Socialist Republic of Vietnam Land Use Regulations

source; Vietnam Embassy in United States of America

Land regulations

1.    Land Use Rights and Land Use Right Certificate

Private ownership of land is not permitted in Vietnam and the people hold all ownership rights with the State as the administrator. However, the laws of Vietnam allow ownership of a right to use land.  This right is called the Land Use Right (“LUR”). LUR to foreign investors allows title holders to conduct real estate transactions, including mortgages.

There are three main regimes for investors to acquire LURs from the States:

•    Allocation: The State can allocate LURs by administrative decision to national entities only. Allocated LURs can be subject to a land use fee or not, depending on the cases.

•    Recognition: The State can "recognize" LURs to national entities only, in which case no fee is applicable.

•    Leasing: The State can lease LURs on the basis of a contract to both national and foreign entities. LURs leases are subject to a land use rent and are the only form of land ownership available to foreigners.

Foreign investors in Vietnam obtain LURs (a) by way of a JVC to which a local Vietnamese partner contribute LUR as capital contribution, or (b) by way of land leased directly from certain permitted lessors such as the State.

2.    Land Lease

A foreign investor may lease the land directly from the Government after he/she establishes an FIC in Vietnam.

Lessors permitted to lease land to FICs

Previously, FICs in Vietnam could only lease land from the Government or sublease land from an infrastructure developer. In addition to these lessors, the current Land Law has allowed FICs, which are set up by foreign investors in Vietnam, to lease land from:

•    Vietnamese economic organizations (including State-owned companies), private joint stock companies, and limited liability companies;

•    overseas Vietnamese citizens; or

•    an existing FIC which leases land from the Government and develops infrastructure facilities on the land, provided that this existing FIC has paid the land rental for the whole land lease term.

The Land Law only allows the lessor who has obtained the land under the “allocation” regime (as opposed to the land “lease” regime) to lease his or her land to FICs. The one exception where the land obtained by the lessor under the “lease” regime can be subleased to FICs is when:

•    the Vietnamese Party has leased the relevant land before the effective date of the current Land Law, i.e., 1 July 2004; and

•    the land lease has been prepaid in full for the whole or for the majority of the lease term and the remaining prepaid term is at least 05 years.

Land Contribution by Local Parties to Joint Ventures

It is a matter of practice that Joint Ventures in Vietnam have local partners contribute their portion of capital in the form of the LUR value. In this case, the local partner’s land payment must not be sourced directly from the State budget.

Under the Land Law, the Vietnamese party to a Joint Venture may make capital contributions in the form of the LUR only after it has received a land “allocation”, rather than a land “lease”, and where a payment in full for the land “allocation” has been made.  Where the land usage fee payment is deferred, the contribution of the LUR into foreign investment projects is still permissible as far as the deferment is allowed in writing by the relevant People's Committee.

There is one exception under the Land Law where a Vietnamese party which “leases” land from the Government can make its contribution in the form of the LUR to a Joint Venture. This exception requires the two conditions as explained above to be satisfied.

After the Joint Venture is incorporated as a result of the issuance of the investment certificate by the Licensing Authority, the LURC will be issued to and in the name of the Joint Venture.

Lease term

The lease term must be consistent with the duration of the approved project provided that it must not exceed 50 years or, in some special circumstances, 70 years.

The extension of the lease term may be allowed by the Government upon expiry if the lessee wants to continue to use the land, provided that:

•    the lessee has complied with the land regulations during its use period; and

•    the use of land is consistent with the approved land plan.

Foreign investors wishing to extend their lease term must obtain approval to do so. Foreign investors must apply for an extension 06 months before expiration of their LURs and include in their applications an amended business or production plan approved by the relevant authorities.

Rights of foreign investors to the land leased

The LUR of foreign investors shall vary depending on the payment arrangement of land rentals. Where land is being leased from the Government, the Land Law contemplates two payment arrangements of land rental:

•    annual rental payment (the “Annual Arrangement”); and

•    one-off payment of rental for the entire lease term (the “One-off Arrangement”).

Under a land lease for the Annual Arrangement, the FIC could use the land only and is not allowed to transfer, sub-lease, or mortgage the LUR.

In addition to the LUR given under the Annual Arrangement regime, FICs adopting the One-off Arrangement regime have the additional rights as follows:

•    rights to transfer LURs and assets attached to the land (foreign investors with an Annual Arrangement may only transfer assets attached to the land);

•    rights to sublease land and assets attached to the land;

•    rights to contribute LURs and assets attached to the land as capital of joint ventures; and

•    rights to mortgage LURs and assets to credit institutions in Vietnam during the term of the lease.

3.    Land Rent Incentives

Land and water surface rent exemptions and reductions apply to a number of investment projects which satisfy certain conditions such as investment in encouraged sectors or certain fields of business and/or encouraged geographical locations. FICs and foreign parties to BCCs may enjoy land and water surface rent exemptions between 03 years to the whole operation period and land and water surface rent reduction in some cases.