E-Commerce Platform – Road To Success In Vietnam And Cross-Border Trading

(Published on Vietnam Law Magazine) – Nowadays, smartphone and internet are very popular and familiar with Vietnamese people from younger to elder. It is very different from 10 years ago, when the internet was just a concept in the mind of most Vietnamese people and cellphone had just a typical function of calling and texting.

But today, Viettel – one of the biggest telecommunication service providers in Vietnam launched the pilot of their 5G network in Ho Chi Minh City. They are the first player in this field in Vietnam but very soon after, will have many players joining this.

The above story about the telecommunication service in Vietnam is the most impressive evidence proving the success of one of the historical decisions of Vietnam to choose “developing information technology” as a key factor for building the solid ground for the development of the country.

The aforementioned factor is the significant reason for the development of: E-commerce.

 What is E-Commerce under Vietnamese aspect?

There are many definitions of E-commerce now, for examples, dictionary.com says that “E-commerce is business that is transacted by transferring data electronically, especially over the Internet” or marketbusinessnews.com says that “E-commerce is a type of business model that focuses on doing commercial transactions through electronic networks such as the Internet”.

 In Vietnam, there is no official definition of E-commerce, however, the decree No. 52/2013/ND-CP (Decree 52”) defines E-commerce activity as “means conducting part or the whole of the process of commercial activities by electronic means connected to the Internet, mobile telecommunications network or other open networks”.

Although there are many definitions on E-commerce, but there are the same characteristics: it is “Internet based service”. Without Internet, E-commerce cannot develop and spread its influence on the global economic and Vietnam’s economic today.

There are some types of E-commerce such as B2B (Business to Business), B2C (Business to Customer), C2C (Customer to Customer), B2G (Business to Government) .etc. In Vietnam, the current battle between the E-commerce company is C2C (under E-commerce Platform) with the competition between some giants such as Lazada, Tiki, Sendo, Shopee and Adayroi.

According to Vietnam Digital Marketing Report 2019, there are 64 million Internet users out of 97 million citizens of Vietnam and 94% of them is using Internet daily with the average time is 6 hours and 42 minutes in which 2 hours 32 minutes for social network, 2 hour 31 minutes for viewing livestream or online video, 1 hour and 11 minutes for listening to music.

Tiki - One E-commerce Platform in Vietnam
Tiki – One E-commerce Platform in Vietnam

Furthermore, according to the E-commerce Index Report 2019 of Vietnam E-commerce Association (VECOM), the market size of E-commerce in 2018 of Vietnam is about 7,8 billion USD. In addition, if the growth rate of E-market in Vietnam still be 30% or more for 2019 and 2020, the market size of E-commerce in Vietnam will be 13 billion USD in 2020. This report of VECOM also quoted the e-Conomy SEA Report 2018 of Google and Temasek in which the forecast about the market size E-commerce at Vietnam may reach 35 billion USD in 2025.

 Challenges for success of E-commerce platform in Vietnam

 Despite positive forecasts of market size of E-commerce as quoted, there are many difficulties and challenges for the success of this business model in Vietnam.

 Lacking a united legal document

 One of the current difficulties for E-commerce in Vietnam is lacking a united legal document for it. The highest legal document for E-commerce is Decree 52. This decree was issued in 2013 and become one of the most important legal foundations for the development of E-commerce until now. However, since this is only a Decree, it cannot provide the convenient environment for unlocking the advantageous and freeing E-commerce from other legal documents which was issued to regulate the traditional business model. The following typical examples will illustrate this.

  1. Law on Commerce regulates many commercial promotion activities such commercial advertisement, display and introduction of goods and services .etc. However, Law on Advertisement also regulates on the advertisement. The problem is that the display and exhibition of goods and services in Law on Commerce is very similar to the advertisement in Law on advertisement and there is no any regulation to clarify or determine the difference between these commercial activities. Namely, display and introduction of goods and services in accordance with Law on commercial means “commercial promotion activities of traders that use goods and/or services and documents thereon to introduce such goods and/or services to customers” and one of the types of display and introduction of goods/services is online display. While advertising under Law on advertisement is “is the use of various means in order to present the public with the profitable products, goods and services; non-profitable products and services; organizations and individuals trading and providing the presented products, goods and services, except for news, social policies; personal information”.

Problem for e-commerce from this overlapping regulation is that in order to trade on e-commerce platform, seller must display and introduce their goods/services using images/pictures goods/services or introducing its information to the customer. However, under the perspective of some authority state agencies, this must be the advertisement activity and organization providing E-commerce platform must be considered as the advertisement service provider. As a consequence, the seller and E-commerce service provider must comply with the regulation of Law on Advertisement instead of Law on Commerce. It means that if the goods/services are required to obtain the advertising license, the seller must obtain this license, and the E-commerce platform service provider must bear the responsibility in case of lack of such license.

lazada - E-commerce Platform in Vietnam
lazada – E-commerce Platform in Vietnam

The activity of display and introduction of goods/services on the Internet of Law on commerce become useless because of the Law on Advertisement.

  1. Law on publishing regulated that “Release is the adoption of one or more forms of buying, selling, allocation, donation, leasing, lending, export, import, fair and exhibition to bring publications to users”. With this definition, selling books on E-commerce platform will be considered as book release activity and book seller or E-commerce platform providers where the books for sale will become the subject of Law on publishing which requires that the book releaser must obtain a prior release license.

Article 37.6 of Decree 52 regulates that the seller on E-commerce platform must “comply with the laws on payment, advertising, promotion, protection of intellectual property rights, protection of consumer interests and other relevant laws when selling goods or providing services on the e-commerce trading floor”. However, this regulation cannot protect E-commerce platform service provider due to the violation of seller on their platform because of the limited validity of Decree in comparison with the validity of Law.

Logistic expense & tax issue

The other difficulty for E-commerce platform in Vietnam especially on C2C (E-commerce platform) is the logistic expense. Beside the infrastructure of information technology, logistics is also an important factor which will affect the development of E-commerce in Vietnam as well as other countries until the human could invent a new transportation method to teleport a goods from this location to another location without any harm to the quality of goods.

Due to the elimination of non-cash payment as well as the user’s credibility on E-commerce, the most popular payment method which has been chosen in Vietnam is COD (Cash on Delivery).

However, the logistic fee in some cases rather higher than the price of the purchased goods. In order to resolve this problem and stimulate the need of users on E-commerce platforms, E-commerce Platform providers ran many promotion campaigns by free shipping or discount shipping fee voucher to users.

The aforementioned measure could resolve the business requirement to increase the transaction on E-commerce platforms, but it has a risk for them in terms of the tax issues. Although logistic is very important to E-commerce in Vietnam, but the logistic fee is not considered as one of the reasonable fees for business of E-commerce platform providers. As a result, the E-commerce platform providers have to prove the reasonable use of the logistic fees which have been spent for many promotion campaigns. Otherwise, such fee shall be deducted from the reasonable expense and they shall bear the CIT (Corporate Income Tax) for these deducted fees.

Cross-border trading on E-commerce

Regarding the cross-border trading on E-commerce, the goods have been traded on E-commerce platform from oversea Seller and the goods must be imported or exported into a country. This is the need of the market. However, in Vietnam, there are still some barriers for this type of E-commerce due to the customs procedure and foreign exchange management.

As aforementioned, logistic still be an important factor with the development of E-commerce and cross-border logistic is very significant to cross-border E-commerce. There are two problems for this type of E-commerce (i) the customs procedure and (ii) foreign exchange management.

Regarding the custom procedure, in order to import a good from an order on E-commerce platform into Vietnam, the relevant parties have to provide the legal dossier proving the lawful importance of such goods into Vietnam. For certain goods, the law required that the importer must obtain a special license for importing such goods into Vietnam. Let imagine that a buyer prepares and files the dossier at the relevant authority for obtaining the license for this good and then file another dossier at the customs authority in order to complete the importance procedure. This is an impossible mission for him/her.

Shopee - E-commerce Platform in Vietnam
Shopee – E-commerce Platform in Vietnam

Regarding the foreign exchange management, it shall be cleared that there is no prohibited regulation on this matter. The commercial bank will accept the payment to overseas using foreign exchange in case the relevant parties provided with them the lawful dossiers. However, with the current requirement of law on foreign exchange management, nobody could fulfill such requirement because it requires the relevant parties to provide the dossier of each order. In addition, there are no standard for such dossier. As a consequence, each commercial bank understands about this regulation in many ways.

After EVFTA (EU- Vietnam Free Trade Agreement) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) came into effect, the need of E-commerce especially of cross-border E-commerce will be increased and it will be a chance for Vietnamese Companies to accelerate the export goods/services from Vietnam into EU and other member countries of CPTPP.

Realizing the above difficulties as well as the change of new developments in global commercial market, the Government of Vietnam has already drafted a new decree for regulating the cross-border E-commerce and under the procedure of collecting opinions from many sides including E-commerce platform providers, logistic service provider and commercial bank. This drafted decree has many new regulations on simplifying the requirement of customs as well as the foreign exchange management in order to accelerate the cross-border E-commerce. In addition, the Decree No. 52 on E-commerce also under the progress of amendment. Hopefully, when the legal documents become effective, it will handle the present challenges which E-commerce platform is facing.

The article was published on Vietnam Law Magazine.

ASL LAWVietnam Law Firm For Doing Business in Vietnam.

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