You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

May 29, 2014

Food and Beverage Franchising in Vietnam

Subscribe to Updates
Informed Counsel

On February 8, 2014, a few days after the Lunar New Year, Vietnam’s first-ever McDonald’s opened in Ho Chi Minh City’s District 1. Situated on a major transportation axis, but away from tourist areas and the downtown core, the new restaurant boasted 24-hour service and a drive-thru—for both cars and motorbikes—which was also purported to be the first in Vietnam.

Curious customers queued round the clock in snaking lines more commonly seen at amusement parks than chain restaurants, as a flood of teens, families, and professionals awaited their first taste of the famous Big Mac. In just the first 24 hours of business, 22,500 customers were served, according to the Daily Mail. By the end of the first month, a staggering 400,000 people had dined at this single location. Though those numbers may be inflated, they reflect an apparent truth: the Vietnamese market has a great demand for famous worldwide brands.

As of March 2014, there were approximately 120 foreign franchisors registered in Vietnam. The businesses predominantly come from the United States, the United Kingdom, and Singapore, but there is a good mix of nationalities. The dominant business sectors are retail, education, and food service, with food and beverage franchises accounting for 30% of the registered franchises. KFC and Lotteria came to Vietnam over a decade ago and currently have over 140 restaurants and over 170 outlets, respectively, in the country. Pizza Hut arrived in 2007 and now has over 40 restaurants. Meanwhile, newcomers such as Subway, Starbucks, Popeye’s, and Burger King are steadily opening restaurants in Vietnam, and McDonald’s surely has an eye on rapid expansion.

Franchising has become a popular way for foreign food brands to enter the Vietnamese market because it is considered to be the fastest and least risky alternative, one which sidesteps certain regulatory restrictions still imposed on foreign-invested businesses in the food service industry. For example, despite Vietnam’s accession to the WTO in 2007, foreign-invested businesses are not allowed to establish their own restaurants, subject to narrow exceptions (e.g., where a restaurant is established in parallel with the construction of a hotel), though this restriction is to be removed in 2015.

In addition, foreign food and beverage service providers entering Vietnam through a franchising arrangement with a Vietnamese partner do not need to have a legal presence in Vietnam or set up a business entity in Vietnam, and thus can avoid significant capital outlays. However, franchising carries its own set of challenges and hurdles.

Franchising Regulations and Procedures

Despite the market entries of a number of globally recognized food and beverage brands, potential franchisors should understand that franchising is still in an early stage in Vietnam, and the same could be said for Vietnam’s franchising laws. Franchising was first recognized as a form of commercial activity in the Commercial Law of 2005, with the legal groundwork for franchising activities laid out a year later in Decree 35 and Circular 09. There is now a registration system with the government and a comprehensive set of regulations; however, there is still a lack of depth in the regulations, which can leave ambiguities in many areas for those wishing to operate a franchise system in Vietnam.

Franchising law in Vietnam requires that all foreign franchisors register their proposed franchising activities with the Vietnamese authorities before carrying out the activities. The authority responsible for managing franchising is the Ministry of Industry and Trade (MOIT). The MOIT sets out requirements for the application file that foreign franchisors need to submit to register their activities in Vietnam. As part of the application, a foreign franchisor will need to submit a “Franchise Description Document” (FDD), which may contain a considerable amount of commercially sensitive data about the franchisor. Apart from the extensive FDD, the application file must include relevant business certificates, intellectual property certificates, and, in the case of a secondary franchisor, a letter of approval to sub-franchise from the franchisor. The amount of information that the franchisor must prepare may be substantial and the costs incurred to translate and notarize such documents can also be considerable.

Keys to Successful Franchising

As a prerequisite to franchising, foreign franchisors should ensure that their intellectual property rights (trademarks, patents, etc.) are registered in Vietnam. The registration of trademarks should be in the foreign franchisor’s own name as the registrant. Otherwise, if the local franchisee is the registrant, complications may arise if a dispute occurs between the two parties.

Franchisors often want disputes arising under franchise agreements to be resolved by foreign courts or arbitration centers. However, the recognition and enforcement in Vietnam of foreign judgments or awards can be extremely difficult or even impossible to secure. Foreign courts’ judgments are generally unenforceable in Vietnam unless there is a treaty between Vietnam and the relevant country on the recognition of judicial decisions. Thus, franchisors must give close consideration as to the dispute resolution provisions under their franchise agreements.

Finally, franchisors should also be aware that fees and payments arising from the franchise agreement, such as initial franchise fees, royalties, technical assistance fees, training fees, and marketing fees, are subject to Vietnam’s foreign contractor tax regime, which includes value-added tax and corporate income tax. Corporate income tax rates may vary depending on whether there are applicable double tax avoidance treaties. (Vietnam is a party to double tax avoidance treaties with more than 60 other countries, but notably not with the U.S.)

Outlook

The government has made great efforts to set up regulations allowing franchises to be established in Vietnam. This has resulted in a number of global brands entering the market, highlighted by the recent entry of McDonald’s. However, additional guidance will be required as Vietnam’s laws on franchising continue to develop.

Download Full Article
Related Professionals

Practices

Corporate/M&A

Location

RELATED INSIGHTS​ 

June 25, 2025
In Thailand, in-court business rehabilitation is a legal proceeding that enhances a debtor’s chance to restructure business operations for corporate debtors who are unable to repay their debts. The purpose of this proceeding is to allow the debtor to continue operating the business and generate income to repay creditors. The amounts that creditors receive in the rehabilitation proceeding are greater than the amounts creditors would receive if the debtor went bankrupt. The law is not designed to allow debtors or creditors to use the business rehabilitation process in bad faith for their benefit or to defraud another party. Accordingly, the Business Rehabilitation Law, which is included in the Thai Bankruptcy Act B.E. 2483 (1940), provides criminal liability for actions taken before or during the process. This article addresses the key points regarding criminal liability for safeguarding debtors and creditors in business rehabilitation proceedings from any parties who act in bad faith. Criminal Liability in Business Rehabilitation The following provisions establish the framework for criminal liability in business rehabilitation cases, ensuring that all parties act with integrity throughout the process. The Bankruptcy Act of Thailand B.E. 2483 (1940) provides the relevant provisions regarding the business rehabilitation process. Additionally, if a company debtor or its authorized directors are found to have committed fraud or malfeasance under the Bankruptcy Act, they can also be held criminally liable under the Penal Code or related criminal statutes. The rehabilitation process aims to help a business recover financially under the supervision of the court. When the court approves the rehabilitation plan, the court appoints a business rehabilitation plan administrator to manage and implement the process. However, if it is discovered that the debtor, its executives, or even the plan administrator engaged in illegal activities prior to or during the rehabilitation process—such as tax evasion, embezzlement,
Read More
June 6, 2025
As from July 1, 2025, as part of its ongoing efforts to digitalize and streamline the delivery of public services, the Vietnamese government will officially conduct administrative procedures, both online and offline, only via electronic identity (“e-ID”) accounts on the VNeID platform. In particular: Online administrative procedures carried out via the National Public Service Portal or via information systems for administrative procedures at the ministerial or provincial level are required to be implemented by using e-ID accounts only. When receiving dossiers, authorities will be required to check and verify the e-IDs of companies or individuals responsible for conducting administrative procedures. Further, it is worth noting that to complete the registration of an e-ID account for a company, the legal representative of the company must hold a level-2 e-ID account. Compliance Considerations Vietnam’s first regulation of e-ID accounts for individuals and organizations was issued in Decree No. 59/2022/ND-CP dated September 5, 2022, on electronic authentication and identification. This decree was subsequently replaced by Decree No. 69/2024/ND-CP dated June 25, 2024, which governs the same matters. Registration and operation of e-ID accounts are centralized through VNeID, a digital ID app developed by the National Population Data Center under the Ministry of Public Security of Vietnam. Although the registration of e-ID accounts for companies is not explicitly mandated by law, the absence of an e-ID account may hinder companies from completing administrative procedures, including licensing and reporting obligations. Such non-compliance could consequently result in administrative penalties. To mitigate unexpected non-compliance and administrative fines due to the lack of an e-ID account, companies should be well prepared for and implement the registration of a company e-ID account as soon as possible.
Read More
June 4, 2025
On April 2, 2024, the Cambodian Competition Commission (CCC) issued Decision No. 087 on Requirements and Procedures of Exemptions under the Law on Competition, outlining the requirements and procedures for requesting exemptions for agreements or activities that could prevent, restrict, or distort competition in Cambodia. Franchise agreements often include clauses such as price fixing, exclusive supply arrangements, or territorial restrictions, which could potentially raise concerns under the Law on Competition. Therefore, it is necessary for both franchisors and franchisees to understand how the law applies to their agreements and whether an exemption request may be required. Some arrangements under franchise agreements may fall within the scope of prohibited practices under the Law on Competition. These include horizontal and vertical agreements, abuse of dominant position, and anti-competitive business combination. If a business owner contemplates that their franchise agreement could be interpreted as anti-competitive, they must assess whether to apply for an exemption. Key Criteria for Exemption Under Decision No. 087, the CCC may grant an exemption if the applicant can demonstrate that the proposed agreement or activity meets all four of the following conditions: Significant and identifiable benefits: The agreement must provide clear technological, social, or economic benefits such as cost efficiencies, qualitative efficiencies, initiations of new technologies, or environmental and sustainable benefits. Necessity of the agreement/activities: These benefits must not be achievable without the proposed agreement or activity. The applicant must show that prevention, restriction, or distortion of competition are essential to realizing the benefits. Benefits outweigh harm: The positive impacts must significantly outweigh any adverse effects caused by the prevention, restriction, or distortion of competition, and the benefits should be likely to materialize within one year. No elimination of competition: The agreement must not eliminate competition in any substantial aspect of goods or services. Application and Supporting Documents
Read More
June 4, 2025
On June 1, 2025, Thailand’s Office of Central Company and Partnership Registration of the Department of Business Development opened a public hearing period on its draft notification regarding criteria and supporting documents for establishment of partnerships and limited companies in which foreign nationals are involved as investors or have signing authority. The draft notification requires applicants for registration of establishment of partnerships and limited companies to submit financial evidence of the capital contributions made by each Thai partner or shareholder in the following cases: When a partnership or limited company has partners or shareholders who are foreign nationals holding shares or equity amounting to less than 50% of the total capital contribution or registered capital in the partnership or company; or When a limited company has no foreign shareholders but has a non-Thai director who is an authorized or co-authorized signatory. The amounts shown in this financial evidence must be in accordance with the capital contribution or shareholding amount of each Thai partner or shareholder. Evidence can be provided in one of the following forms: Financial evidence issued by a bank to verify or demonstrate financial status. Copy of bank statement for the past six months. Copy of personal income tax or corporate income tax document (Form PorNgorDor.90 or PorNgorDor.91 for individuals; Form PorNgorDor.50 or PorNgorDor.51 for corporate shareholders). Any other supporting document showing the source of funds used for the capital contribution. The consultation period will be open until June 20, 2025, and the draft may be subject to additional revisions before it is finalized and made legally binding.
Read More