Commercial contracts in Vietnam: the Civil Code and the Commercial Law, formation and authority, the 8% penalty cap, damages and interest, limitation, governing law, currency, language, electronic signatures and dispute clauses

The two statutes and the sector overlays

Vietnam is a civil-law system. The Civil Code (Law No. 91/2015/QH13, in force since 1 January 2017) sets the general law of obligations and contracts: capacity, formation, validity and invalidity, interpretation, performance, breach, remedies, security and limitation. The Commercial Law (No. 36/2005/QH11, as amended) layers specific rules for commercial activities, meaning activities for profit by traders including the sale of goods, provision of services, agency, brokerage, commission, franchising, auction and bidding, and it prevails over the Civil Code where the two differ; where the Commercial Law is silent the Civil Code applies. Sector laws then govern particular contracts: construction (the Law on Construction and its decrees on contracts), insurance, credit, real estate, labour, technology transfer, intellectual property licensing and consumer sales among them. A foreign-invested company trading in Vietnam is a Vietnamese trader, and its contracts with Vietnamese counterparties are governed by these rules; its contracts with foreign counterparties may be governed by foreign law within the limits below.

Formation, form and authority

A contract is formed by offer and acceptance and may be oral, written or by conduct unless the law requires a form. Many commercial contracts must be in writing, and data messages, e-mail and electronic contracts count as writing under Law No. 20/2023/QH15 on Electronic Transactions. Some contracts must be notarised or registered to be valid or to bind third parties: transfers, leases, mortgages and capital contributions of land use rights and houses, and certain security interests (Chapter 5; Chapter 9). The person signing must have authority: for a company that means the legal representative recorded on the ERC or a person holding a written authorisation from him or her, and Vietnamese counterparties routinely ask for the ERC and the authorisation and check the Portal. A contract signed by a person without authority binds the company only if it ratifies it or has allowed the signatory to appear authorised (Civil Code, Article 142). Company seals are no longer registered and a seal is not a condition of validity, but Vietnamese counterparties, banks and authorities still expect one on contracts and filings, and a prudent counterparty obtains both signature and seal.

Penalties, damages and interest

Under Article 301 of the Commercial Law a penalty for breach (phạt vi phạm) is enforceable only if the parties agreed it, and is capped at 8% of the value of the breached contractual obligation, not of the whole contract, save for a penalty against a wrongly issued inspection certificate; any excess is unenforceable and the court or tribunal reduces it to 8%. Damages under Articles 302 to 305 cover the actual and direct loss suffered and the direct profit the injured party would have earned but for the breach; the claimant must prove the breach, the loss and causation and must mitigate. Under Article 307, if the contract provides for a penalty the injured party may claim both the penalty and damages; if it does not, damages alone are available. Interest on late payment under Article 306 is the average overdue lending rate in the market at the time of payment, unless otherwise agreed (the courts apply the average of the overdue rates of three major commercial banks); for loan contracts the Civil Code caps agreed interest at 20% a year (Article 468). Liquidated-damages clauses drafted on common-law lines are read through these provisions: a clause that fixes a sum payable on breach is a penalty subject to the 8% cap unless it is a genuine pre-estimate of loss framed as damages, and even then the claimant must prove loss. The standard drafting response is to cap the penalty at 8% of the breached obligation, to state expressly that damages are recoverable in addition, and to agree a late-payment interest rate.

Limitation periods and notification of defects

The limitation period for commercial disputes is two years from the date the lawful rights and interests were infringed (Article 319 of the Commercial Law); the Civil Code gives three years for other contract claims, from the date the claimant knew or should have known of the infringement (Article 429), and two years for tort. Time limits for complaints about goods are shorter (three months from delivery for complaints about quantity, six months for complaints about quality or three months after the end of any warranty period, and nine months for other complaints, unless otherwise agreed, under Article 318), and arbitration and court rules apply the same periods. An acknowledgement of the debt by the obligor, part performance or a written request to perform restarts the period under the Civil Code. A claims diary is a necessity in a long-running supply relationship: two years passes quickly.

Governing law and dispute resolution

Where a contract has a foreign element (a foreign party, performance abroad, or a foreign-invested party in the cases the Law on Investment allows), the parties may choose a foreign governing law under Article 683 of the Civil Code, subject to Vietnam's mandatory rules and fundamental principles; contracts concerning real estate in Vietnam are governed by Vietnamese law, labour and consumer contracts cannot deprive the weaker party of Vietnamese protections, and the chosen law applies only if its content can be proved to the tribunal. Under Article 13 of the Law on Investment, disputes between investors where at least one is a foreign investor or a company more than 50% foreign-owned may go to foreign or international arbitration; purely domestic disputes stay in Vietnamese arbitration or courts and are decided under Vietnamese law. Foreign arbitral awards are enforceable under the New York Convention; foreign court judgments only under a treaty or on reciprocity, which is why a well-drafted arbitration clause naming an institution (VIAC in Hanoi or Ho Chi Minh City, SIAC, HKIAC or ICC), a seat, a language and the number of arbitrators is the usual choice for cross-border contracts, while contracts between two Vietnamese companies commonly choose VIAC or the competent people's court (Chapter 9). An arbitration clause must be in writing and the dispute must be arbitrable; a defective clause sends the dispute to the courts.

Currency and language

Within Vietnam, under the Ordinance on Foreign Exchange and the State Bank's regulations, quotations, prices, advertisements and payments between residents must be in Vietnamese dong, with limited exceptions the State Bank permits (for example certain payments to and by export processing enterprises, payments under approved contracts and some transactions with non-residents); a contract between two Vietnamese companies priced in US dollars risks having its price clause declared void and attracts administrative penalties, although the courts have in some cases upheld dong-equivalent payment mechanisms. Contracts with a foreign party may be in foreign currency and are paid through the banks against documents (Chapter 6). There is no general rule requiring contracts to be in Vietnamese, but documents filed with the authorities, notarised documents and labour contracts must be in Vietnamese, and a bilingual contract should state which text prevails; in a Vietnamese court or arbitration the Vietnamese translation will be used and translation disputes are common, so the Vietnamese text deserves the same care as the English.

Electronic signatures and online contracts

Law No. 20/2023/QH15 on Electronic Transactions, in force since 1 July 2024, gives data messages and electronic contracts legal effect, treats an electronic signature as satisfying a signature requirement, and no longer excludes whole areas such as land use certificates as the 2005 law did. Decree No. 23/2025/ND-CP, effective 10 April 2025, regulates digital signatures and trust services: a secure digital signature backed by a certificate from a licensed Vietnamese provider carries the strongest evidential weight, and foreign electronic signatures and certificates are recognised if they meet Vietnamese or recognised international standards or are recognised under a treaty. Whether a particular document may be signed electronically still depends on the sector law, and transactions that need notarisation or registration still need those steps; electronic notarisation is being introduced under the Law on Notarisation 2024. E-commerce businesses must also comply with the e-commerce decree, data protection, consumer protection and tax rules (Chapter 7).

Distribution, agency, franchising and technology

The Commercial Law regulates agency, brokerage, commission, franchising and the sale of goods with specific rules. A commercial agency contract may be terminated on 60 days' notice unless otherwise agreed, and an agent terminated without cause is entitled to compensation of one month's average commission per year of agency (Article 177). Franchising requires the franchisor's system to have operated for at least one year and, for a foreign franchisor franchising into Vietnam, registration with the Ministry of Industry and Trade under Decree No. 35/2006/ND-CP as amended. Exclusive distribution, resale price maintenance and territorial restrictions must clear Law No. 23/2018/QH14 on Competition. Technology transfer contracts are governed by the Law on Technology Transfer 2017 and must be registered with the science and technology authority where technology is transferred from abroad into Vietnam, for the royalties to be deductible and remittable; intellectual property licences are governed by the IP Law and benefit from recordal at the IP Office (Chapter 7). Consumer sales are subject to Law No. 19/2023/QH15 on Protection of Consumer Rights, including the controls on standard-form contracts in listed sectors.