June 2013 edition

contents
Stricter control over ecommerce activities

Foreign exchange

amendments: further
change or simply
clarification?
New law on VAT
expands list of
exemptions and

delivers tax cuts for

social housing
Government introduces

labour outsourcing
regulations

In brief: In this edition we cover a new decree on e-commerce

activities and the recent amendments to the ordinance on
foreign exchange. We also discuss the newly introduced
regulations on labour outsourcing and laws on VAT. This
month's case commentary looks at the judicial review of a
decision of the Appeal Court of the Supreme People's Court
of Ho Chi Minh City relating to a labour dispute for unlawful
termination.
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June 2013

Stricter control over e-commerce activities

Decree No. 52/2013/ND-CP of the Government dated 16 May 2013 on e-commerce (Decree 52)
In response to recent major developments in e-commerce activities in Vietnam, the
Government has recently issued Decree 52 to replace Decree 57/2006/ND-CP dated 9
June 2006 regulating e-commerce activities in Vietnam (Decree 57). Decree 52
provides more detailed and stricter regulations on e-commerce transactions. Decree 52
takes effect on 1 July 2013.
Forms of e-commerce
Under Decree 52, e-commerce activities are defined as the conducting of all or part of
the process of commercial activities by electronic means connected to the internet,
mobile telecommunications networks or other open networks.
Under Circular 46/2010/TT-BTC guiding Decree 57, e-commerce activities can be
conducted through e-commerce websites or e-commerce trading floors. The forms of ecommerce activities have been detailed and extended under Decree 52 and include the
following:

E-commerce website for sales: an e-commerce website developed by the

trader, organisation or individual for their own commercial promotion, sales or
provision of service.

Website providing e-commerce services: an e-commerce website developed

by the trader, organisation or individual to provide a forum for other traders or
organisations to conduct their commercial activities. Websites providing ecommerce services includes the following types:

E-commerce trading floor;

Online auction website;

Online promotion website; or

Other types of websites stipulated by the Ministry of Industry and Trade

(MOIT).

Decree 52 also contains detailed requirements for each type of e-commerce activity.
Management of e-commerce activities
(a)

Establishment of e-commerce websites

Generally, the trader, organisation or individual who wishes to establish an e-commerce

website for sales or a website providing e-commerce services must satisfy the following
requirements:

Being a trader or organisation with appropriate functions and duties or an

individual issued with a personal tax code;

Having a website with a valid domain name and complying with regulations on
information management on the internet; and

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June 2013

Having informed the MOIT of the set-up of an e-commerce sales website

through the online announcement tool on the Management Portal of ecommerce activities of the MOIT; or having a plan for service provision and
having registered the set-up of an e-commerce service provision website with
the MOIT.

E-commerce websites established and operating before the effective date of Decree 52
must make notification or re-registration within 90 days from 1 July 2013 (ie. the date on
which Decree 52 becomes effective).
(b)

Reporting obligations

Before 15 January every year, traders and organisations providing e-commerce services
must make a report to the MOIT on the statistical data of operation status of the
previous year.
Decree 52 grants
authority to the
MOIT to monitor
the activity of ecommerce
websites and
receive reports of
violations, however
reporting
procedures have
not yet been
specified

(c)

Announcement of information

The management portal of e-commerce activities of the MOIT is to keep and publish a
list of e-commerce websites.
Through the management portal, the MOIT will also publish a list of e-commerce
websites which require consumers caution. These websites include:

E-commerce websites which violate regulations or law; or

E-commerce websites which are reported to have violated regulations or law.

However, Decree 52 does not specify what is considered to be a violation of regulations

or law under the provision above or the procedures for reporting such violation.
Protection of personal information in e-commerce transactions
In the course of conducting e-commerce business, if traders, organisations or
individuals collect the consumers personal information, they must comply with the
requirements on protection of personal information under Decree 52 and other relevant
regulations.
One of the requirements is that the trader, organisation or individual collecting the
consumers personal information must formulate and publish a policy on protection of

2013 Allens Vietnam Laws

June 2013

personal information. If the gathering of information is conducted through the ecommerce website, the policy on protection of personal information must be made
public in a conspicuous place on this website. The policy on protection of personal
information must contain the following information:

purpose of collection of personal information;

scope of use for the personal information;

timeframe for storage of information;

people or organisations that may have access to that information;

address of the unit gathering and managing the information; and

methods and tools for consumers to access and modify their personal data on
the e-commerce system of the information gathering unit.

The traders, organisations or individuals gathering and using a consumer's personal

information on e-commerce websites must have prior consent from the consumer
except in certain cases as permitted by law, such as the gathering of personal
information that has already been publicised on e-commerce websites or the gathering
of personal information to sign or perform contracts or to calculate the price of the
product or service.
Use of the personal information collected in e-commerce transactions must be in
compliance with the purpose for collecting the information as stated in the policy on
protection of personal information of that trader, organisation or individual.

Foreign exchange amendments: further change or simply clarification?

Ordinance 06/2013/UBTVQH13 of the National Assembly dated 18 March 2013 amending Ordinance
28/2005/PL-UBTVQH11 on Foreign Exchange (the Amendment)
A Standing Committee of the National Assembly recently issued amendments to
several articles of Ordinance 28/2005/PL-UBTVQH11 on Foreign Exchange
(Ordinance 28). The Amendment is scheduled to take effect on 1 January 2014.
The Amendment modifies a majority of the articles in Ordinance 28, however overall it
does not seem to reform the current regime of foreign exchange control in any major
way. Rather, the changes seem to focus on providing clarification of the provisions of
Ordinance 28. In this article, we discuss the Amendment's more noteworthy changes.
No denomination of price in foreign currency
In an effort to stop the common practice in Vietnam of conducting business transactions
with reference to foreign currency, the Amendment makes clear that neither residents
nor non-residents are permitted to denominate prices in advertisements, quotations or
agreements in foreign currency. This follows a number of actions recently taken by the
State Bank of Vietnam (SBV) to restrict the use of foreign currency in Vietnam,
including a recent draft circular on foreign exchange control discussed in last month's
VLU. Notably, the draft circular extents the prohibition to any adjustment of prices with

2013 Allens Vietnam Laws

June 2013

reference to fluctuations in the exchange rate.

Investment account still required for foreign investments
The Amendment retains the current requirement that foreign invested enterprises (FIEs)
and foreign investors to business co-operation contracts must set up a 'direct
investment account' at an authorised credit institution (however, as is currently the
case, this requirement does not apply to foreign investors in FIEs). The Amendment
stipulates that all contributions of investment capital, repatriations of original investment
capital and payments of profit and other lawful revenue must be conducted via this
direct investment account. Interestingly, however, unlike the previous terms of
Ordinance 28, the new provision does not specifically require that interest repayments
of foreign loans must be remitted out of this direct investment account. Rather, the
Amendment provides that all other capital transfer transactions must be conducted in
accordance with relevant laws and State Bank guidelines, potentially leaving scope for
the State Bank's regulation of foreign loans to change.
Certain minor
differences in the
provisions
Amendment to
Ordinance 28
suggest the
potential for these
regulations to be
interpreted
differently
following the
implementation of
the changes

For foreign indirect investment in Vietnam, the Amendment seems to narrow down the
category of persons required to open a 'VND indirect investment account'. The
Amendment provides that non-resident foreign investors must open a 'VND indirect
investment account' to make their indirect investments in Vietnam. The Amendment
also regulates that the foreign currency investment capital of the foreign investors must
be converted into VND and transferred into this indirect investment account. All lawful
income of the foreign investor may be used for the purchase of foreign currency for
overseas remittance.
As the provision specifically refers to non-resident foreign investors, this suggests that
resident foreign investors engaging in indirect investment may not be required to follow
this requirement. However, we expect that the SBV will later provide guidelines on this
issue as part of its broader duty to guide the use of the VND and the VND accounts of
residents being foreign individuals (ie. those who are permitted to reside in Vietnam for
12 months or longer,) as set out in the Amendment.

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June 2013

Overseas indirect investments

The Amendment contains a new article on overseas indirect investments. Without
specifying whether the overseas indirect investments are permitted or not (presumably
because this is beyond the scope of the Amendment and Ordinance 28), the
Amendment stipulates that in the event the overseas indirect investments are permitted,
resident investors (other than credit institutions) must open a specialised account in
order to remit and receive capital and to receive profits in accordance with SBV
regulations. This provision seems to be a preparatory step, perhaps intended to work
alongside new legislation regulating overseas indirect investments by residents.
Borrowing of foreign loans by resident individuals
The Amendment retains the concept that resident individuals may borrow foreign loans
but now makes clear that the borrowings must be in accordance with the regulations of
the Government. To date, the Government has not issued any regulations on borrowing
of foreign loans by resident individuals. Until such time as this occurs, in practice it still
will not be possible for resident individuals to borrow foreign loans.
Provision of foreign loans by economic organisations
The Amendment clarifies that all loans to foreigners, including guarantees made to nonresidents, made by economic organisations (other than credit institutions) require
permission from the Prime Minister (rather than the Government). However, credit
payments for the export of goods or services are not considered loans to foreigners,
therefore the Prime Minister's permission is not required.
Branch offices and foreign contractors are residents
Branch offices of foreign companies and operating offices of foreign contractors are
now specifically classified by the Amendment as residents.
Foreign currency reserve of the State
The Amendment now specifies that the Ministry of Finance (MOF) must deposit all
foreign currency held by the State Treasury (under the MOF) at the SBV, and that the
Prime Minister will decide the amount of foreign currency that the MOF may retain for
regular expenditures of the State. The MOF must sell the remaining foreign currency to
the Foreign Currency Reserve of the State deposited at the SBV.
The Amendment also allows the Prime Minister to decide to use the Foreign Currency
Reserve of the State for extraordinary and emergency needs of the State. In the event
that such use of the Foreign Currency Reserve of the State affects the approved State
budget, an amendment to the approved State budget must be passed by the National
Assembly to legalise such additional expenditures in accordance with the Law on State
Budget.

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June 2013

New law on VAT expands list of exemptions and delivers tax cuts for
social housing
th

th

The 5 Session of the 13 National Assembly has passed a number of laws, among
them the Amended Law on value added tax (VAT). In this article, we look at a number
of important amendments in the latest draft of the law on VAT (the Draft Law). As the
law in the form it was passed has not yet become available to the public, the actual law
may vary slightly from the draft based on which we write this article, however these
should not be material. The law on VAT will take effect from 1 January 2014.
Purchasing
property should
become more
affordable for
low-income
earners following
a reduction in
the applicable
VAT rate for
social housing

Clarification of goods and services not subject to VAT

The Draft Law provides a much more detailed list of goods and services not subject to
VAT. These include:

Life insurance, health insurance, insurance for students, agricultural insurances,

insurances for sea-going vessels, boats, equipment and other devices for
fishing, and reinsurances;

Services relating to finance, banking and security including:

2013 Allens Vietnam Laws

Provision of facilities including lending, discounting and re-discounting

of negotiable instruments and other valuable papers, guarantees,
finance leasing, issuance of credit cards, domestic factoring,
international factoring and other legal form of credit facilities;

Lending by organisations other than credit institutions;

Securities-related services such as brokerage, investment,

underwriting, investment consultancy, depository, fund management,
portfolio management and market organisation services by securities
centres or stock exchanges;

Capital assignment through partial or total assignment of interest,

including by way of sale of an enterprise to another enterprise,

June 2013

assignment of securities and other forms of capital assignment;

Sale of debts;

Foreign currency business; and

Financial derivative services including interest rate swaps, forwards,

options to purchase or sell foreign currency and other financial
derivative services;

Equipment and machinery not yet able to be produced locally; and

Exports of raw natural resources or minerals.

Reduction of VAT tax rate for social housing to 5%

In an effort by the Government to prop up the social housing market for low-income
earners, the Draft Law lowers the VAT rate applicable to the purchase of social housing
by low-income earners to 5%. This provision on social housing will be effective from 1
July 2013 to 30 June 2014.

Government introduces labour outsourcing regulations

Decree 55 of the Government dated 22 May 2013 implementing provisions of the Labour Code with
respect to labour outsourcing (Decree 55)
Labour outsourcing has only recently been officially recognised by Vietnamese law,
through the issuance of the current Labour Code on 18 June 2012 (Labour Code). The
Labour Code defines labour outsourcing as the act of an enterprise recruiting certain
employees and sending those employees to work for another enterprise. On 22 May
2013, the Government issued Decree 55, further regulating the establishment and
operation of outsourcing enterprises and works that are permitted to be outsourced.
Establishment of outsourcing enterprises
(a)

Licensing requirements

In order to be eligible for a licence to carry out labour outsourcing activities, an

enterprise must:
(i)

have legal capital of VND 2 billion (approx USD 100,000), which must be
deposited in a bank account for the life of the outsourcing enterprise and may
only be withdrawn in limited circumstances;

(ii)

have a lease in place for its office with a term of at least 2 years; and

(iii)

have a General Director who: (i) has been working in the labour outsourcing
sector for at least 3 years; and (ii) in the 3 years immediately preceding the
licence application, has not been the head of an outsourcing enterprise for
which its licence was withdrawn, or repeatedly forged documents for the
purposes of applying for a outsourcing licence.

In the case of foreign investors setting up joint ventures with Vietnamese enterprises to
provide labour outsourcing services, the following additional conditions must be
satisfied:

2013 Allens Vietnam Laws

June 2013

(i)

the foreign investor must be a labour outsourcing enterprise in its home country
and must have capital and assets with a total value of VND 10 billion (approx
USD 500,000);

(ii)

it must have at least 5 years experience in providing labour outsourcing

services; and

(iii)

it must have a certification from a competent authority in its home country that
neither it nor its General Director (or equivalent) have breached the law of that
country.

Labour outsourcing licences are issued by the Ministry of Labour, War Invalids and
Social Affairs (MOLISA). The maximum initial duration of an outsourcing licence is 36
months, however a licence can be extended twice. Extensions can be for a period of up
to 24 months at a time. However, the extension duration cannot be longer than the
duration of the preceding term of the licence or extension.
Deposit
As noted above, the legal capital of the enterprise must be deposited, for the life of the
enterprise, at the bank where the outsourcing enterprise holds its transaction account.
The deposit will only be returned to the outsourcing enterprise in the following
circumstances:

MOLISA issues a notice that the licence to conduct outsourcing activity has not
been issued to the enterprise; or

the enterprise's outsourcing licence has been withdrawn by MOLISA.

Prior to return of the deposit, a labour outsourcing enterprise is permitted to withdraw all
or part of the deposit of legal capital, with approval from MOLISA, if it is unable to pay:

salaries to its outsourced employees that are more than 60 days overdue;

compensation to its outsourced employees that are more than 60 days overdue;
or

contributions for social, health and unemployment insurances for the

outsourced employees in 3 consecutive months.

Within 30 days from the above withdrawals, the outsourcing enterprise is required to
top-up the shortfall of the deposit. It is unclear how this requirement would work in
practice, given that an enterprise that meets any of the above criteria is likely to be
experiencing financial difficulty and therefore be unable to re-pay these amounts in such
a short period of time.
Positions for which labour outsourcing is permitted
A list of just 17 positions (including drivers, secretaries and receptionists) listed in
Decree 55 are permitted to be outsourced through a specialised enterprise. The
duration of the outsourcing must not exceed 12 months.
Purpose of labour outsourcing
Labour outsourcing is permitted for the following purposes:

2013 Allens Vietnam Laws

June 2013

(i)

to meet sudden demand for an increased labour force in a specific period;

(ii)

to replace employees during periods of maternity leave, leave due to labour

accidents or occupational diseases, for carrying out legal duties or for reducing
working times; or

(iii)

to meet demand for "high level" employees.

Labour outsourcing is not permitted in the following circumstances:

(i)

where the usual employees of the recipient enterprise are involved in a labour
dispute or strike;

(ii)

where the outsourcing enterprise fails to agree on compensation for labour

accidents and occupational diseases of outsourced employees with the
recipient enterprise;

(iii)

where the outsourcing is intended to replace employees that have been

retrenched; or

(iv)

where the outsourced employees would be required to work in areas where

living conditions are considered difficult by MOLISA and the Ministry of Health,
except where the outsourced employees have been living in such area for at
least 3 years.

Case Commentary: Mr. Ly Chenh Tai. v. Hoa Sen Garment Co., Ltd.
Judgment No. 03/2007/LD-GDT dated 05 June 2007
Following the recent introduction of various implementing Decrees under the new
Labour Code, this month's case commentary looks at the judicial review of Decision No.
03/2007/LD-GDT dated 05 June 2007 of the People's Supreme Court of Ho Chi Minh
City, concerning a labour dispute between Hoa Sen Garment Co., Ltd. (Hoa Sen) and
one of its employees, Mr. Ly Chenh Tai (Mr. Tai).
The Facts
On 01 January 2005, after working for almost two years under fixed-term labour
contracts, Mr. Tai entered into an indefinite labour contract with Hoa Sen. On 22
October and 11 November 2005, Hoa Sen recorded workplace incidents involving Mr.
Tai, for which he received written disciplinary records which he was required to
countersign. Then, on 17 November 2005, Hoa Sen sent a written notice to Mr. Tai
stating that the labour contract between Mr. Tai and the company was being terminated
due to the redundancy of Mr. Tai's position. Five days later, the company issued a
further disciplinary record to Mr. Tai as he had not signed the disciplinary records as
required. At this point ,Hoa Sen decided to refer the matter to its internal Committee on
Discipline and Awards, and to suspend Mr. Tai's employment for 15 days pending the
committee's decision. Again, Mr. Tai did not accept such decision, so Hoa Sen issued a
fourth record of discipline in response.
On 23 November 2005, Hoa Sen officially decided to dismiss Mr. Tai, for disciplinary
reasons, being that he violated the company's internal labour rules by having three
disciplinary notices simultaneously outstanding. On 17 January 2006, Mr. Tai

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10

commenced legal action against Hoa Sen alleging unlawful termination of his labour
contract.
The Decision
At first instance, the People's Court of Tay Ninh Province held that Hoa Sen had
terminated the labour contract unlawfully and in contravention of Article 17.1 of the
Labour Code (as then in force), which provided that where an employee of 12 months or
longer becomes unemployed for reasons of redundancy, and the person's employer
cannot re-train and assign the employee to a new job, that employer must pay an
allowance for loss of work equivalent to the aggregate amount of one month's wages for
each year of employment, but no less than two months' wages. Hoa Sen was therefore
ordered to make payments to Mr. Tai including redundancy, lost salary from November
2005 to March 2006 and several further allowances including 45 days in lieu of notice,
social insurance and payments for Mr. Tai's remaining annual leave days in 2005.
This case
highlights the
importance of
clear
communication
by employers to
employees of the
legal basis for
any disciplinary
action taken

Hoa Sen appealed to the Appeal Court of the Supreme People's Court of Ho Chi Minh
City the entire initial judgment on the basis that Mr. Tai's termination was not unlawful as
he was dismissed as a disciplinary measure for his violation of the company's internal
labour rules as permitted under Article 85 of the then current Labour Code. Despite the
fact that Hoa Sen had appealed the entire judgment of first instance, the Appeal Court of
the Supreme People's Court of Ho Chi Minh City considered the appeal with reference
to only part of the initial trial (regarding the amount of social insurance to be paid), and,
on this basis, retained the judgment of the first instance Court. Therefore, Hoa Sen
submitted a further request for a judicial review of the appeal decision on the basis that
the Appeal Court failed to follow proper legal procedure.
At the judicial review level, the People's Supreme Court of Ho Chi Minh City set aside
the judgment of the Appeal Court as it found that the Appeal Court failed to reconsider
the nature of the termination of the labour contract. Following this, the case was sent
back to the People's Supreme Court of Ho Chi Minh City to re-consider the appeal.
Moreover, the judicial review judgment noted that:

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11

The judgment at first instance holding that Hoa Sen unlawfully terminated its
labour contract with Mr. Tai by reason of Article 17.1 lacked legal basis; and

The Appeal Court violated proper procedure by failing to reconsider whether the
termination in question was regulated by Article 17.1 or Article 85 of the Labour
Code, and therefore whether it was legitimate.

Commentary
It appears from the notice issued by Hoa Sen on 17 November 2005 that the company's
initial intention was to terminate the labour contract with Mr. Tai under Article 17.1 of the
Labour Code (ie., for reasons of redundancy). However, Hoa Sen later officially
dismissed Mr. Tai for disciplinary reasons (ie. his violation of the company's internal
labour rules), which was separately provided for by Article 85 of Labour Code. As a
result, the Court should have considered the legitimacy of the Hoa Sen's actions in the
light of Article 85, rather than Article 17.1. Nevertheless, to avoid such confusion, it
would have been advisable for Hoa Sen to clearly state in its disciplinary dismissal
decision that the 17 November notice was invalid.
In addition to being an interesting example of the consequences of a failure by a court to
follow proper legal procedure in the context of an appeal, this case is a useful reminder
to employers that, in the course of terminating employment, they should consider any
fact which is likely cause confusion between the termination of labour contract under
Article 17 (ie. for reasons of redundancy), and disciplinary dismissal under Article 85.
These considerations remain relevant to employers under the 2012 Labour Code which
contains similar provisions under Articles 44 and 126 respectively.

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12

Legal instruments recently uploaded on to the Vietnam Laws online

database
Vietnam Laws online database (available at www.vietnamlaws.com) is an online
searchable database containing English translations of more than 3,500 Vietnamese
laws. Legislation recently uploaded includes:

Draft amendments to the Law on Corporate Income Tax, 15 April 2013

Decree 49 implementing the Labour Code on wages, 14 May 2013

Draft Resolution amending Legislative Programs for 2013 and 2014, May 2013

Circular 77 lowering the interest rate for State investment loans to 11.4% and for
State export loans to 9.3%, 4 June 2013

Circular 14 fixing the maximum interest rate for USD deposits from organisations
at 0.25% and from individuals at 1.25%, 27 June 2013

Circular 15 fixing the maximum interest rate for VND on-call deposits and term
deposits of under one month at 1.2%, and for VND term deposits of one month
up to below 6 months at 7%, 27 June 2013

Circular 16 fixing the maximum VND short-term lending interest rate for
borrowers in certain economic sectors at 9%, 27 June 2013

Hanoi

Ho Chi Minh City

Suite 401, Hanoi Towers

49 Hai Ba Trung Street, Hoan Kiem District
Hanoi, Vietnam
T +84 4 3936 0990
F +84 4 3936 0984
Bill.Magennis@allens.com.au
Hop.Dang@allens.com.au

Suite 605, Saigon Tower

29 Le Duan Boulevard, District 1
Ho Chi Minh City, Vietnam
T +84 8 3822 1717
F +84 8 3822 1818
Robert.Fish@allens.com.au

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June 2013

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