If You are in Leasing Business, You Need to Know This One Distinction (with Case Study)
Dry lease and wet lease are treated differently in Vietnam. The right structure determines your licensing pathway.
If you are a foreign investor starting an equipment leasing business (I know it sounds niche … but it’s more common than you think), you have got to know this one distinction:
Dry lease vs wet lease.
A recent client enquiry raised an interesting question.
A Singapore company was exploring the establishment of a Vietnam subsidiary to sell, lease and maintain specialised industrial equipment. On the surface, the business appeared relatively straightforward. However, a closer review revealed that the regulatory outcome could differ significantly depending on one key factor:
Is the company providing a dry lease or a wet lease?
The distinction may sound commercial in nature, but in Vietnam it can have important implications from a foreign investment and licensing perspective.
Dry Lease vs Wet Lease: A Quick 101
Dry Lease
The customer leases the equipment only and is responsible for providing its own operators, personnel and operational management.
Wet Lease
The customer receives both the equipment and related operational services, such as operators, supervision, technical support or operational management, from the service provider.
While the difference may appear minor, the legal treatment can be very different.
The Four Key Activities
For businesses operating in the equipment rental sector, the analysis should generally be separated into four distinct activities:
Equipment sales;
Dry lease (equipment only);
Wet lease (equipment plus operators/services); and
Repair and maintenance services.
Each activity may be subject to different market access and licensing requirements.
Equipment Sales: Generally Straightforward
The sale, importation and distribution of machinery and equipment are generally activities that foreign-invested enterprises may undertake in Vietnam.
In practice, the exact requirements depend heavily on the equipment involved and the applicable HS codes. Different products may be subject to different import, distribution, technical compliance or industry-specific regulations.
As such, the first step is often to identify the relevant products and HS classifications before assessing the licensing position.
Dry Lease: The Most Sensitive Issue
The position becomes more complicated when the business involves leasing equipment without operators.
The rental of machinery, equipment and other tangible goods without operators (Vietnam Standard Industrial Classification (VSIC) 7730 / United Nations Central Product Classification (CPC) 83109) is classified as a sector subject to conditional market access for foreign investors under Vietnam’s foreign investment regime.
Importantly, Vietnam did not make WTO market access commitments for CPC 83109. As a result, Vietnamese authorities retain discretion in deciding whether to approve foreign investment applications relating to this activity.
Meanwhile, it is interesting to note that - where an investor relies on Vietnam’s ASEAN Framework Agreement on Services (AFAS) commitments, market access may be available through a joint venture structure, provided foreign ownership does not exceed 70%.
In practical terms, this means:
The activity is neither automatically prohibited, nor automatically open to 100% foreign ownership;
Approval may be assessed on a case-by-case basis;
Licensing authorities may consult relevant ministries, including the Ministry of Industry and Trade (MOIT).
For investors seeking to conduct pure equipment rental through a wholly foreign-owned company, this becomes one of the most important regulatory considerations.
The Often-Forgotten Trading Licence Requirement
Even where market access is available, investors should not overlook the licensing requirements.
Equipment rental services are considered a conditional business activity directly related to the sale of goods for foreign-invested enterprises. Foreign-invested companies must obtain the relevant registrations and a Trading Licence before carrying out equipment rental activities.
And as noted, since Vietnam has not committed market access under the WTO for machinery and equipment leasing services, the issuance of a Trading Licence requires consultation with the Ministry of Industry and Trade. The authorities may consider various factors including:
Financial capability;
Tax compliance history;
Compliance with specialised laws;
Impact on domestic competition;
Job creation potential; and
Contribution to the State budget.
In practice, this process can be more complex and time-consuming than many investors initially expect.
Wet Lease: Potentially a Different Analysis
The regulatory position may be different where the company provides more than just equipment.
For example, if the Vietnam entity supplies:
Operators;
Safety supervisors;
Technical personnel;
Operational management; or
On-site support services,
the activity may no longer be viewed purely as the rental of equipment without operators.
Instead, depending on the structure, it may be characterised as a technical service, operational service, industrial support service or another service category altogether.
This distinction is particularly relevant for businesses supplying:
Aerial work platforms;
Boom lifts;
Scissor lifts;
Cranes;
Industrial machinery; or
Specialised construction equipment.
Accordingly, the regulatory analysis applicable to a wet lease structure may differ materially from the analysis applicable to a dry lease structure.
Businesses should avoid assuming that a regulatory conclusion for dry lease automatically applies to wet lease arrangements.
Repair and Maintenance Services
Repair and maintenance services generally present fewer market access concerns than equipment rental activities.
Vietnam’s WTO Schedule includes commitments relating to “Maintenance and Repair of Equipment” (CPC 633). The commitments originally provided for phased foreign ownership restrictions following Vietnam’s WTO accession, ultimately allowing 100% foreign-invested enterprises after the applicable transition periods.
As a result, activities such as:
Equipment servicing;
Preventive maintenance;
Repairs;
Diagnostics;
Spare parts replacement; and
Technical after-sales support
are generally viewed as more accessible from a foreign investment perspective than equipment rental without operators.
Key Takeaways
For foreign investors, the real question is often not whether equipment rental is allowed in Vietnam.
Rather, the question is:
What exactly is being supplied to the customer?
If the business model involves merely leasing equipment without operators, the activity may fall within a restricted market access sector requiring regulatory discretion and additional approvals.
If the business model includes operators, supervision or operational services, a different regulatory analysis may apply.
For this reason, businesses entering Vietnam’s equipment rental market should carefully assess whether their proposed model constitutes a dry lease, wet lease or a combination of both before determining the most appropriate investment and licensing structure.