Under the applicable laws, foreign-invested companies that provide equipment rental services must meet certain conditions. One of the most important conditions is being granted the license to provide equipment rental services (“Trading license”). However, many foreign-invested companies provide equipment rental services without obtaining a trading license, which may lead to numerous risks in their operation. 
1. Mandatory conditions for conducting equipment rental business
Equipment rental business is a conditional business for foreign-invested companies that is directly related to the sale of goods business, according to Decree 09/2018/ND-CP ("Decree 09"). To legally start this business, foreign-invested companies must comply with the Law on Investment, the Law on Enterprises, and the law on the sale of goods and activities directly related to the sale of goods. Before engaging in the business of renting goods, foreign-invested enterprises must obtain an Investment Registration Certificate ("IRC") (if available) and an Enterprise Registration Certificate ("ERC"). Such conditions were stipulated in Decree 23/2007/ND-CP and remain the same under Decree 09. Therefore, obtaining a Trading license is a mandatory requirement before engaging in business rental services in Vietnam.
In addition, there are provisions for sanctioning foreign-invested enterprises that provide equipment rental services without a Trading license. Although Article 70 of Decree 98/2020/ND-CP ("Decree 98") does not directly mention the level of violation, failure to obtain a Trading license may be sanctioned under the general sanctions for violations related to Trading licenses. Such violations may be subject to a monetary fine ranging from VND 20 million to VND 30 million1.
However, the fine is just one of many risks that foreign-invested enterprises face when doing business. Obtaining a Trading license is a mandatory requirement and a condition for promoting a transparent business environment.
Firstly, the lack of a Trading license in the provision of equipment rental services could seriously damage the company's reputation. If the information about the violations and the decisions to sanction the company are published in the public media, the company may not only lose the trust of customers, but also lose important contracts and business partners. As a result, the image and market competitiveness of foreign-invested enterprises will be adversely affected.
Secondly, the lack of a Trading license may lead to the risks of disputes. In particular, the Trading license is the mandatory requirement for foreign-invested enterprises to conduct the equipment rental business. Therefore, the companies will be considered unqualified to conduct business. If an unqualified company enters into a contract with its clients or partners, there is a high risk that the contract will be declared invalid by the court if a dispute arises in connection with the contract. In fact, there are cases where the court has ruled that the contracts are invalid due to the lack of the necessary Trading license2. The invalid contract is due to the foreign-invested company’s fault (the party who fails to meet business conditions) and will lead to significant damage that harms the company’s finances and operations. 
2. Early error prevention
2.1 Determine the exact licensing procedures to be performed
At the beginning, foreign-invested enterprises must be aware that the equipment rental business requires prior approval from state authorities as a state management mechanism. Meeting such requirements not only ensures the legitimacy of the business, but also facilitates a solid legal foundation for doing business in Vietnam. Business licenses create favorable business conditions and minimize potential legal risks for foreign-invested enterprises. This is because the sanctions for not having a Trading license are not limited to fines, but also include other additional sanctions. Foreign-invested enterprises may be forced to return the profits gained from the violations, which may increase the financial loss and reduce the company's profits. In addition to the financial loss, the company's reputation will be damaged. Therefore, foreign-invested enterprises must study the legal conditions and secure the necessary business licenses before starting business in Vietnam.
2.2 Some points to note during the licensing process
To avoid risks and ensure legitimate business, foreign-invested enterprises must comply with legal requirements before starting the equipment rental business.
First, companies need to carefully study and review the applicable laws related to equipment rental services and compare them with the actual activities. This activity includes understanding the conditions, regulations and procedures required to obtain a Trading license. Knowing the legal requirements will help companies avoid mistakes in applying for a Trade license.
Currently, according to Vietnam’s WTO Commitment in Services, Vietnam does not commit to market access in the form of commercial presence for machinery and other equipment leasing services. Therefore, according to Clause 3 Article 8 of Decree 09, the issuance of a Trading license must be approved by the Ministry of Industry and Trade. At the same time, foreign-invested enterprises must meet many other conditions, such as having a financial plan to carry out the licensed activity in the Trading license; having no overdue payable taxes if they have been established in Vietnam for 01 years or more; being in accordance with the provisions of specialized laws; being in line with the level of competitiveness of domestic enterprises in the same field of operation; being able to create jobs for domestic workers; being able and the level of contribution to the State budget. The explanation of the fulfillment of these conditions as well as the obtaining of the opinion of the Ministry of Industry and Trade may take a considerable amount of time.
Neither Decree 09 nor Decree 98 set a specific deadline for applying for a Trading license. However, according to Article 6 of Decree 98, the sanction for the violation will be applied if the foreign-invested enterprise conducts the equipment rental service without a trading license, which could be understood that the Trading license must be obtained before starting such business. Therefore, the procedures for applying for a Trading license should be carried out immediately after the company becomes a foreign-invested enterprise (including the case where the foreign-invested enterprise is newly established or the company becomes a foreign-invested enterprise through capital contribution, transfer of contributed capital and shares).
Strict compliance with applicable laws will prevent potential risks that may be faced by foreign-invested enterprises, as well as lay a solid foundation for providing equipment rental services in Vietnam. A Trading license is not only a legal requirement, but also a shield for the legitimacy and reputation of the foreign-invested enterprise. Therefore, foreign-invested enterprises providing equipment rental services must be highly aware of such a license.
The article wrote by Trainee Lawyer Nguyen Cao Bao Lien and it was published in the Legal Magazine on July 8, 2024. Please read more at the following link:
[1] Point a Clause 3 Article 6, Point b Clause 4 Article 4 Decree 98/2020/NĐ-CP.
[2] https://congbobanan.toaan.gov.vn/2ta902858t1cvn/chi-tiet-ban-an, accessed ngày 04/7/2024.
