Decree No. 110/2005/ND-CP (Decree 110) defined the competent authorities and set out guidelines for all those participating in multi-level sales activities in Vietnam. Despite the regulations thus promulgated many multi-level sales enterprises took advantage of or seduced participants to form organized networks that have adversely impacted consumers. In an attempt to remedy this situation the Government adopted Decree No. 42/2014/ND-CP (Decree 42), dated 14 May 2014, providing for the management of multi-level sales activities.
Most multi-level sales schemes operate in such a way as the earliest members derive profits from sales by those who join later. According to Decree 42, such business models may be considered as pyramid schemes. Pyramid schemes are defined as "conducting activities on the multi-level basis, in which the participant's income derives mainly from the recruitment of new participants; the extension of term of the participants’ contracts and their fees, deposits or investments in the network". Pyramid schemes, as defined, are now on the prohibited list of business activities.
In addition, multi-level sales enterprises are prohibited to market and sell:
- Such goods on the list as are banned or restricted from circulation, such goods will be withdrawn from the market temporatorily.
- Drugs; medical equipment; veterinary compositions, plant protection compositions; chemicals, insecticides, disinfectants in the sectors of household and health; dangerous chemicals and products containing dangerous chemicals as proscribed by law.
Thus, in addition to the above commodities, multi-level sales businesses are also not allowed to apply their business models to services, except for those permitted by law.
The total value of commissions, bonuses and other economic benefits paid to participants in a multi-level sales scheme in any given year, converted into cash, may not exceed 40% of sales income of that multi-level sales business.
Decree 42 also names mandatory conditions for a multi-level sales business to be legitimately registered with the Ministry of Industry and Trade including but not limited to:
- Its business lines in the certificate of business registration (“CBR”) must include multi-level retail business;
- It must have a legal capital of VND 10 billion (app. US$500,000) or more; and
- Its deposits must be equal to 5% of its charter capital, but not less than VND5 billion (app. US$250,000) instead of VND1 billion (app. US$50,000) under the previous regulations.
At the same time, Decree 42 also provides that the validity of the certificate of registration of multi-level sales operation (“CRMLSO”) is of 5 years duration and can be renewed every 5 years. This CMRLSO will be revoked in any of the following cases:
- The CBR or investment certificate revoked or expired;
- Profile for obtaining CRMLSO was fraudulent;
- The enterprise has been sanctioned for a number of violations;
- The multi-level sales activities are not developed for 12 consecutive months from the date of issuance of CRMLSO; and
- Multi-level activities are suspended for 12 consecutive months.
Decree 42 will take effect from 01 July 2014 and replace Decree 110.