Vietnam Commercial Law – Legal Regulations Overview

Merchants frequently agree to enter into commercial contracts as the basis for their commercial activities. However, there are numerous merchants who do not fully understand the current Commercial Law resulting in unintentional breaches of the terms of the contract and, ultimately, the payment of avoidable damages.

What is Commercial Law?

The Commercial Law of 2005 governs all commercial activities taking place in the territory of Vietnam and outside of Vietnam, as well as activities that are not for profit if one party is a merchant.

Answers to some questions about the most recent Commercial Law of 2022

Who are the subjects of the Commercial Law?

Subjects specified in the Commercial Law of 2005 include:

  • Merchants conducting commercial activities according to the provisions of Article 1 of the Commercial Law of 2005;
  • Other organizations and individuals engaged in commercial activities;
  • Individuals who perform commercial activities independently, but may not be required to register a business.

Categories of subjects of the Commercial Law of 2005

Based on the role, position, operational function and degree of participation in commercial relationships, the Commercial Law of 2005 specifies 2 categories of subjects as follows:

  • Merchants (primary subjects): Describes a subject who regularly participates in commercial relationships specified in the current Commercial Law; and
  • Other subjects: Includes organizations and individuals without business registration; state financial management agencies that organize, manage and direct merchants in all commercial business activities such as government ministries, ministerial-level agencies, People’s Committees, and departments; and organizations and individuals performing the function of settling the commercial disputes of merchants.

How is the extension of time limits and refusal to perform a contract in the event of force majeure regulated by the commercial law?

The Commercial Law of 2005 provides as follows:

Should a force majeure event occur, the parties to the commercial relationship may agree to extend the time limit for performance of the signed contractual obligations. If the parties cannot reach such an agreement, the contract performance period will be extended by a reasonable period of time to remedy the consequences, but must not exceed:

  • 5 months in total for a contract with a performance period of less than 12 months from execution; or
  • 8 months in total for a contract with a performance period for delivery of goods or services more than 12 months from the date of execution.

Should the parties wish to prolong the above time limit, the parties have the option to suspend the performance of the contract and agree that neither party shall file a lawsuit requesting compensatory damages from the other party.

Upon the expiry of the above time limits, either party may refuse to perform under the contract. However, the party refusing to perform the contract must notify the other party of its non-performance in advance within ten days of the expiration of the above time limits before the other party commences performance of its contractual obligations.

Extension of the time limit for performance of contractual obligations is not available for service provision contracts with a fixed term for completion of services; or for contracts for the sale of goods with a fixed term regarding the delivery time.

How does the law on commerce ensure full performance of a contract?

Pursuant to Article 297 of the Commercial Law of 2005, any party that violates the terms of a contract must continue to perform it in accordance with the signed contract or take other measures to ensure the contract is fully performed. At the same time, the breaching party must bear the incurred costs of the contract.

Sanctions for failure to strictly comply with the terms of the contract are specifically as follows:

  • If the party in breach of the contract is a seller or a service provider and fails to deliver the goods or provides services in contravention of the contract, it is required to fully supply the agreed upon quantity of goods or provide services in accordance with the agreement in the contract. Should the violating party deliver nonconforming goods or provide services of poor quality, the defects in the goods or service deficiencies must be remedied, or alternative goods or services must be provided in accordance with the contract;
  • In the event that the violating party fails to perform as above, the aggrieved party has the right to purchase goods or services from another party for replacement approximating the type of goods or services stated in the contract and the violating party must pay the difference and related costs, if any. Further, the aggrieved party has the right to self-repair defects of goods, as well as correct deficiencies of services and the infringing party must pay actual and reasonable costs;
  • If the party in breach of the contract is the buyer, the seller has the right to demand receipt of the goods, payment or performance of other obligations (specified in the contract) which are enforceable under current Vietnamese commercial law.

If there is a violation, the parties may agree upon monetary compensation or an extension of an appropriate period of time for the breaching party to fully perform its obligations under the contract. During the implementation of any agreement, the terms must be strictly observed. If such agreement is violated, the aggrieved party may not obtain other remedies beyond fines or compensatory damages.

When to apply the Commercial Law of 2005?

The Commercial Law of 2005 is primarily applicable to two types of commercial activities:

First, it applies to commercial business activities carried out within the territory of the Socialist Republic of Vietnam; and

Second, it applies to commercial activities performed outside the territory of the Socialist Republic of Vietnam should the parties agree to apply this Law or is mandated by a foreign law or an international treaty to which the Socialist Republic of Vietnam is concerned.

However, according to Article 5.2 of the Commercial Law of 2005, for transactions involving foreign elements, the parties may agree to the application of commercial laws and international commercial practices if they are not inconsistent with the basic principles of Vietnamese law. If the parties agree to this option, the Commercial Law will not apply.

This article contains legal knowledge and professional terms. Readers who have questions or need to discuss expertise related to Vietnamese commercial law, please contact our Commercial Lawyers at