According to Mintel, a market research company headquartered in London, the Vietnamese cosmetics market was worth 2.3 billion USD by the end of 2018. This has a potential market among the middle class. As of 2020, the Vietnamese middle class, was estimated to be about 33 million people. The cosmetic market’s revenue has continuously increased over the past two decades, making Vietnam an attractive destination for many foreign cosmetic brands.
Many major cosmetic brands have entered the Vietnamese market. These include L’Oréal Group (France) which brought brands such as Lancome, L’Oréal Paris, and Maybelline New York into one of 15 markets. Vietnam is also identified as the potential market of the Groups: Watsons (Hong Kong), Beauty Box (Korea), Guardian (under Dairy Farm Group), and Matsumoto Kiyoshi (Japan). Moreover, the average income of Vietnamese people is increasing, especially in big cities like Ho Chi Minh City and Hanoi. Therefore, the demand for good quality branded cosmetics is constantly increasing. This article focus on conditions for foreign investors to trade cosmestics in Vietnam.
In order to trade cosmetics in Vietnam, foreign investors need to meet the following conditions:
1. Legal entity
Investors can establish a legal entity or acquire another legal entity or cooperate with a Vietnamese partner to distribute products. For market research, it is possible to set up a representative office or branch in Vietnam.
2. Business functions
Organizations and individuals responsible for putting products in the market must have a cosmetic business function in Vietnam.
3. Distribution forms
(i) After establishing the legal entity, investors can run retail or wholesale. Foreign-invested companies must apply for a retail license (Trading license) before distributing in retail.
(ii) In case of direct distribution to Vietnamese partners, such partners must ensure that they have the right to distribute cosmetics in Vietnam.
4. Requirements for cosmetic products
(i) Cosmetic product proclamation:
According to the law of Vietnam, a cosmetic product is only allowed to circulate in the market when it has been issued the receipt number of cosmetic product proclamation receipt by the competent state management agency and is solely responsible for the safety, efficacy, and quality of this product.
The cosmetic product feature announcement (the usage purpose of the product) must meet the ASEAN’s guidance on the cosmetic product feature proclamation.
(ii) Each cosmetic product, when put in the market, must have a product information file (PIF) according to ASEAN’s instructions, kept at the address of the responsible organization or individual bringing products to market.
(iii) Imported cosmetics must be issued CFS (Certificate of Free Sale) in the country of manufacture. CFS issued by a competent agency of the country of manufacture or the country that exports cosmetics to Vietnam is still valid (the original or an authentic copy). In case the CFS does not specify a deadline, it must be less than 24 months from the date of issue.
Some special cases are exempt from providing this document such as:
- Cosmetic products manufactured in a member country of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, whose participation in this Agreement has been approved by the agency. The authority of that country must ratify and take effect (hereinafter referred to as the CPTPP member country).
- Cosmetic products which are circulated and exported from CPTPP member countries, and
- Cosmetic products which have been issued with the cosmetic product proclamation receipt number in a country of the Association of Southeast Asian Nations (ASEAN),
(iv) Safe Ingredients: Manufacturers and owners of products must evaluate the safety of each cosmetic product according to the ASEAN Cosmetic Safety Assessment Guidelines. The heavy metal limit and the microorganism in the cosmetic product must meet the ASEAN requirement. The composition of the cosmetic formula must meet the latest Appendix of the ASEAN Cosmetic Treaty.
5. Requirements for imported cosmetic labels
For cosmetic products imported into Vietnam which show insufficient compulsory contents in Vietnamese, there must be a supplementary label showing the compulsory content in Vietnamese and the original label of the product chemical. The content written in Vietnamese must correspond to the content on the original label.
6. Cosmetic advertising
(i) The advertising content must be registered: Unlike other normal products, cosmetic advertising is only done when there is a receipt of an advertising registration dossier, for organizing seminar or cosmetic introduction event according to the provisions of law.
(ii) The cosmetic advertising content must be in accordance with the documents proving the safety and effectiveness of the cosmetic product and must comply with the instructions on the cosmetic product feature announcement of ASEAN.
7. Cosmetic import tax
(i) The VAT on cosmetics is 10%.
(ii) The current preferential import tax rate of cosmetics is ranging from 0% to 30%.
(iii) In some cases, cosmetics imported from countries that have free trade agreements with Vietnam may enjoy a special preferential import tax.
The above information helps investors in understanding the basic legal provisions to outline a cosmetic business plan in Vietnam. If you need more in-depth advice on this issue, please contact our lawyers.