Concluding and Performing Contracts in Vietnam: Points for Avoiding Risk and Achieving Success
Foreign lawyer admitted in Japan and Vietnam
Kazuya Mori, Senior Advisor to the firm (Japanese law)
NEXORA Law Firm — Managing Attorney
Attorney admitted in Vietnam
Mediator, Bankruptcy Trustee, Outside Statutory Auditor
Table of Contents
01 - The Contract Negotiation Stage
02 - Drafting the Contract
03 - Notarization of the Contract
This article explains, in accessible terms, the process from concluding a contract in Vietnam through to its performance, focusing on concrete risks and practical points of caution. It provides practical knowledge to help companies avoid the pitfalls in contract clauses, performance-related trouble, and evidence preservation that they commonly encounter. NEXORA Law Firm provides comprehensive support to Japanese companies across the full lifecycle of commercial contracts — drafting, negotiation, performance management, and dispute prevention — drawing on the experience accumulated across numerous projects to help guide contracts toward "success."
01 - The Contract Negotiation Stage
(1) Investigating the Basic Information of the Vietnamese Partner Company
① In Vietnam, there is a certain proportion of dishonest companies that use names similar to those of major, well-known companies to deceive counterparties. For this reason, before entering into a transaction (contract) with a local Vietnamese company, it is essential to always verify the company's basic information.
【How to Verify Basic Information】
If the company has a website, first check the website.
Obtain the company's business registration number and verify it on the national business registration portal below.
Information available through the business registration portal includes the legal entity's name (in Vietnamese/English), address, legal representative, corporate form, date of incorporation, contact phone number, and registered business activities, among other details.
For a fee (roughly JPY 1,500), more detailed information can be obtained (the history of registration updates, the capital contributors (or founding shareholders), the chief accountant, etc.).
(https://dangkykinhdoanh.gov.vn/en/Pages/default.aspx)
Request disclosure of the company's official business registration certificate.
(2) The Principle of Freedom of Contract
In Japan, the principle of freedom of contract (the principle that the parties may freely agree on the content of a contract) is taken as a given premise when drafting a contract, but in Vietnam this principle is not yet fully understood. This is especially true of Vietnamese small and medium enterprises, which often have had little exposure to international contracting and are unlikely to be familiar with the concept. In practice, when discussing contract terms with a Vietnamese company's legal staff, it is not uncommon to be asked, "Which law provides for this?" — reflecting a lack of understanding that matters not addressed in legislation may nonetheless be included in a contract.
In international transactions, the following matters may be freely chosen by agreement of the parties, based on the principle of freedom of contract:
Freedom to choose the governing law
Freedom to choose the contract language (*note, however, that where the contract must be submitted to the Vietnamese tax authorities or other authorities, a Vietnamese-language version of the contract must be prepared, which may be a translation)
Freedom to choose the dispute resolution forum
* An "international transaction" is one that falls within any of the following:
Either party is a foreign individual or a foreigner located outside Vietnam.
Both parties are Vietnamese citizens or Vietnamese legal entities, but the transaction (the rights and obligations at issue) arises, is modified, is performed, or is extinguished outside Vietnam.
Both parties are Vietnamese citizens or legal entities, but the subject matter of the transaction (in the case of a sale contract, the goods being sold) is located outside Vietnam.
02 - Drafting the Contract
(1) Authority to Sign the Contract
In Vietnam, it is not uncommon to see arguments such as "this contract has no effect because it was signed by a person without authority." For this reason, at the time of contracting, it is essential to carefully confirm whether the counterparty's signatory has proper authority. For a contract with a corporate party, the authorized signatory is the company's legal representative, or that legal representative's authorized agent (acting under a power of attorney). The signatory's authority can be confirmed as follows:
① Confirm the legal representative's information through the business registration portal described in 1(1) above.
(https://dangkykinhdoanh.gov.vn/en/Pages/default.aspx)
* In Japan, a company's charter (articles of association) is given significant weight, but Vietnamese SMEs often fail to keep their charter updated. As a result, the company's actual current status, or the information registered on the business registration portal, may not be reflected in the charter. For this reason, even if a charter is requested, it may not be the most recent version, so there is limited value in relying on it for verification.
② Confirming a power of attorney, or an equivalent internal corporate decision-making document
We strongly recommend always confirming the original document. A scanned file carries a risk of forgery or alteration.
* Where a contract has been signed by a person without authority, it may be possible to assert the contract's validity under Vietnamese Civil Code doctrines of unauthorized agency or apparent authority, but doing so entails a significant burden in terms of litigation cost and the burden of proof.
(2) Drafting the Contract From the Perspective of Debt Collection
Debt collection in Vietnam is extremely difficult. Judicial remedies remain a work in progress, and there remains the ongoing problem that support from the courts and state authorities cannot always be relied upon. Contracts should therefore be drafted with full awareness of the possibility that a receivable may not be collectible.
The following two approaches may be considered as means of securing debt collection:
① Establishing Security
In Vietnam, a distinction is drawn between legal security and de facto (substantive) security. De facto security lacks perfection against third parties, so if the debt proves uncollectible and the counterparty goes bankrupt, the creditor cannot assert priority — it is treated merely as an ordinary unsecured creditor. Please bear this in mind.
Legal security must satisfy statutory requirements. In addition, foreign-invested enterprises may not take a mortgage over real estate as mortgagee.
② Requiring Advance Payment
For sale and purchase contracts and similar arrangements, we recommend negotiating, where possible, to require payment of the full price — or deposit of the full price into an escrow account — before transferring title, rather than invoicing after delivery.
③ Receivables Management
Companies should manage outstanding receivables so that balances do not become excessive, and, where a payment delay occurs, maintain a "collection warning list" and take firm countermeasures.
(3) Points to Note When Drafting the Contract
The following points should be observed both when drafting the contract and afterward:
① That the agreement finally reached by both parties is properly and accurately reflected in the contract
② That the contract does not violate any mandatory provision of Vietnamese law
③ That, in the event of a dispute, the party's rights can be fully asserted (where judicial relief is sought from a court or arbitral tribunal in the event of a dispute, the contract should be drafted with an eye to the elements of the cause of action, so that the judge or arbitrator can readily understand the party's position)
④ That risk is properly managed by drawing on examples of past disputes and trouble
⑤ Assurance that both parties will smoothly perform the contract
⑥ Appropriateness from an accounting and tax perspective
After the contract is concluded, the company must carry out the corresponding accounting and tax treatment. If there is any ambiguity in the contract content, or any discrepancy between the facts and how they are described, this can have a significant impact on the company's accounting and tax treatment. For example, in a goods sale contract, the arrangement may be either a consignment structure or an outright purchase structure. Depending on which structure is chosen, this can have a significant effect on inventory management (recording), asset recognition, the timing of issuing a "red invoice," and other matters.
For this reason, we recommend that contract drafting be entrusted to a lawyer or legal professional who is also versed in finance and tax matters, or that the drafting be carried out as a team together with the finance/tax department or personnel.
03 - Notarization of the Contract
When concluding a contract, notarization at a notary office may be required in some cases. In some instances, notarization is mandatory — without it, the contract has no legal effect — while in others, notarization is used voluntarily. Cases in which notarization is mandatory and the contract has no effect without it include contracts for the sale, transfer, or gift of real estate (land use rights, residential property, or other construction works), agreements dividing marital community property, and powers of attorney for real estate transaction agency, among others. In voluntary cases, the contract takes effect even without notarization, but the parties may choose to have it notarized to increase certainty regarding the contract.
Advantages and disadvantages of voluntarily notarizing a contract
Advantages
Disadvantages
High evidentiary value (when submitted as evidence to a court or arbitral tribunal)
Storage at the notary office
If a contract is stored at the notary office after notarization, in the event of loss, forgery, or alteration of the contract, a copy can be obtained from the notary office for comparison.
There is a practice among Vietnamese notary offices of revising not only the form but also the substance of a contract. Because notaries do not always understand the principle of freedom of contract, they sometimes revise content not addressed by statute, or content they do not fully understand.
In Vietnam, there are also service providers that handle evidence-authentication procedures. When submitting evidence to a court, its reliability must be established and examined by the court, which can be time-consuming. There is therefore a system under which certain evidence (facts) can be certified in advance by an authentication service provider before submission to the court. The same approach can be used in connection with contracting. When concluding an important contract, if a party wishes to have it certified, as a matter of evidence, that "the signatory reviewed the contract content in full before signing," an authentication service provider can be engaged for that purpose.