On May 14th 2014 the Government has issued the Decree No. 42/2014/ND-CP (“Decree 42”) on multi-level marketing management, replacing the Decree No. 110/2005/ND-CP.
Overall, the new Decree has promulgated stricter provisions in a move to better manage such business model. Three most outstanding points noticed from this Decree are about (1) conditions for multi-level marketing registration, (2) duration of Multi-level marketing registration Certificate and (3) management and supervisory body.
Accordingly, regarding multi-level marketing registration, the Decree 42 stipulated that enterprises wishing to register multi-level marketing business are required to have a legal capital of VND 10 billion. In addition, multi-level marketing enterprises shall be required to deposit an escrow of equivalent to 5% of charter capital but not less than VND 5 billion, instead of VND 1 billion as previously, in a commercial bank where lies its head office, and be entitled to interest on the escrow under agreement with bank. The escrow account shall be blocked during the enterprise’s operation and shall only be withdrawn for use by a written acceptance of the issuing body of the Multi-level marketing registration Certificate, or when being refused to issue the Multi-level marketing registration Certificate. However, the Decree is not clear on whether the escrow is considered as a part of legal capital of the enterprise.
Besides, the Decree also supplemented regulations with respect to the duration of Multi-level marketing registration Certificate. Accordingly, Multi-level marketing registration Certificate shall be valid for 5 years, then possibly extended repeatedly for another 5 years at a time. Such certificate can be revoked in case the enterprises do not operate their multi-level marketing business within 12 consecutive months from the date of issuance, or discontinue the operation of multi-level marketing sale for 12 consecutive months or being dissolved, bankrupt, etc.
With regard to the management and supervisory body, the Ministry of Industry and Trade shall take responsibility before the Government for performance of the state management of multilevel marketing activities, including the right to issue Multi-level marketing registration Certificate, instead of municipal and provincial Departments of Industry and Trade as previously.
The Decree will come into effect from 1 st July 2014.