VIETNAM’S LEGAL REGULATIONS AND THE IMPLEMENTATION OF AFAS COMMITMENTS ON TRAVEL AGENCY SERVICES FOR FOREIGN INVESTORS

VIETNAM’S LEGAL REGULATIONS AND THE IMPLEMENTATION OF AFAS COMMITMENTS ON TRAVEL AGENCY SERVICES FOR FOREIGN INVESTORS

Article by Legal Specialist at Dai Ha Thanh Law Firm - Dao Tra My

In the context of deepening international economic integration, the tourism services sector plays an important role in driving economic growth and promoting the country's image. With favorable geographical conditions, abundant natural resources, and rich cultural heritage, Vietnam has increasingly become an attractive destination for foreign investors in the tourism industry. As an active member of the Association of Southeast Asian Nations (ASEAN), Vietnam has signed and implemented various international commitments, including ASEAN Framework Agreement on Services (AFAS), which serves as a key legal basis for promoting the liberalization of trade in services within the region. In the field of travel agency services, AFAS helps foreign investors gain access to the Vietnamese market. At the same time, it requires Vietnam to develop and improve its legal framework to fully and properly implement its commitments, ensuring both alignment with international practices and the protection of national interests and sovereignty.

For that reason, within the scope of this article, Dai Ha Thanh Law Firm will provide a brief overview of the current legal regulations and Vietnam’s implementation of its commitments under AFAS, with the aim of helping businesses and individuals understand the relevant information when intending to invest in the travel services in Vietnam.

1. General introduction 
1.1. Types of business
1.1.1. Tour operator business

The tour operator business involves designing, selling, and organizing the implementation of part or all of a travel program for tourists (Clause 3, Article 9, Law on Tourism 2017).

1.1.2. Travel agency business

Travel agency business refers to the activity in which organizations or individuals sell tour programs of tour operator businesses to tourists in exchange for commissions (Clause 1, Article 40, Law on Tourism 2017).

1.1.3. Differences Between Tour operator business and Travel agency business

1.2. What is AFAS 

AFAS stands for the ASEAN Framework Agreement on Services. AFAS establishes principles for trade in services among ASEAN member countries, with content similar to the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO). Within the framework of AFAS, ASEAN countries have signed 10 packages of commitments on trade in services covering various sectors, including: construction; environment; business services; professional services; distribution; education; maritime transport; telecommunications; and tourism. In addition, they have signed 7 mutual recognition agreements (MRAs), 6 commitments on financial services, and 8 packages of commitments on air transport services. 

ASEAN Framework Agreement on Services (AFAS) is one of the fundamental agreements, playing an important role in committing to various aspects of the services sector such as:

• Liberalize trade in services by expanding the depth and scope of liberalization beyond the commitments under GATS, with the aim of establishing a free trade area in services.
• Substantially eliminate restrictions on trade in services among member states.
• Enhance cooperation in the services sector, improve efficiency and competitiveness, and diversify the capacity for production, supply, and distribution of services by service providers.

2. Vietnam’s legal regulations and the implementation of AFAS commitments
2.1. Vietnam’s legal regulations
2.1.2. Scope of business 

According to Article 30 of the Law on Tourism 2017, there are two types of travel service business: domestic travel services, which serve domestic tourists, and international travel services, which serve international tourists coming to Vietnam as well as Vietnamese tourists traveling abroad. However, Clause 4, Article 30 of the same law stipulates: "Enterprises with foreign-invested capital may only provide international travel services for foreign tourists coming to Vietnam, unless otherwise provided for by international treaties to which the Socialist Republic of Vietnam is a member." This means that foreign investors are restricted in their business scope, they are only allowed to organize inbound tours for international tourists visiting Vietnam and domestic tours within Vietnam, but are not permitted to organize outbound tours for Vietnamese citizens traveling abroad.

2.1.2. Legal requirements for business operations

According to Article 38 of the Law on Tourism 2017, foreign investors must enter into a capital contribution partnership with Vietnamese partners in order to establish a travel service business in accordance with Vietnamese law and international treaties to which the Socialist Republic of Vietnam is a member. Consequently, foreign investors may choose one of the following two forms of investment to establish a joint venture company providing travel services in Vietnam without restrictions on the foreign capital contribution ratio:

• Investment in the establishment of an economic organization;
• Investment by contributing capital, purchasing shares, or acquiring capital contributions.

After foreign investors establish an economic organization engaging in travel service business, the organization must obtain an International Travel Service Business License in accordance with Article 31 of the Law on Tourism 2017 before commencing operations. To be granted this license, the economic organization must meet the following conditions:

• Maintain a security deposit for international travel service business at a commercial bank, cooperative bank, or a branch of a foreign bank established and operating in Vietnam;
• The person in charge of travel service business must have graduated from college or higher in a tourism-related major; in cases where the person holds a degree in another major, they must possess a certificate of international tourism operation skills. The person in charge must hold one of the following positions: Chairman of the Board of Directors; Chairman of the Members' Council; Company President; Owner of a private enterprise; General Director; Director or Deputy Director; Head of the travel service business department.

Foreign-invested economic organizations that meet the above conditions shall submit an application to the Vietnam National Administration of Tourism for the issuance of the License for International Travel Service Business. 

2.1.3. Procedure for establishing a foreign-invested enterprise to conduct travel services business

Step 1: Forming a joint venture with Vietnamese partners and carrying out investment registration procedures at the investment registration authority. 

The investor shall apply for an Investment Registration Certificate (IRC) at the investment registration authority. The application dossier for the IRC shall include the following documents:

• A written request for the implementation of the investment project, including a commitment to bear all costs and risks in case the project is not approved;
• Legal status documents of the investor;
• Documents proving the investor’s financial capacity, including at least one of the following: The investor’s financial statements for the last two years; a commitment of financial support from the holding company; a commitment of financial support from a financial institution; a guarantee for the investor’s financial capacity; other documents proving the investor’s financial capacity;
• An investment project proposal, including the following main contents: Information about the investor or the method of selecting the investor; investment objectives; project scale; investment capital and capital raising plan; project location; duration and implementation schedule; current status of land use at the project site and proposed land use demand (if any); labor demand; proposed investment incentives; environmental, social, and economic impacts and efficiency of the project;
• A copy of the land use right certificate or other documents identifying the right to use the project site;
• Other documents related to the investment project, as required by law, including conditions and capacity of the investor;
• Letter of introduction or power of attorney for the person authorized to carry out investment registration procedures.

According to Article 36 of the Law on Investment 2020, Article 35 of Decree No. 31/2021/NĐ-CP, within 15 days from the date of receipt of a complete application, the investment registration authority shall issue the Investment Registration Certificate. If the application is denied, the investor must be notified in writing with a clear explanation of the reasons.

Step 2: Registering the joint venture company for international travel service business at the business registration authority. 

The investor shall submit the enterprise registration application at the One-Stop Service Division of the Department of Planning and Investment where the company’s head office is located. The application dossier shall include the following documents:

• Application form for enterprise registration;
• Company charter;
• List of members or shareholders (applicable in case of a multi-member limited liability company or a joint stock company);
• Copies of the following documents: Identity card, citizen identification card, passport, or other valid personal identification papers of founding members or shareholders; decision on establishment, enterprise registration certificate or equivalent documents of the founding organization; valid passport or identity card of the legal representative of the founding organization;
• Power of attorney for the person authorized to carry out the procedure.

After submitting the application to the Department of Planning and Investment where the company’s head office is located, within 03 working days, if the dossier is complete and valid, the Department shall issue the Enterprise Registration Certificate according to Article 26 of the Law on Enterprises 2020; Articles 22, 23, and 24 of Decree No. 01/2021/NĐ-CP.

Step 3: Applying for the International Travel Service Business License

Travel services are classified as a conditional business line, therefore, the enterprise must submit 01 application dossier for the International Travel Service Business License to the Vietnam National Administration of Tourism (VNAT). The application dossier includes the following documents:

• Application form for the International Travel Service Business License, in the format prescribed by the Minister of Culture, Sports and Tourism;
• A certified copy of the Enterprise Registration Certificate or Investment Registration Certificate issued by a competent state agency;
• Certificate of deposit for travel service business;
• A certified copy of the diploma or certificate of the person in charge of the travel service business, as stipulated at Point c, Clause 2, Article 31 of the Law on Tourism 2017;
• A certified copy of the decision on appointment or the labor contract between the travel service enterprise and the person in charge of the travel service business.

Within 10 days from the date of receiving a valid application, the Vietnam National Administration of Tourism shall appraise and issue the International Travel Service Business License to the enterprise and notify the provincial tourism authority where the enterprise is headquartered. In case of refusal, it must notify the enterprise in writing and clearly state the reasons (Article 33 of the Law on Tourism 2017).

2.2. The implementation of AFAS commitments
2.2.1. Implementation of common commitments

For market access commitments under the common commitments, Vietnam has imposed binding conditions on foreign service providers at different levels. These conditions include: limitations on the number of service providers; restrictions on the total value of service transactions or assets; restrictions on the total number of service operations or quantity of services supplied; limitations on the number of employees; restrictions on the form of business establishment (such as joint ventures or wholly foreign-owned enterprises); and limitations on foreign capital contribution. It can be observed that, with respect to common commitments related to Mode 1 (cross-border supply) and Mode 2 (consumption abroad), Vietnam’s commitments are relatively open to service providers and impose fewer restrictions under these two modes.

To fulfill the common commitments related to Mode 3, Vietnam allows foreign service providers, especially ASEAN service providers, to establish a commercial presence in the forms committed. However, there remain barriers for foreign service suppliers, such as restrictions related to capital contribution and share acquisition by foreign service suppliers. Point a, Clause 3, Article 9 Law on Investment 2020 stipulates the market access conditions for foreign investors under the list of sectors and trades with restricted market access for foreign investors: “a) The proportion of charter capital ownership held by foreign investors in an economic organization.” Therefore, one of the conditions for foreign investors when contributing capital to a Vietnamese enterprise is to comply with the prescribed proportion of charter capital ownership.

For Mode 4, similar to most other ASEAN member countries, Vietnam has made virtually no commitments under this mode, as ASEAN has negotiated and concluded the Agreement on the Movement of Natural Persons within the community.

2.2.2. Implementation of specific commitments

According to Vietnam's Schedule of Commitments on Trade in Services, the commitment regarding travel agency and tour operator services is stipulated as follow:

Firstly, regulations on market access restrictions. Mode 3 (commercial presence) is not subject to restrictions, except that foreign service providers are permitted to supply services in the form of joint ventures with Vietnamese partners without limitations on the foreign capital contribution.

Secondly, regulations on national treatment. Foreign investors establishing enterprises to conduct travel agency and tour operator services in Vietnam are not subject to restrictions; however, a condition is imposed that tour guides in enterprises with foreign investment must be Vietnamese citizens. Enterprises providing services with foreign investment are only permitted to offer inbound tourism services to Vietnam and domestic travel services for tourists entering Vietnam as part of the inbound tourism services.

In summary, foreign investors need to be fully aware of Vietnam’s legal regulations when engaging in travel service business activities in Viet Nam, specifically regarding the limitations on business scope, forms of enterprise establishment, and strict conditions similar to those applied to domestic investors. At the same time, when formulating specific commitments under AFAS, the travel agency and tour operator service sector under the commercial presence mode is subject to only certain limited restrictions. This indicates that Vietnam emphasizes opening the market for travel agency services to attract foreign investment and promote economic development; however, foreign investors must also comply with conditions due to sensitive factors, which involve culture and national sovereignty concerns related to tourism.

The above is the full legal analysis provided by Dai Ha Thanh Law Firm regarding the provision of travel services by foreign investors in Viet Nam. At Dai Ha Thanh Law Firm LLC, our team of professionally trained lawyers and legal advisors, both domestically and internationally, are committed to delivering high-quality and professional legal services to our clients. Please contact us if you have any questions or concerns about this matter. 

 

REFERENCES:

1. Law on Enterprises 2020

2. Law on Investment 2020

3. Law on Tourism 2017

4. Decree No. 31/2021/NĐ-CP

5. Decree No. 01/2021/NĐ-CP

6. Nguyen Huu Hoang, "Solutions to Improve the Implementation of Vietnam's Service Commitments in ASEAN", Communist Review Journal.