Tax on transfer of shares with land use right origin

Under Vietnamese tax regulations, if:

a company contributes land use right (LUR) to the charter capital of a company and receives shares or capital contribution in return (LUR-Originated Shares); and
such company subsequently transfers the LUR-Originated Shares to a third party then the proceeds from the sale of LUR-Originated Shares may be treated as income from sale of real estate (instead of sale of securities) under the corporate income tax regulations. This may result in different tax implication and payment.

INVESTMENT PROCEDURES OF PROJECTS USING LAND

Foreign investors must go through a number of investment, land, construction, and environment procedures in order to operate a project using land (Investment Procedures) in Vietnam. The Investment Procedures have been provided in various legal instruments and involved a number of State licensing authorities. Given the lack of clarity at law, the Investment Procedures are applied differently and inconsistently by licensing authorities. Hopefully, this unpleasant practice would be changed when, for the first time, the Government introduced the unified process of all Investment Procedures in its Resolution 43 dated 6 June 2014 (Resolution 43).

This post is contributed by my colleague, Ha Thi Dzung.

New Vietnamese Construction Law 2014

The new Construction Law (Construction Law 2014) is probably one of the more important legislation passed by the National Assembly during the first section of this year. The Construction Law 2014 will take effect from 1 January 2015 and contain the following important points, among others:

Directly land leasing from private landlord outside an industrial zone

Traditionally, a foreign investor in Vietnam may acquire land use rights by either from the State or from a developer of industrial zone. Article 93 of the old Land Law 2003 suggests that a foreign invested company may lease land directly from a private landlord being an economic organisation even if the landlord is not an industrial zone developer. However, there is no clear for a foreign investor to follow this direct leasing option. And in practice, few foreign investors can actually lease land from an economic organization outside of industrial zones.

The new Land Law 2013 and its implementing regulations also contain a similar provision allowing a foreign invested enterprise to direct lease land from an economic organization outside of industrial zones easier. In addition,

The new Land Law 2013 specifically encourage an investor which presumably includes foreign invested enterprises to directly lease land from economic organizations in the event they do not want to lease land from the State or the industrial zones;
Direct land leasing from economic organizations must satisfy the following conditions, among others: (i) complying with the approved district-level annual land use plan; and (ii) there is no other “clear” land in the relevant neighborhood available for the project. Both of these conditions are not clear and may be difficult to comply with in practice; and
The land lease contract with the private owner must be registered with the land registration office. Upon registration, the land lease shall be recorded in the corresponding land use right certificate already granted to the landlord but no separate land use right certificate will be issued under the name of the lessee.

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Vietnam Business Law