How the amended land law would affect foreign investors in Vietnam, Vietnam amended land law, amended land law in Vietnam

How the amended land law would affect foreign investors in Vietnam?

In the ten years since the Land Law 2013 was implemented, thanks to the resolution of difficulties and the establishment of a more fair environment for foreign investors to utilize real estate, Vietnam is gradually becoming an ideal destination for foreign direct investment through the development and planning of industrial parks and economic zones across the country, making a significant contribution to the state budget revenue and the country’s development as well as creating countless work opportunities.

However, throughout the implementation of the Land Law, many foreign businesses encountered multiple challenges and difficulties related to real estate while investing in Vietnam, particularly in industrial and economic zones. As a result, Vietnam must remove these challenges, establish a more equitable environment for foreign investors to flourish, and institutionalize international agreements in order to make Vietnam an attractive destination for foreign investors.

Difficulties foreign investors might encounter when investing in real estate in Vietnam

The first challenge comes from the 2013 Land Law’s definition of “foreign-invested enterprise,” which contrasts with the current regulation’s only listing nature, which includes 100% foreign-invested enterprises, joint venture businesses, Vietnamese businesses in which foreign investors purchase shares, merge with, or repurchase in compliance with the laws on investment. This regulation become outdated and is no longer consistent with current regulations, particularly the Law on Investment 2020.

As a result, the Land law cannot cover all cases where there are economic organizations, such as cooperatives with foreign investors. When it comes to defining “Foreign-Invested Economic Organizations,” Investment in 2020 offers a more comprehensive and meaningful definition. This results in an overlap in applicability, which confuses foreign investors when they invest in real estate projects where they do not fall under the cases indicated in the Land Law but do fall under the circumstances provided in the Investment Law.

Second, another major issue for investors is the sale of land use rights. As a result, several issues have arisen in recent years. That is the determination of the starting price of land use rights for sale, which is still very different from the market price; Speculation and profiteering by some organizations and individuals in the auction of land use rights continue to occur; some cases participate in auctions and bid very high, then put down the deposit; some cases of winning the auction but failing to fulfill the payment obligation. This has had a negative impact on the market and has resulted in wasted opportunities for investors with the capacity to carry out the project.

Third, because the land price now prescribed by the State is relatively low and not in line with market pricing, making the compensation price too low, the laws on land prices are no longer compatible with reality when the State allocates and leases land. As a result, many investors who have been allocated land encounter multiple challenges during site clearance, delaying project implementation, wasting valuable land resources, and decreasing the effectiveness of investments, production, and business operations of foreign-invested organizations after having invested significant amounts of capital to carry out the project.

The investment project’s termination is the fourth challenge. Therefore, cases, where the Investment Registration Authority terminates or partially terminates the operation of an investment project, are governed by Clause 2, Article 48 of the Investment Law. However, this Article’s Clause 5 states the following: “The settlement of the rights to use land and property on land upon the termination of the investment project shall comply with the law on land and other relevant regulations of law.”

In fact, there have been challenges and inadequacies when dealing with land use rights under the land law when an investment project is terminated or partially terminated because investors are unable to coordinate or come to an agreement on prices, which makes it difficult to determine the value of the assets invested on the land. This will cause the project to be delayed for a very long period, squandering valuable land resources and denying other investors the opportunity to acquire land when there is a need to use land.

The impact of the amended land law on foreign investors

First, the draft Land Law has included Clause 6, Article 6, with the following text: “Economic organizations with foreign investment capital are subject to investment processes as defined for foreign investors in line with the law on investment “. Thus, the list of foreign-invested economic organizations in Clause 6 of Article 6 of this Article no longer specifically lists “enterprises with 100% foreign ownership, joint venture companies, and Vietnamese companies with foreign investors that purchase shares, combine, or repurchase.” The definition of a foreign-invested economic organization as stated in the Draft has been broadened as a result of not using the inductive technique, as was the case with the 2013 Land Law, and overlap inapplicability has been eliminated.

Secondly, giving foreign-invested economic organizations more land access rights. As a result, the draft Land Law (amended) has reviewed and amended a number of contents related to the right to access land. It also clarifies that when economic organizations are authorized to rent land for an annual fee, they are also authorized to lease and transfer the lease right in the land lease contract. As a result, domestic and foreign-invested economic groups are granted the same rights.

Third, the “Base and time for determining land use fee and land rent” are specified in detail in Article 126 of the Draft, along with other very significant grounds for foreign investors to determine the land use fee. When allocating land, the land usage levy is collected, and the land rent is determined when allocating land leases with annual/one-time rental payments as follows:

“The land price for determining land use levy and land rent must be recorded in the decision on land allocation, land lease, permission to change land use purpose, recognition of winning results at auction of land use rights and bidding results for projects using land for recognition of land use rights, an extension of land use terms, change of land use form, adjustment of land allocation, and land lease decisions.

The determination of land prices for the determination of land use levies and land rents must be organized before the time of deciding on land allocation or land lease, permission to change land use purpose, recognition of land use rights, and recognition of land use rights. The term of land use, change of land use form, adjustment of the decision on land allocation or land lease must not exceed 6 months.”

In addition, Article 168 of the Draft “Land of industrial zones, export processing zones and industrial clusters” has added the following two contents:

“For the case of investment projects on construction and business of infrastructure of industrial clusters in regions with difficult socio-economic conditions, areas with extremely difficult socio-economic conditions, border areas, etc. In addition to the subjects entitled to lease land as prescribed in this Clause, the State allocates or leases land to public non-business units for investment in the construction and business of infrastructure of industrial parks and clusters. industrial and export processing zones.

Investors who have leased land by the State to invest in the construction and business of infrastructure of industrial parks, industrial clusters, or export processing zones in the form of annual land rental payment may change to the lease form. land with a one-time payment for the entire lease period for the whole or part of the business land area.

In case the term of the investment project is longer than the remaining land use term of the industrial park, export processing zone, or industrial cluster, the economic organization shall invest in the construction and business of infrastructure of the industrial park or industrial zone. For export processing and industrial clusters, they must seek permission from a competent state agency for permission to adjust the land use term accordingly, but the total land use term must not exceed 70 years and must pay a land use levy or land rent for the extended land area.”

Additionally, the primary method of allocating and leasing land is through the auctioning of land use rights and the bidding process for projects that require land. The objective is to generate income while maintaining clear criteria for assigning and leasing land through the auction of land use rights, bidding for projects using land without an auction, or both. For important investment initiatives, such as fostering transparency for foreign investors when making investments in industrial parks and economic zones, the state budget and social resources should be mobilized.

ASL LAW is the top-tier Vietnam law firm for doing business in Vietnam. If you need any advice, please contact us for further information or collaboration.


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