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Commercial Franchise Agreements in Vietnam: 10 Key Clauses

12 min readFLAT LAW FIRM
Cửa hàng thời trang với ma-nơ-canh và quần áo trưng bày sau cửa kính

Table of contents

From coffee and bubble-tea chains to education and retail, commercial franchising has become one of the fastest ways to expand a business network in Vietnam. But behind a uniform signboard sits a complex contract: the franchisor transfers an entire "business system" — trademarks, know-how, operating procedures, quality standards — while the franchisee commits to running that system faithfully for years. Understanding the legal framework and mastering the key clauses is the precondition for both sides to avoid costly disputes later.

1. What franchising means under Vietnamese law

Article 284 of the Commercial Law 2005 defines commercial franchising as a commercial activity in which the franchisor permits and requires the franchisee to independently sell goods and provide services under two simultaneous conditions: the sales and services follow the business organization method prescribed by the franchisor and are tied to the franchisor's trademarks, trade names, know-how, slogans, symbols, and advertising; and the franchisor has the right to control and assist the franchisee in running the business.

These two elements are the "soul" distinguishing franchising from other cooperation models. First, the franchisee does not merely use the brand but must operate exactly per the system — recipes, procedures, and standards set by the franchisor. Second, the franchisor does not sell the brand outright and walk away but retains control rights and ongoing assistance duties throughout the term. This "legally independent but operationally dependent" relationship creates both the value and the distinctive risk of franchising: value in system uniformity, risk in that one link operating wrongly can damage the whole system's reputation.

Four layers of regulations govern franchising in Vietnam.

Layer 1 — Commercial Law 2005. Section 8 of Chapter VI (Articles 284–291) is the foundation: the franchising definition, rights and obligations of franchisors (Articles 286–287) and franchisees (Articles 288–289), and the principle that the Government details business conditions and registration procedures.

Layer 2 — Decree 35/2006/ND-CP. Detailed guidance: conditions for franchisors, principal contents of franchise agreements (Article 11), franchise registration procedures, and reporting regimes.

Layer 3 — Decrees 120/2011/ND-CP and 08/2018/ND-CP. Decree 120/2011/ND-CP added Article 17a: domestic franchising and outbound franchising from Vietnam need no registration, only periodic reporting to the provincial Department of Industry and Trade — this is what narrowed the registration scope. Decree 08/2018/ND-CP further cut business conditions: it revised Article 5 (a franchisor only needs its business system to have operated for at least 1 year) and abolished Article 6 (conditions for franchisees) and Article 7 (goods/services eligible for franchising) of Decree 35/2006/ND-CP.

Layer 4 — Circular 09/2006/TT-BTM. Guidance on franchise registration dossiers and procedures; must be read against Decree 08/2018 since the registration subjects have changed.

Depending on deal structure, franchise agreements are also governed by IP law (trademarks, know-how), competition law (post-termination non-compete — Competition Law 2018), and investment law (where a foreign franchisor has a commercial presence in Vietnam).

3. When registration is required, when only reporting

This is the most misunderstood point — and the law changed fundamentally with Decree 120/2011/ND-CP (added Article 17a).

Must register with the Ministry of Industry and Trade: foreign traders franchising into Vietnam. Only after completing registration may a foreign trader conduct franchising in Vietnam.

No registration — periodic reporting to the provincial Department of Industry and Trade only: the two remaining cases — domestic franchising (Vietnamese trader to Vietnamese trader) and outbound franchising from Vietnam.

The practical significance is large. For a domestic franchisee, whether the partner is a Vietnamese or foreign brand determines the franchisor's registration duty — and a prudent franchisee will ask the franchisor to show proof of registration (for foreign brands) before transferring any franchise fee. Conversely, Vietnamese brands expanding abroad enjoy simplified domestic procedures but must still comply with the receiving country's law — many jurisdictions impose strict pre-signing disclosure regimes.

4. Ten key clauses of a franchise agreement

Article 11 of Decree 35/2006/ND-CP lists the principal contents of franchise agreements where parties choose Vietnamese law. Building on that, deal practice shows ten clauses decide a franchise transaction's fate.

1. Scope of the commercial rights transferred. Describe precisely what "commercial rights" include: which trademarks (certificate numbers, product/service classes), which know-how, which operating system. The more specific, the fewer arguments about what the franchisee may and may not do — including whether the rights are exclusive in the granted territory.

2. Territory and exclusivity. Define the geographic area (one outlet, one district, one province, nationwide) and whether the franchisor commits not to grant rights to third parties in the same area. "Encroachment" disputes between franchisees of the same system are among the most common.

3. Franchise fees and payment structure. Initial franchise fee, periodic royalties (usually a percentage of revenue), and system-wide advertising/marketing funds. Specify calculation, timing, currency, adjustment conditions, and late-payment consequences. For cross-border contracts, account for contractor-tax obligations on fees paid abroad.

4. Term, renewal, and priority rights. The law sets no minimum or maximum; parties agree. Practice is typically 5–10 years. Renewal clauses should specify conditions (meeting operating standards, no material breach), notice periods, and renewal fees if any.

5. Training and technical assistance. A statutory duty of the franchisor under Article 287 of the Commercial Law 2005: initial training and regular technical assistance so the franchisee runs the system correctly. The contract should specify programs, duration, cost allocation, support frequency, and response times.

6. Operating standards and inspection rights. The franchisor may periodically or extraordinarily inspect the franchisee to ensure system uniformity and quality (Article 286). Define the inspection process: advance notice (for scheduled inspections), assessment criteria, minutes, and remediation mechanisms.

7. IP protection and know-how confidentiality. The franchisor must warrant IP rights over the contracted subject matter (Article 287). The franchisee must keep know-how confidential during and after the term — with a defined scope, post-termination duration (typically 2–5 years), and sanctions.

8. Post-termination non-compete. To protect the system, franchisors typically require franchisees not to compete for a period within a territory after termination. Draft carefully for Competition Law 2018 compliance: the scope and duration must be reasonable and proportionate; overbroad restrictions may be deemed prohibited competition-restricting agreements.

9. Termination and consequences. Beyond the Civil Code 2015 grounds, franchise contracts need specific unilateral-termination cases for the franchisor (serious standards breaches, unpaid fees, unauthorized assignment) and a process: breach notice, cure period, then termination. Post-termination consequences must be clear: stop using trademarks, remove signage, return system documents, and liquidate branded inventory within a defined period.

10. Dispute resolution. Tiered: negotiation → mediation → arbitration or courts. For foreign-element contracts, arbitration (VIAC or international) is often preferred for neutrality and cross-border enforceability under the 1958 New York Convention. Specify the institution, number of arbitrators, seat, language, and governing law — avoid "hollow" clauses that identify no forum.

5. Rights and obligations under Articles 286–289 of the Commercial Law 2005

The Commercial Law 2005 sets default rights and obligations — applying "unless otherwise agreed," meaning parties may agree differently, but the statute fills gaps.

The franchisor has three rights (Article 286): receive franchise fees; organize advertising for the system and franchise network; periodically or extraordinarily inspect franchisee operations. And five obligations (Article 287): provide system manuals; initial training and regular technical assistance; design and arrange sales/service premises (at the franchisee's cost); warrant IP rights over contracted subject matter; treat franchisees in the system equally.

The franchisee has two rights (Article 288): require full technical assistance related to the system; require equal treatment with other franchisees. Its obligations (Article 289) center on operating per the system, paying all fees, protecting know-how confidentiality, and submitting to inspections.

Notably, the "equal treatment" principle: the franchisor may not discriminate among franchisees in support, fees, or standards without justified reason based on differing market conditions — an important legal basis when a franchisee believes it is treated unfairly versus other outlets.

6. Distinguishing franchising from agency, distribution, and licensing

Many self-styled "franchises" are legally agencies, distributorships, or bare trademark licenses. Correct classification is decisive because each model carries a different legal regime.

Franchise vs commercial agency. In agency (Articles 167–177, Commercial Law 2005), the agent buys/sells in its own name for the principal and earns commission, without being bound to a uniform "business system." In franchising, the franchisee trades independently in its own name but dependently on the franchisor's system, paying for the right to use it.

Franchise vs exclusive distribution. A distributor buys goods outright and resells for margin; the relationship ends at the sale of goods. A franchisee's purchase of goods (ingredients, branded items) is only part of the relationship; the core is the right to use the business system and the duty to follow it.

Franchise vs trademark licensing. Trademark licensing (Article 141, IP Law) transfers only trademark use rights; the licensee has no duty to operate per the licensor's business system, and the licensor has no right to control the licensee's general business. If a "franchise" agreement merely lets someone use a logo without system, training, or control, courts may recharacterize it as a trademark license — with consequences for fee and non-compete clauses.

7. Seven common mistakes when signing franchise contracts in Vietnam

Mistake 1: Not verifying a foreign franchisor's registration. Transferring fees to an unregistered foreign brand means the transaction lacks solid legal footing from day one.

Mistake 2: Signing a one-sided template. Many franchisees sign the franchisor's template without negotiation — broad inspection and termination rights for the franchisor, vague assistance duties. A good contract balances duties both ways.

Mistake 3: Not separating fee types. Lumping initial fees, royalties, and marketing funds into one figure prevents cash-flow control and complicates disputes. Each fee needs its own calculation, timing, and basis.

Mistake 4: Ignoring tax. Fees paid to foreign franchisors (royalties, service fees) may attract contractor tax in Vietnam. Unplanned tax materially inflates actual cost versus budget.

Mistake 5: Thin termination clauses. Without breach-notice and cure-period procedures, one side terminates unilaterally and the other claims unlawful termination and damages.

Mistake 6: No "exit" if the system weakens. Franchisees rarely negotiate termination rights when the franchisor can no longer sustain the system (bankruptcy, loss of trademark rights, prolonged support failure).

Mistake 7: Forgetting post-termination confidentiality. Know-how is the system's core asset; without clear post-termination confidentiality terms (duration and sanctions), the franchisor has little legal recourse when a former franchisee competes using the know-how.

8. Pre-signing checklist

For prospective franchisees:

  1. [ ] Verify a foreign franchisor's franchise registration with the Ministry of Industry and Trade (or domestic franchisor's reporting to the Department of Industry and Trade).
  2. [ ] Check trademark status: valid protection certificates in Vietnam, correct classes, owner matching the franchisor.
  3. [ ] Request disclosure documents: operating outlet count, closure rates, average business results (if provided).
  4. [ ] Budget all fees separately: initial fee, royalties, marketing, setup costs, mandatory ingredient costs — plus tax.
  5. [ ] Negotiate territorial exclusivity and remedies if the franchisor opens nearby.
  6. [ ] Clarify training and technical assistance: content, duration, cost, response times.
  7. [ ] Review termination: grounds, notice-and-cure process, post-termination consequences.
  8. [ ] Assess post-termination non-compete: reasonable scope and duration?

For prospective franchisors:

  1. [ ] Complete registration (foreign brands) or reporting (domestic brands) before the first contract.
  2. [ ] Standardize the system package: operations manual, training program, inspection standards — the basis for enforcing control rights.
  3. [ ] Review non-compete legality under the Competition Law 2018.
  4. [ ] Build transparent periodic inspection with minutes — avoiding "arbitrary inspection" disputes.
  5. [ ] Prepare breach-handling playbooks: reminders, penalties, and termination per contract procedure.

9. Frequently asked questions

Must a domestic franchise be registered with the Ministry of Industry and Trade?

No. Under the current rules (Decree 120/2011/ND-CP added Article 17a to Decree 35/2006/ND-CP), only foreign traders franchising into Vietnam must register franchise operations with the Ministry of Industry and Trade. Domestic franchising and outbound franchising from Vietnam are not subject to registration, but the prospective franchisor must file periodic reports with the provincial Department of Industry and Trade of its business registration locality.

What must a franchise agreement contain?

Article 11 of Decree 35/2006/ND-CP lists the principal contents where the parties choose Vietnamese law: the content of the commercial rights; rights and obligations of franchisor and franchisee; prices, periodic franchise fees and payment methods; term; renewal, termination and dispute resolution. Missing contents do not automatically void the contract but raise dispute risk.

May the franchisee freely change the system's recipes or processes?

No, unless the contract allows it. A defining legal feature of franchising under Article 284 of the Commercial Law 2005 is that the franchisee must sell goods and provide services following the business organization method prescribed by the franchisor, tied to the franchisor's trademarks and know-how. Unilateral changes breach the contract and may justify termination.

How long do franchise agreements usually last, and can they be renewed?

The law sets no minimum or maximum term; duration is agreed by the parties and is a principal content under Article 11 of Decree 35/2006/ND-CP. In practice, Vietnamese franchise agreements run 5–10 years with priority renewal rights for compliant franchisees. Renewal clauses should specify conditions, notice periods, and any renewal fee.

Where are franchise disputes resolved?

As agreed in the contract: negotiation, mediation, arbitration, or courts. For contracts with foreign elements, parties often choose arbitration (VIAC or international arbitration) for neutrality and cross-border enforceability under the 1958 New York Convention. Without an arbitration agreement, courts have jurisdiction under the Civil Procedure Code.

Must a foreign franchisor establish a legal entity in Vietnam?

Not required. A foreign trader may franchise into Vietnam through direct contracts with Vietnamese franchisees after completing franchise registration with the Ministry of Industry and Trade. Many large brands still set up subsidiaries or representative offices for more effective system management.

10. When to work with a lawyer

Franchise agreements are among the most complex commercial contracts, combining commercial, IP, competition, tax, and sometimes investment law. Counsel should join at the negotiation stage for:

  • Franchisor due diligence: verifying franchise registration status, trademark protection in Vietnam, and the franchisor's capacity to sustain the system — especially for newly arrived foreign brands.
  • Drafting and negotiation: balancing the franchisor's control rights with franchisee protections; specifying vague statutory duties (training, technical assistance, inspections); reviewing non-compete clauses under the Competition Law 2018.
  • Tax structuring: identifying contractor-tax duties on outbound fees and sensible cost allocation.
  • Dispute handling: from negotiated termination and damages calculation to representation in arbitration or court when disputes escalate.

See also: Franchise Disputes: How Are They Resolved? — FLAT Law Firm supports both franchisors and franchisees across the full franchise lifecycle — hotline 0988424851. Engage us before you sign to protect your investment from day one.

References

  • Commercial Law 2005 (36/2005/QH11), Arts. 284–291.
  • Decree 35/2006/ND-CP; Decree 120/2011/ND-CP; Decree 08/2018/ND-CP; Circular 09/2006/TT-BTM.
  • Cross-checked via thuvienphapluat.vn and luatvietnam.vn at time of writing (28/9/2026).

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