Decree No. 110/2005/NĐ-CP On Managing Multi-Level Marketing Activities

DECREE OF THE GOVERNMENT

On the management of multi-level marketing activities

_______________

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

Pursuant to the Electricity Law dated December 3, 2004, the Law Amending and Supplementing Certain Provisions of the Electricity Law;

At the proposal of the Minister of Trade,

DECREE:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Decree stipulates multi-level marketing activities and the management of such activities within the territory of the Socialist Republic of Vietnam.

Article 2. Applicability

This Decree applies to multi-level marketing enterprises and individuals participating in multi-level marketing networks.

Article 3. Multi-level Marketing

1. Multi-level marketing is a marketing method for retailing goods that meets the conditions prescribed in Clause 11, Article 3 of the Competition Law.

2. An enterprise may organize multi-level marketing only after obtaining a Registration Certificate for Organizing Multi-level Marketing in accordance with the provisions of Article 16 of this Decree.

Article 4. Participants in Multi-level Marketing

1. A participant in multi-level marketing (hereinafter referred to as a participant) is an individual with full civil capacity who has signed a participation contract in multi-level marketing with a multi-level marketing enterprise, except for those individuals specified in Clause 2 of this Article.

2. The following individuals shall not participate in multi-level marketing:

a) Individuals currently serving a prison sentence or having a criminal record for offenses related to producing, trading in counterfeit goods, fraudulent advertising, illegal business operations, tax evasion, deceiving customers, fraud, misappropriation of trust, and unlawful possession of property;

b) Foreign individuals and overseas Vietnamese residents without a work permit issued by the competent authority.

Article 5. Goods Subject to Multi-level Marketing

1. All goods can be traded through multi-level marketing, except for the following cases:

a) Goods listed in the Prohibited Goods Catalogue, Restricted Business Goods Catalogue, counterfeit goods, and smuggled goods as prescribed by law;

b) Human pharmaceuticals; vaccines and biological products; medical equipment and medical supplies; veterinary drugs (including aquatic animal veterinary drugs); plant protection chemicals; insecticides and disinfectants used in household and medical fields; raw materials for medicinal preparations; hazardous chemicals and products containing hazardous chemicals as prescribed by law.

2. Goods subject to multi-level marketing must meet the following conditions:

a) Ensuring quality standards, safety, and food hygiene as prescribed by law;

b) Clearly and legally identifying the origin, nature, and functions of the goods;

c) Having a label in compliance with the legal regulations.

Chapter II

MULTI-LEVEL MARKETING ACTIVITIES

Article 6. Responsibilities of Multi-level Marketing Enterprises

1. Multi-level marketing enterprises have the responsibility to establish and publicly announce their Enterprise Operation Rules and Participant Operation Rules in multi-level marketing activities.

. Multi-level marketing enterprises have the responsibility to provide information materials to individuals intending to join the enterprise's multi-level marketing network on the following contents:

a) Sales programs, including reward payment methods; sample contracts that the enterprise will sign with participants and other agreements defining the rights and obligations of participants; information about product quality standards or quality certificates (if applicable), prices, functions, and usage methods of sold goods; regulations related to warranty, return, and repurchase of sold goods;

b) Training programs for participants, including training content; training duration; procedures and requirements for issuing training certificates; regular training schedules and content for participants;

c) Operation rules guiding transaction methods and regulations related to multi-level marketing;

d) Responsibilities of participants;

đ) Economic benefits that participants may obtain through marketing or directly selling goods and the conditions for obtaining such economic benefits;

e) Conditions for terminating contracts with participants and the rights and obligations arising from such termination;

g) Other issues prescribed by competent state authorities.

3. In addition to the responsibilities stipulated in Clause 2 of this Article, multi-level marketing enterprises also have the following responsibilities:

a) Ensuring the truthfulness and accuracy of information provided to participants;

b) Ensuring the quality of goods sold through multi-level marketing;

c) Resolving complaints from participants and consumers;

d) Withholding income tax from participants before paying commissions, bonuses, or other economic benefits to participants;

đ) Training and providing ongoing professional development in multi-level marketing and relevant laws to participants;

e) Managing participants through a membership card system in the multi-level marketing network according to a model prescribed by the Ministry of Trade;

g) Informing participants about goods that do not need to be repurchased before they proceed to purchase such goods.

Article 7. Prohibited Acts of Multi-Level Marketing Enterprises

Multi-level marketing enterprises are prohibited from engaging in the following acts:

1. Requiring individuals wishing to join to make a deposit to obtain the right to join the multi-level marketing network.

2. Requiring individuals wishing to join to purchase an initial quantity of goods to obtain the right to join the multi-level marketing network.

3. Requiring individuals wishing to join to pay money or any other fee under the guise of training courses, training sessions, seminars, social activities, or similar activities to obtain the right to join the multi-level marketing network, except for the cost of purchasing materials as stipulated in Clause 2, Article 6 of this Decree.

4. Not committing to refund goods and return the amount transferred to the enterprise by participants according to Article 11 of this Decree.

5. Obstructing participants from returning goods arising from the termination of their multi-level marketing participation contract.

6. Allowing participants to receive commissions, bonuses, or other economic benefits from enticing others to join multi-level marketing.

7. Refusing to pay commissions, bonuses, or other economic benefits that participants are entitled to without justifiable reasons.

8. Providing false information about the benefits of joining the multi-level marketing network to entice others to join multi-level marketing.

9. Providing misleading information about the nature and functions of goods to entice others to join multi-level marketing.

Article 8. Responsibilities and Prohibited Acts of Participants

1. When participating in multi-level marketing activities, participants shall have the following responsibilities:

a) Presenting the membership card of the multi-level marketing network before introducing products or promoting sales;

b) Fully informing about the contents prescribed in Clause 2, Article 6 of this Decree when sponsoring another person to join the multi-level marketing network;

c) Providing truthful and accurate information about the type, quality, price, functions, and usage methods of sold goods;

d) Adhering to regulations in the Business Operation Rules and Sales Program of the enterprise.

2. Participants are prohibited from engaging in the following acts:

a) Requiring sponsored individuals to pay any fee under the guise of training courses, training sessions, seminars, social activities, or similar activities to join the multi-level marketing network;

b) Providing false information about the benefits of multi-level marketing, misleading information about the nature and functions of goods, or about the activities of multi-level marketing enterprises to entice others to join multi-level marketing.

Article 9. Multi-Level Marketing Participation Contracts

1. Multi-level marketing enterprises must enter into participation contracts in writing with individuals joining the multi-level marketing network.

2. The Ministry of Commerce is responsible for guiding the basic contents of model contracts for multi-level marketing activities.

Article 10. Termination of Multi-Level Marketing Participation Contracts

1. Participants have the right to terminate the contract by sending a written notice to the multi-level marketing enterprise at least seven working days prior to contract termination.

2. Multi-level marketing enterprises have the right to terminate the contract with participants if they violate the provisions of Article 8 of this Decree and must notify the participant in writing at least seven working days prior to contract termination.

3. Within fifteen working days from the date of contract termination, the multi-level marketing enterprise has the following responsibilities:

a) Purchasing from the participant the goods sold to them according to Article 11 of this Decree;

b) Paying the participant commissions, bonuses, and other economic benefits that the participant is entitled to during their participation in the multi-level marketing network.

Article 11. Purchase of goods from participants upon termination of multi-level marketing participation contract

1. Multi-level marketing enterprises must repurchase goods sold to participants when such goods meet the following conditions:

a) The goods can be resold for their original intended use;

b) Within thirty days from the date the participant received the goods.

2. In cases where goods must be repurchased according to the provisions of Clause 1 of this Article, the multi-level marketing enterprise shall be responsible for:

a) Refunding the total amount paid by the participant to receive the goods if there is no basis for deduction as provided in point b of this clause;

b) If the enterprise incurs management costs, storage costs, and other administrative expenses, it must refund at least ninety percent of the amount paid by the participant to receive the goods.

3. When refunding money according to the provisions of Clause 2 of this Article, the multi-level marketing enterprise may deduct commissions, bonuses, and/or other economic benefits that the participant has received from receiving the goods.

4. The provisions of Clause 1 and Clause 2 of this Article do not apply to goods that are not required to be repurchased, including goods that have exceeded their shelf life upon return, seasonal goods, or promotional goods.

Article 12. Obligation of Liability Between Multi-Level Marketing Enterprises and Participants

1. Multi-level marketing enterprises shall be liable to compensate consumers or participants in the following cases:

a) A participant causes damage to a consumer or another participant while complying with the Operating Regulations and Sales Program of the enterprise;

b) A participant does not provide full information about the goods as stipulated in Clause 2 of Article 6 of this Decree.

2. Multi-level marketing enterprises shall regularly monitor the activities of participants to ensure compliance with the Operating Rules and Sales Program of the enterprise.

3. In cases where they fail to comply with the provisions of Article 8 of this Decree and cause damage to consumers or other participants, multi-level marketing participants shall be responsible for compensating for the damage caused.

Article 13. Information on Benefits of Multi-Level Marketing Participation

Where a participant in a multi-level marketing network is used to introduce sales activities, the multi-level marketing enterprise or participant must clearly state the name, age, address, time of participation, profit earned each period, and a receipt confirming tax collection by the tax authority of that person.

Chapter III

MANAGEMENT OF MULTI-LEVEL MARKETING ACTIVITIES

Article 14. Conditions for Issuing Registration Certificate for Organizing Multi-Level Marketing

An enterprise shall be issued a Registration Certificate for Organizing Multi-Level Marketing when meeting the following conditions:

1. It has fulfilled the deposit requirement as stipulated in Article 17 of this Decree.

2. It engages in the sale of goods consistent with its business scope as recorded in its Business Registration Certificate.

3. It meets the business conditions or has been issued a Certificate of Eligibility to Engage in Business in accordance with the law in cases involving goods listed in the Catalogue of Goods Subject to Conditional Business Operations.

4. It has a transparent Sales Program that does not contravene the law.

5. It has a clear Training Program for participants.

Article 15. Documents for Application to Obtain a Multi-Level Marketing Organization Registration Certificate

The application documents for obtaining a Multi-Level Marketing Organization Registration Certificate shall be submitted to the Department of Commerce or the Department of Commerce and Tourism of the province where the enterprise registers its business. The documents include:

1. An application form for obtaining a Multi-Level Marketing Organization Registration Certificate according to the model of the Ministry of Commerce.

2. A notarized copy of the Business Registration Certificate.

3. A bank's confirmation letter regarding the amount of the deposit as stipulated in Clause 1, Article 17 of this Decree.

4. A notarized copy of the Certificate of Eligibility for Business Operations in cases where goods fall under the List of Goods Subject to Conditional Business Operations.

5. A list and curriculum vitae of the heads of the enterprise with photographs and confirmation from the police station of their place of residence. For foreign individuals, there must be a confirmation from the Embassy or Consular Office in Vietnam of the country they hold citizenship.

6. A sales program containing the contents prescribed in Point a, Clause 2, Article 6 of this Decree.

7. A training program for participants containing the contents prescribed in Point b, Clause 2, Article 6 of this Decree.

Article 16. Procedures for Issuing and Supplementing a Multi-Level Marketing Organization Registration Certificate

1. Within fifteen working days from the date of receipt of complete and valid documents, the Department of Commerce or the Department of Commerce and Tourism of the province where the enterprise registers its business operations shall issue a Multi-Level Marketing Organization Registration Certificate to the enterprise when the enterprise's documents meet all conditions specified in Article 14 of this Decree.

In case of refusal to issue a Multi-Level Marketing Organization Registration Certificate, the Department of Commerce or the Department of Commerce and Tourism must provide a written response stating the reasons.

2. Enterprises applying for a Multi-Level Marketing Organization Registration Certificate must pay the registration certificate issuance fee. The level of collection and management and use of the fee are regulated by the Ministry of Finance.

3. In case of changes related to the content of the Sales Program, the enterprise is responsible for submitting supplementary procedures to obtain a Multi-Level Marketing Organization Registration Certificate.

The procedure and time limit for supplementing a Multi-Level Marketing Organization Registration Certificate shall be carried out in accordance with the provisions of Clauses 1 and 2 of this Article.

4. Within fifteen working days from the date of issuance or supplementary issuance of a Multi-Level Marketing Organization Registration Certificate, the Department of Commerce or the Department of Commerce and Tourism shall report in writing to the Competition Management Authority under the Ministry of Commerce.

5. When a multi-level marketing enterprise expands its sales network to provinces or centrally-administered cities where it does not have its main office, the enterprise must notify the Department of Commerce or the Department of Commerce and Tourism of that province or centrally-administered city.

6. The Ministry of Commerce shall prescribe the model of the Multi-Level Marketing Organization Registration Certificate and the Notification of Multi-Level Marketing Organization.

Article 17. Deposit

1. Multi-level marketing enterprises must deposit five percent of their charter capital but not less than one billion Vietnamese dong at a commercial bank operating in Vietnam.

2. Upon notification of cessation of multi-level marketing activities, the multi-level marketing enterprise may use the deposit funds to pay commissions, bonuses, or purchase prices of goods from participants.

3. Upon termination of multi-level marketing activities, the multi-level marketing enterprise may only withdraw the entire deposit amount if there are no complaints from participants regarding the payment of commissions, bonuses, or purchase prices of goods.

Article 18. Revocation of the Multi-level Marketing Organization Registration Certificate

1. The Department of Commerce or the Department of Commerce and Tourism shall revoke the Multi-level Marketing Organization Registration Certificate in the following cases:

a) The enterprise has its Business Registration Certificate revoked;

b) The enterprise has its Business Condition Certificate revoked in the case of operating goods listed in the Catalogue of Goods Subject to Business Conditions;

c) The application for the Multi-level Marketing Organization Registration Certificate contains false information intentionally provided;

d) There are serious violations of the law in the operation of multi-level marketing.

2. In the event that the Multi-level Marketing Organization Registration Certificate is revoked according to Clause 1 of this Article, the multi-level marketing enterprise must immediately cease multi-level marketing activities, stop recruiting new participants, and fulfill responsibilities towards participants as stipulated in Article 11 of this Decree or compensate consumers and participants for incidents arising from contracts concluded before the revocation of the Multi-level Marketing Organization Registration Certificate.

3. The decision to revoke the Multi-level Marketing Organization Registration Certificate issued by the Department of Commerce or the Department of Commerce and Tourism shall be sent to the Competition Management Agency under the Ministry of Commerce and published on mass media.

Article 19. Suspension and Termination of Multi-level Marketing Activities

1. When intending to suspend or terminate multi-level marketing activities, the multi-level marketing enterprise shall have the following obligations:

a) Comply with regulations on suspending or terminating business operations as prescribed by laws on enterprises;

b) Notify the provincial Department of Commerce or the Department of Commerce and Tourism where the enterprise is registered for business, simultaneously announce publicly at the main office, and inform participants of the suspension or termination of activities within thirty working days prior to such actions.

2. In the event of suspending or terminating multi-level marketing activities, the multi-level marketing enterprise must settle participation contracts in multi-level marketing with participants as stipulated in Article 10 of this Decree within thirty working days from the date of suspension or termination of multi-level marketing activities.

Article 20. Periodic Reporting Obligations of Multi-level Marketing Enterprises

Every six months, multi-level marketing enterprises shall report to the provincial Department of Commerce or the Department of Commerce and Tourism where the enterprise is registered for business regarding the number of participants, revenue, and taxes paid by the enterprise, as well as individual income tax of participants paid on behalf of them by the enterprise.

Article 21. Responsibilities of the Ministry of Commerce

1. The Ministry of Commerce is responsible to the Government for performing state management functions over multi-level marketing activities nationwide.

2. The Competition Management Agency under the Ministry of Commerce shall assist the Minister of Commerce in the following specific management contents:

a) Guide the Departments of Commerce or Commerce and Tourism in issuing the Multi-level Marketing Organization Registration Certificate; inspect the management of multi-level marketing activities by the Departments of Commerce and Commerce and Tourism;

b) Directly inspect and audit multi-level marketing activities when necessary. Handle violations of laws governing multi-level marketing activities within their authority.

c) Propose to the Government to issue or amend legal documents related to ensuring order in organizing multi-level marketing activities, protecting the rights and interests of multi-level marketing network participants and consumers, and maintaining economic and social stability.

Article 22. Responsibilities of the People's Committee of Provinces and Central Cities

1. The People's Committee of Provinces and Central Cities shall be responsible for state management over multi-level marketing sales methods within their authority and in accordance with the guidance of the Ministry of Commerce as stipulated in this Decree and other relevant laws.

2. The Department of Trade or the Department of Trade and Tourism shall assist the People's Committee of Provinces and Central Cities in issuing registration certificates for multi-level marketing organizations; regularly inspect and supervise multi-level marketing activities within their jurisdiction and report periodically to the Competition Management Agency under the Ministry of Commerce on such inspections and supervision.

Article 23. Handling Violations by Multi-Level Marketing Enterprises and Participants

1. Multi-level marketing enterprises and participants who commit violations as follows shall be subject to administrative penalties according to the nature and degree of violation as prescribed by laws on handling administrative violations:

a) Organizing multi-level marketing without meeting the required conditions;

b) Violating regulations on eligible participants in multi-level marketing;

c) Violating regulations on goods permitted to be sold through multi-level marketing methods;

d) Failing to provide complete information as required when sponsoring new participants into the network;

đ) Engaging in actions that multi-level marketing enterprises and participants are not allowed to perform;

e) Multi-level marketing enterprises failing to enter into written contracts with participants;

g) Violating provisions on terminating participation contracts in multi-level marketing;

h) Failing to comply with reporting requirements as stipulated in Article 20 of this Decree;

i) Modifying the Sales Program without applying for supplementary registration certificates for multi-level marketing organizations;

k) Multi-level marketing enterprises violating regulations on deposit amounts and payments from deposits during operations;

l) Failing to pay taxes as prescribed by law;

m) Failing to comply with requests from competent state agencies during inspections and audits;

n) Violating other provisions of this Decree.

2. In cases where the violations by enterprises or participants in multi-level marketing cause material damage to related organizations or individuals, they must compensate for damages according to the law.

Article 24. Authority and Procedures for Handling Administrative Violations

1. The authority to handle administrative violations as specified in Article 23 of this Decree shall be carried out in accordance with the Competition Law and the Ordinance on Handling Administrative Violations.

2. The procedures for handling administrative violations as specified in Article 23 of this Decree shall be carried out in accordance with laws on handling administrative violations.

Chapter IV

IMPLEMENTING PROVISIONS

Article 25. Effective Date

1. This Decree shall take effect fifteen days after its publication in the Official Gazette. Multi-level marketing enterprises that have registered for business before the effective date of this Decree shall be responsible for applying for registration certificates for multi-level marketing organizations at the Department of Trade or the Department of Trade and Tourism of the province where the enterprise has registered for business within three months from the date this Decree takes effect.

2. Ministers, Heads of ministerial-level agencies, Heads of agencies under the Government, and Chairmen of the People's Committees of Provinces and Central Cities are responsible for implementing this Decree./.