Decree No. 35/2006/NĐ-CP detailing the Law on Commerce regarding franchising activities

DECREE

Detailed regulations on commercial franchising activities under the Commercial Law

franchise

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THE GOVERNMENT

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

Pursuant to the Law on Trade dated June 14, 2005;

At the proposal of the Minister of Trade,

DECREE:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Decree provides detailed regulations on commercial franchising activities under the Commercial Law on the territory of the Socialist Republic of Vietnam.

Article 2. Applicability

1. This Decree applies to domestic traders and foreign traders participating in commercial franchising activities.

2. Foreign-invested enterprises specializing in trading goods and related activities directly connected to trading goods, in addition to the provisions of Article 7 of this Decree, may only conduct commercial franchising activities for products that the enterprise is permitted to distribute services according to Vietnam's international commitments.

Article 3. Explanation of Terms

In this Decree, the following terms are understood as follows:

1. "Franchisor" means a trader granting franchise rights, including secondary franchisors in relation to tertiary franchisees.

2. "Franchisee" means a trader receiving franchise rights, including tertiary franchisees in relation to secondary franchisors.

3. "Secondary Franchisor" means a trader having the right to grant again franchise rights received from the primary franchisor to tertiary franchisees.

4. "Primary Franchisee" means a trader receiving franchise rights from the primary franchisor. The primary franchisee is a secondary franchisor under Clause 3 of this Article in relation to tertiary franchisees.

5. "Tertiary Franchisee" means a trader receiving again franchise rights from a secondary franchisor.

6. "Franchise Rights" include one, several, or all of the following rights:

a) The right granted by the franchisor to allow and require the franchisee to independently carry out business operations providing goods or services according to a system defined by the franchisor and associated with the franchisor’s trademark, trade name, business slogan, business logo, and advertising;

b) The right granted by the franchisor to the primary franchisee to grant common franchise rights;

c) The right granted by the secondary franchisor to the tertiary franchisee pursuant to a common franchise agreement;

d) The right granted by the franchisor to the franchisee to grant franchise rights pursuant to a development franchise agreement.

7. "Business Conduct Under Franchising Method" means business operations conducted by the franchisee under a franchise agreement.

8. "Development Franchise Agreement" means a franchise agreement under which the franchisor grants the franchisee the right to establish more than one of its own premises to conduct business under the franchising method within a specific geographic area.

9. "Common Franchise Rights" means the rights granted by the franchisor to the secondary franchisor to grant franchise rights to tertiary franchisees. Tertiary franchisees shall not be allowed to grant these common franchise rights again.

10. "Secondary Franchise Agreement" means a franchise agreement signed between the secondary franchisor and the tertiary franchisee based on common franchise rights.

Article 4. State Management Authority over Franchising Activities

1. The Ministry of Trade is responsible before the Government for performing state management functions over franchising activities nationwide and has the following tasks and powers:

a) To uniformly manage and guide the implementation of policies and legal regulations regarding franchising activities; organize registration of franchising activities;

b) To take the lead and coordinate with ministries, ministerial-level agencies, agencies under the Government, provincial People's Committees, and centrally-administered municipal People's Committees in inspecting, supervising, evaluating, and reporting to competent authorities about franchising activities;

c) To propose to the Government to issue new or issue within its authority, or propose amendments and supplements to relevant legal documents concerning franchising activities.

2. The Ministry of Finance, within its scope of responsibilities, is responsible for guiding tax regimes applicable to franchising activities and registration fees for franchising activities.

3. Ministries, ministerial-level agencies, and agencies under the Government have the responsibility to manage state franchising activities within their scope of responsibilities.

4. Provincial People's Committees and centrally-administered municipal People's Committees have the following responsibilities:

a) To perform state management over franchising activities within their authority;

b) To direct the Department of Trade, the Department of Trade and Tourism to organize registration of franchising activities within their authority, inspect, supervise, and periodically report franchising activities in their jurisdiction to the Ministry of Trade.

Chapter II

COMMERCIAL FRANCHISING ACTIVITIES

Section 1:

CONDITIONS FOR TRADEMARK FRANCHISING ACTIVITIES

Article 5. Conditions for the Franchisor

A business entity is permitted to grant franchise rights when it meets the following conditions:

1. The business system intended for franchising has been operational for at least one year.

In the case where a Vietnamese business entity is the primary franchisee from a foreign franchisor, that Vietnamese business entity must operate under the franchise method for at least one year in Vietnam before granting franchise rights again.

2. It has registered its trademark franchising activities with the competent authority as stipulated in Article 18 of this Decree.

3. Goods and services subject to franchise rights do not violate the provisions of Article 7 of this Decree.

Article 6. Conditions for the Franchisee

A business entity is permitted to accept franchise rights if it has a business registration for an industry compatible with the object of franchise rights.

Article 7. Goods and Services Permitted for Trademark Franchising

1. Goods and services permitted for trademark franchising are those not included in the List of Prohibited Goods and Services.

2. In cases where goods and services fall within the List of Restricted Goods and Services, the List of Goods and Services Subject to Conditional Operation, enterprises may only engage in such operations after obtaining a Business License or equivalent documentation from the sectoral management agency, or meeting the required operating conditions.

Section 2:

INFORMATION DISCLOSURE AND CONTRACTS IN TRADEMARK FRANCHISING

Article 8. Obligation to Provide Information of the Franchisor

1. The franchisor is responsible for providing a copy of the sample franchise agreement and a description of its franchising system to the prospective franchisee at least fifteen working days prior to signing the franchise agreement, unless otherwise agreed upon by both parties. The mandatory contents of the description of the franchising system shall be prescribed and published by the Ministry of Commerce.

2. The franchisor is responsible for immediately notifying all franchisees of any significant changes in the franchising system that affect the operation of the franchisee under the franchising method.

3. If the franchise right is a master franchise right, in addition to providing information as prescribed in Clause 1 of this Article, the secondary franchisor must also provide in writing to the prospective franchisee the following contents:

a) Information about the franchisor who granted the franchise right to itself;

b) The content of the master franchise agreement;

c) The handling of secondary franchise agreements in the event of termination of the master franchise agreement.

Article 9. Obligation to Provide Information of the Prospective Franchisee

The prospective franchisee must provide the franchisor with information reasonably requested by the franchisor to decide on granting franchise rights to the prospective franchisee.

Article 10. Industrial Property Objects in Franchising

1. Where the franchisor transfers to the franchisee the right to use industrial property objects and the contents of the franchise rights, the portion of the transfer of the right to use these industrial property objects may be established as a separate part in the franchise agreement.

2. The portion of the transfer of the right to use industrial property objects in the franchise agreement is governed by the laws on industrial property.

Article 11. Contents of a Franchise Contract

In cases where the parties choose to apply Vietnamese law, the franchise contract may include the following main contents:

1. The content of the commercial rights.

2. Rights and obligations of the Franchisor.

3. Rights and obligations of the Franchisee.

4. Price, periodic franchise fees, and payment methods.

5. Duration of the contract's effectiveness.

6. Extension, termination of the contract, and dispute resolution.

Article 12. Language of the Franchise Contract

The franchise contract must be established in Vietnamese. In cases of franchising from Vietnam to foreign countries, the language of the franchise contract shall be agreed upon by the parties.

Article 13. Duration of the Franchise Contract

1. The duration of the franchise contract is agreed upon by the parties.

2. The franchise contract may terminate before the agreed duration in the cases stipulated in Article 16 of this Decree.

Article 14. Effective Date of the Contract

1. The franchise contract becomes effective from the date of conclusion, except in cases where the parties have agreed otherwise.

2. If the franchise contract includes provisions on the transfer of intellectual property rights, such provisions shall become effective in accordance with the laws on intellectual property.

Article 15. Transfer of Commercial Rights

1. The Franchisee may transfer commercial rights to another intended recipient if the following conditions are met:

a) The intended recipient meets the requirements set forth in Article 6 of this Decree;

b) Approval from the direct Franchisor who granted the commercial rights (hereinafter referred to as the Direct Franchisor) is obtained.

2. The Franchisee must submit a written request for the transfer of commercial rights to the Direct Franchisor. Within fifteen days from the date of receipt of the written request from the Franchisee, the Direct Franchisor must provide a written response stating:

a) Approval of the Franchisee's transfer of commercial rights;

b) Rejection of the Franchisee's transfer of commercial rights based on the reasons specified in Clause 3 of this Article.

If the Direct Franchisor does not provide a written response within the aforementioned fifteen-day period, it shall be deemed as approval of the Franchisee's transfer of commercial rights.

3. The Direct Franchisor may only reject the Franchisee's transfer of commercial rights for one of the following reasons:

a) The intended recipient fails to meet the financial obligations that the intended recipient must fulfill under the franchise contract;

b) The intended recipient has not yet met the selection criteria of the Direct Franchisor;

c) The transfer of commercial rights will have a significant adverse impact on the current franchise system;

d) The intended recipient does not agree in writing to comply with the obligations of the Franchisee under the franchise contract;

đ) The Franchisee has not fulfilled their obligations towards the Direct Franchisor, except in cases where the intended recipient agrees in writing to perform those obligations on behalf of the Franchisee.

4. The transferring party loses the transferred commercial rights. All rights and obligations related to the commercial rights of the transferring party are transferred to the receiving party, except in cases where there is an agreement to the contrary.

Article 16. Unilateral Termination of Franchise Contracts

1. The franchisee has the right to unilaterally terminate the franchise contract if the franchisor breaches obligations stipulated in Article 287 of the Commercial Law.

2. The franchisor has the right to unilaterally terminate the franchise contract in the following cases:

a) The franchisee no longer possesses a business license or equivalent documents required by law for conducting business under the franchise method.

b) The franchisee is dissolved or declared bankrupt according to Vietnamese law.

c) The franchisee seriously violates the law, potentially causing significant damage to the reputation of the franchise system.

d) The franchisee fails to remedy non-material breaches in the franchise contract within a reasonable time period, despite having received a written notice from the franchisor requesting such remediation.

Section 3:

REGISTRATION OF FRANCHISE ACTIVITIES

Article 17. Registration of Franchise Activities

1. Prior to conducting franchise activities, Vietnamese merchants or foreign merchants planning to grant franchises must register their franchise activities with the competent authority as prescribed in this Decree.

2. The competent authority responsible for registering franchise activities shall record the franchise activities of merchants in the Register of Franchise Activities and notify the merchant in writing about the registration.

Article 18. Hierarchical Implementation of Franchise Activity Registration

1. The Ministry of Commerce shall implement the registration of the following franchise activities:

a) Franchising from abroad into Vietnam, including franchising from Export Processing Zones, Free Trade Zones, or other customs areas as prescribed by Vietnamese law into the territory of Vietnam;

b) Franchising from Vietnam to abroad, including franchising from the territory of Vietnam into Export Processing Zones, Free Trade Zones, or other customs areas as prescribed by Vietnamese law.

2. Provincial Departments of Commerce, Tourism Departments of centrally-administered cities where the merchant planning to grant franchises intends to conduct business shall implement the registration of domestic franchise activities, except for transfers across the boundaries of Export Processing Zones, Free Trade Zones, or other customs areas as prescribed by Vietnamese law.

Article 19. Documents for Requesting Registration of Franchise Activities

The documents for requesting registration of franchise activities include:

1. A request form for registering franchise activities in accordance with the model provided by the Ministry of Commerce.

2. An introduction to the franchise activity according to the model prescribed by the Ministry of Commerce.

3. Certifying documents regarding:

a) The legal status of the party planning to grant the franchise;

b) Intellectual property rights certificates at home or abroad in cases where there is a transfer of usage rights for protected intellectual property objects.

4. If the documents specified in Clause 2 and Clause 3 of this Article are in a foreign language, they must be translated into Vietnamese and certified by a notary office in Vietnam or a diplomatic mission of Vietnam abroad, and legalized according to Vietnamese law.

Article 20. Procedures for registering franchising activities

1. The party planning to engage in franchising shall be responsible for registering franchising activities according to the following procedures:

a) Submitting the application dossier for registering franchising activities to the competent state agency as prescribed in Article 18 of this Decree;

b) Within five working days from the date of receiving a complete and valid dossier, the competent state agency shall register the franchising activity in the Franchising Activity Registration Book and notify the business operator in writing about the registration;

c) In case the dossier is incomplete or invalid, within two working days from the date of receipt of the dossier, the competent state agency must issue a written notice for the party planning to franchise to supplement and complete the dossier;

d) The time limits specified in this clause do not include the time taken by the party planning to franchise to amend and supplement the application dossier for registering franchising activities;

đ) After the expiration of the time limit stipulated in this clause, if the competent state agency refuses the registration, it must notify the party planning to franchise in writing and specify the reasons;

2. The procedures for registering contracts for transferring the right to use industrial property objects shall be carried out in accordance with the provisions of the law on intellectual property rights;

Article 21. Notification of changes in registered information in franchising activities

When there are changes in the information registered as prescribed in Clause 2 and Clause 3 of Article 19 of this Decree, the franchisor shall be responsible for notifying the competent state agency where the franchising activity was registered within thirty days from the date of change in the registered information;

Article 22. Cancellation of registration of franchising activities

1. The registration of franchising activities of a business operator shall be cancelled in the following cases:

a) The business operator ceases to operate in franchising or changes its business sector;

b) The business operator has had its Business Registration Certificate or Investment Certificate revoked;

2. The agency responsible for registering franchising activities shall be responsible for publicly announcing the cancellation of such registration;

Article 23. Fees for registering franchising activities

The party planning to engage in franchising shall pay the fee for registering franchising activities. The level of collection and management and use of the fees shall be implemented in accordance with the guidance of the Ministry of Finance;

Section 4:

VIOLATIONS OF THE LAW IN FRANCHISING ACTIVITIES AND AUTHORITY TO HANDLE VIOLATIONS

Article 24. Violations of the law in franchising activities

1. A business operator participating in franchising activities that commits any of the following violations shall be subject to administrative penalties depending on the nature and severity of the violation as prescribed by the law on administrative offenses:

a) Engaging in franchising without meeting the required conditions;

b) Franchising prohibited goods or services;

c) Violating the obligation to provide information in franchising activities as prescribed in this Decree;

d) Information in the franchise introduction containing false content;

đ) Violating the regulations on registering franchising activities;

e) Violating the regulations on notifications in franchising activities;

g) Failing to pay taxes as prescribed by law without reaching the level of criminal prosecution;

h) Refusing to comply with the requirements of the competent state agency during inspections and audits;

i) Violating other provisions of this Decree;

2. If a business operator engaging in franchising causes material damage to the interests of related organizations or individuals, it must compensate for the damage in accordance with the law.

Article 25. Competence and Procedure for Handling Administrative Violations

The competence and procedure for handling administrative violations concerning the acts prescribed in Article 24 of this Decree shall be implemented in accordance with the laws on handling administrative violations.

Article 26. Complaints and Reports

1. Organizations and individuals have the right to complain about the registration of franchising activities, tax payment and fees, inspection, examination, and handling of violations in franchising activities in accordance with the laws on complaints.

2. Individuals have the right to report acts violating the law in franchising activities in accordance with the laws on reports.

Chapter III

IMPLEMENTING PROVISIONS

Article 27. Transitional Provisions

Franchising activities that have been carried out before the effective date of this Decree must complete the registration procedures in accordance with this Decree within three months from the date it takes effect.

Article 28. Effective Date

1. This Decree shall take effect fifteen days after its publication in the Official Gazette. All previous regulations related to franchising activities that conflict with the provisions of this Decree are hereby abolished.

2. Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of provincial people's committees under central cities are responsible for guiding and implementing this Decree./.