We witnessed last October the long-expected Decree 86 dated 29 July 2013 on electronic gaming business for foreigners (“Decree 86”) coming into effect. Although Decree 86 replaces an obsolete Decision 32 dated 27 February 2003 of the Prime Minister (“Decision 32”), it is unfortunate that Decree 86 appears to be even more tightening for the electronic gaming business in Vietnam.
Sub-license now in place
At the spotlight, the most important feature of Decree 86 is the introduction of a new sub-license regarding satisfactory business conditions (“Satisfactory license”) which the enterprise must obtain from the Ministry of Finance (“MOF”) before it can engage in gaming business. Accordingly, in order to be considered for a satisfactory license, the applicant must satisfy the following conditions:
- Its business line includes “tourism residential business”;
- Its tourist accommodation establishment is graded “five star” or “luxury” or higher by the tourism authority as in accordance with Law on Tourism;
- Its manager is of good character, at least university educated, has at least three-year experience in the gaming business and is not among those who are prohibited to establish and manage enterprises as in Law on Enterprises and Decree 72 dated 3 September 2009 on conditional businesses (“Decree 72”);
- Its tourist accommodation establishment satisfies the conditions on security and order as in accordance with Decree 72;
- Its financial capacity is stable with no accumulated losses and it was profitable in the preceding year; and
- It has a feasible business plan.
Decree 86 provides no further explanation of these conditions (e.g., what it means by “a feasible business plan”).
Uncertainty for old kids
Also, Decree 86 mandates an application for a satisfactory license even with an enterprise which has already been engaging in gaming business under Decision 32. This is problematic since Decision 32 provided an easier requirement for an enterprise to engage in gaming business (e.g., “four-star” accommodation instead of “five-star” or enterprise may engage in gaming business in a separated area within an entertainment park or a tourist park (“Non-hotel applicant”) etc.), it was unclear how these heavier requirements under Decree 86 would apply. An obvious example for the uncertain is whether the non-hotel applicants must establish a tourist accommodation to be able to continue engaging in the gaming business.
In January 2014, the MOF issued Circular 11 dated 17 January 2014 (“Circular 11”). The new Circular, however, while clarifying some of the uncertainties above, at the same time gives birth to new questions.
A peaceful transition?
Decree 86 provides a list of documents for obtaining the satisfactory license, one of which is an “authenticated copy of the decision on grading the tourist accommodation establishment” (“Grading Decision”) from a relevant authority. Article 12.3 of the Circular 11 specifically stipulates the documents that an on-going gaming business must submit for a new satisfactory license. Since Decision 32 permitted a non-hotel applicant to run a gaming business, Article 12.3 reconciles the previous provision by excluding the Grading Decision for a non-hotel applicant.
However, Article 12.3 does not cover how an on-going gaming business with a less than five-star tourist accommodation establishment (“4-star hotel applicant”) applies for a satisfactory license. Decree 86 stipulates very clearly that the MOF would only consider to grant satisfactory license for applicants with an at least 5-star or luxury tourist accommodation establishment. To evidence this, applicants must also submit the Grading Decision. Circular 11 only excludes this Grading Decision for non-hotel applicants but tells us nothing about 4-star hotel applicants. A liberal application would see a 4-star hotel applicant obtain a satisfactory license without having to upgrade its accommodation establishment to “5-star” or “luxury”. A conservative interpretation, however, would suggest otherwise. Neither interpretation is crystal clear at this stage which means the MOF should provide more guidance on this point. Since the deadline for on-going gaming businesses to apply for a satisfactory license is approaching (i.e., up until 1 October 2014), it is advisable that the MOF should act quickly on this matter. Otherwise, those who fail to apply for a satisfactory license could have their gaming business revoked.
It is also noted that Decree 86 only permits on-going gaming business to apply for a new satisfactory license under special procedure of Article 12.3. Enterprises that were licensed to conduct gaming business but had not in practice engaged in it are treated as new applicants and would need to have a 5-star or luxury tourist accommodation establishment to obtain a new satisfactory license.
“Feasible” business plan?
A feasible business plan is one of the documents to be submitted to the MOF for a satisfactory license.
Circular 11 provides a clearer description of the plan contents. Accordingly, a business plan must include two major head items: (1) current business status, and (2) business proposal. On the “proposal” item, enterprise must provide the MOF with its forecast on future quantity and types of gaming machines to be used, revenues, costs, profits, foreign currency cash flow, and solutions for security and order of the business. On the “business status” item, enterprise must provide the maximum and actual quantities of permitted gaming machines to be used, information on the business place, and the result of the gaming business in three most recent years as at the time of application lodging.
The description gives rise to two issues.
First, whether a new applicant is required to outline its “result of the gaming business in the three most recent years” is unclear. A reasonable interpretation should be that new applicants do not have to provide that impossibility. However, the language of Circular 11 does not specifically exclude new applicants from providing the result of gaming business in the plan. It is always unpredictable how the licensing authority would interpret such an uncertainty.
Second, there is no standard on how the MOF would review the business plan. As usually referred above, the language of Decree 86 that the MOF “will consider to grant the satisfactory license” suggests a wide discretion for the licensing authority to grant the license. The lack of a review standard during the licensing process means that the applicants must rely heavily on whether the MOF is satisfied with the application. At this point, there is little to ascertain how the MOF views its power and it needs testing in practice.
Operations of a gaming business
A large part of Circular 11 is devoted to stipulate the operation of a gaming business. This includes the management of the surveillance of the location, quantity and types of gaming machines (which requires a strict reporting to the MOF, Department of Finance, Department of Culture, Sports and Tourism and local tax authorities on the actual or changes to the quantity and types of the machines), registry books, tokens, substitute machines, technical conditions, machine suppliers, independent verification organizations, and dispute settlement rules.
An interesting requirement is that only machine manufacturers and suppliers and the independent verification organizations that are permitted to operate in Macao and published on the website of the Gaming Inspection and Coordination Bureau of Macao SAR are permitted to do business in Vietnam. Little information is provided to clarify the rationale of this requirement.
Accounting regime and periodical reports
Circular 11 also devotes a chapter to accounting and auditing regimes and periodical report of a gaming business. As such, apart from annual financial report, a gaming business is required to report to various authorities on the quantity, types, purchase, use and re-export of gaming machines and business status quarterly and annually.
On the price reduction, Circular 11 stipulates that only gamers who purchase tokens with at least US$50,000 of value could be offered a price reduction (of no more than 2% of the purchase value). Again, it is not clear how the MOF came up with this amount.
Apart from the above, Circular 11 fails to provide more guidance on the internal anti-money laundering protocol that the enterprise must submit to different authorities prior to commencing its gaming business as required in Decree 86. It is not a major issue though as enterprises may always rely on the Law on Anti-Money Laundering and its implementing legal instruments to establish such a protocol but it remains unclear on whether the authorities require any specific items for gaming business in practice.
Decree 86 also permits the gaming business to pay and accept foreign currency in association with the games. The enterprise must obtain a license from the State Bank of Vietnam to handle foreign currency. Circular 11 does not further discuss the procedure to obtain such a license, and we would expect guidance from the State Bank on this matter.
Decree 86 and Circular 11 demonstrate the conservative position of the Government of Vietnam in legalizing the gaming business. The first disappointment came when Decree 86 only discussed electronic gaming instead of combining it with casino and bookmaking business as in the proposed decree.
The second and bigger disappointment was how more difficult requirements were put in place to both prospective investors and current gaming enterprises. The language of both instruments is far from perfect, both giving rise to many uncertainties. Among the uncertainties, the most urgent could be to provide guidance on how a 4-star hotel applicant could apply for a satisfactory license before the clock ticks deadline and its right to do business is revoked.
Decree 86 came into effect on 1 October 2013 and Circular 11 will be effective from 15 March 2014.