Establish a company in Vietnam to produce tobacco

Although tobacco is harmful to health, due to market demand, tobacco companies still invest in developing this product. To establish a company in Vietnam to produce tobacco with foreign capital, specific conditions must be met under Vietnamese Law. In this article, Viet An Law will present the related regulations to this topic.

Legal basis

• WTO, AFAS, VJEPA, VKFTA, EVFTA, CPTPP, ACIA.
• Law on Prevention and Control of Harmful Effects of Tobacco
• Decree No. 09/2018/ND-CP detailing the Law on Commerce and the Law on Foreign Trade Management regarding the sale of goods and other activities directly related to the sale of goods of foreign investors and foreign-invested business entities in Vietnam.
• Decree No. 35/2006/ND-CP detailing implementation of Commercial Law 2005 regarding franchising.
• Decree No. 67/2013/ND-CP elaborates on some articles and measures for implementation of the Law on Tobacco Harm Prevention applicable to tobacco trading.
• Decree No. 08/2018/ND-CP on amendments to certain Decrees related to business conditions under state management of the Ministry of Industry and Trade.

Conditions for establishing a company with foreign capital to produce tobacco

Conditions restricting market access

• Regulations in the Distribution Commitments Schedule do not allow to exercise distribution rights for tobacco and cigars, specifically:

Regulations in the ASEAN Comprehensive Investment Agreement (ACIA):

Do not issue Investment Registration Certificates to foreign investors from ASEAN member countries to:

• Tobacco production, including tobacco and cigars; tobacco production.
• Providing production-related services including:
  • Processing tobacco products such as tobacco, cigars, pipe tobacco, chewing tobacco, and tobacco cut by farmers under contract or for a fee; processing reconstituted tobacco on a contract or fee basis; processing on a contract or fee basis.
  • Services related to the processing of processed tobacco for tobacco production on a contract or fee basis.

Regulations in CPTPP:

NCM Appendix I-VN-29: For the production of tobacco products, including cigars and tobacco:

Foreign investment in the manufacturing of tobacco products, including cigars and tobacco, is not allowed, except through joint ventures or the purchase of shares in Vietnamese enterprises with a foreign capital ratio that does not exceed 49%.

Regulations in the European Union-Vietnam Free Trade Agreement (EVFTA)

Annex 8-B: not yet committed to Production of tobacco products:

Regulations in Vietnamese law:

Foreign-invested tobacco production projects must ensure the following conditions:

• Joint venture and cooperation with enterprises that have a license to produce tobacco;
• The State accounts for a dominant proportion of the enterprise’s charter capital;
• Meets tobacco production conditions according to Government regulations;
• Conditions for investment and cooperation with foreign countries to produce tobacco (Clause 1, Article 25, Decree No. 67/2013/ND-CP, as amended and supplemented by Clause 6, Article 3, Clause 12, Article 4, Decree No. 08/ 2018/ND-CP);
• Investment on the basis of joint venture cooperation with enterprises that have a License to produce tobacco products. The State accounts for a controlling proportion of the enterprise’s charter capital (in case of investment in the form of joint ventures);
• Meets the conditions specified in Article 17 of Decree No. 67/2013/ND-CP;
• Permitted by the Prime Minister based on the proposal of the Ministry of Industry and Trade.

Conditions for capital contribution ratio and form of capital contribution to establish a company producing tobacco

Foreign investors must enter into joint ventures or purchase shares of Vietnamese enterprises with a foreign capital ratio not exceeding 49%.

Procedures to establish a company in Vietnam to produce tobacco

Step 1: Procedures for registering capital contributions, purchasing capital contributions, and purchasing shares of foreign investors in Vietnamese enterprises

Prepared documents including:

• The registration document for capital contribution, share purchase, or capital contribution includes the following contents: information about the economic organization to which the foreign investor intends to contribute capital, purchase shares, or contribute capital; Charter capital ownership ratio of foreign investors after contributing capital, purchasing shares or stakes to economic organizations;
• Copy of identity card, ID card, or passport for individual investors; Copy of Certificate of Establishment or other equivalent document certifying legal status for institutional investors.

Implementation procedures:

• Foreign investors submit documents to the Business Registration Agency;
• Within 15 working days from the date of receipt of valid documents, the Business Registration Agency shall issue a Notice of satisfaction of conditions for capital contribution, share purchase, capital contribution, and Vietnamese enterprises.

Step 2: Foreign investors contribute capital, purchase shares, and stakes of Vietnamese enterprises

Investors make capital contributions and transfer capital through direct investment capital accounts (refer to the article: Investment capital account for foreign investors in Vietnam)

Members and shareholders transferring capital must declare taxes upon transfer according to the law on personal income tax and corporate income tax (if any).

Step 3: Change the Enterprise Registration Certificate to add foreigners to the business registration dossier submitted at the Business Registration Agency – Department of Planning and Investment

Step 4: Apply for Licenses to qualify for tobacco production.

Before officially trading in the market, the investors need to satisfy the conditions as regulated by tobacco management law complying with business lines in the Enterprise Registration Certificate.

Clients who need to establish a company in Vietnam to produce tobacco with foreign capital, or provide legal advice during the implementation of investment projects in Vietnam, please contact Viet An Law Firm for the best support!