketing activities (MLM) in Vietnam. The Draft Decree suggests a wad of new compliance regulations that envisage controlling known industry problems. Significant changes, as proposed by this Draft Decree, are summarised below.

1. Minimum Commission Rate

Until now, Decree 40 does not impose a minimum commission rate on individual sales of MLM participants. The Draft Decree suggests a minimum of 20% commission on each sale, which aims to prevent fraudulent business models under MLM guise and increase the average revenue share of participants.

2. Experience of Foreign Investor in MLM Business

Vietnam's current regulations on MLM do not require foreign investors investing in Vietnam either via direct investment or business acquisition to prove any prior experience in the MLM business. With the new Draft Decree, the Government considers a qualifying requirement of three consecutive years in the MLM industry abroad.

3. Improvement of Transparency

3.1 International Patronage Mechanism

To adapt Vietnam's national legal framework to the requirements of its international commitments, the Draft Decree also introduces the international patronage mechanism (IPM). This term groups all commercial activities that an MLM participant introduces, recruits, or assigns to another person in the participant's MLM downstream. This mechanism ascertains transparency in the industry and aligns with international conventions and best practices.

Notably, the new law also contains explicit instructions that link to MLM activities outside of Vietnam. Most MLM companies do not distinguish between foreign and domestic revenues, compromising the legality of respective cross-border commission payments.

The Draft Decree sets out three base qualifications for MLM enterprises in Vietnam to onboard the IPM. An eligible foreign MLM company

• shall not use the revenue of Vietnamese participants generated through their downstream abroad to accumulate, rank, and pay commission for Vietnamese participants;

• shall not pay any commissions or economic benefits to its participants who create MLM revenues abroad;

• may not patronise Vietnamese participants with foreign MLM participants; and

• shall regularly provide sufficient documentation of its activities to relevant authorities.

3.2 Definitions and Application

The new Draft Decree inserts various other new definitions for conferences, meetings, and training courses regarding MLM business, closing loopholes for MLM providers who use these and similar events to avoid legal notification obligations. Under the new legislation, such MLM businesses must comply with the respective formalities and documentation procedures. 'The registration and documentation duties also facilitate the authorities' supervision of MLM events and reduce ensuing fraud and other illegal activities.

Under the Draft Decree's amendment, article 9.7 of Decree 40 will require an application file to set up an MLM company, including technical documents. To obtain an operating license in Vietnam, MLM investors must provide detailed information about the technical environment to support their businesses. This includes the disclosure of the IT system used for managing their participants. It also requires further base information like IP addresses, server locations, operation mechanisms, input methods, data storage and management, etc.)

For more information, please contact:

Leif Schneider / Senior Associate

leif@acsvlegal.com

Thu Nguyen / Associate

thu.nguyen@acsvlegal.com

© 2021 ACS Legal Vietnam Company Limited – All rights reserved

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

Download pdf: Draft Decree Introducing More Requirements for Multi-Level Marketing

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