In Vietnam, private ownership over land is not recognised under the Constitution and Land Law 2013. Instead, one may acquire certain rights which are close to the ownership rights over the land (land use rights) in accordance with the land regulations. A foreign investor does not fall under the scope of subjects that are entitled to obtain land use rights in Vietnam, but a local company (Local Co) wholly or partly owned by such foreign investor may acquire land use rights to conduct its investment projects.
Under Vietnamese laws, a Local Co may acquire land use rights over a land area by one of the following options:
- Option 1: by an allocation of land (giao đất). An allocation of land means that the State issues a decision on land allocation to grant land use rights to the land user. The land users must pay land use fee (tiền sử dụng đất) to the State. Option 1 is only available to investors in residential housing projects and infrastructure project in cemeteries.
- Option 2: by a lease of land (cho thuê đất) from the State. In this case, the State and the relevant land user will enter into a land lease, in which the land users must pay land rental (tiền thuê đất) to the State. The land rental may be paid in lump sum or annually, depending on the choice of the land users. As a result, the scope of land use rights will be different between these two methods of land rental payment (see more below).
- Option 3: by a lease or sub-lease agreement with the landlord in an industrial zone, an industrial cluster, a processing zone, a high tech zone or in an economic zone (generally, industrial zones). A landlord in an industrial zone is usually a commercial enterprise which has obtained land use rights from the State under Option 1 or Option 2 to develop infrastructure within the industrial zone and lease land or sub-lease the land attached with the infrastructure to investors in the industrial zone; and
- Option 4: by an agreement on the transfer of assets attached to land, an agreement on the transfer of land use rights, a land lease agreement, or a capital contribution agreement with an existing land user whereby the existing land user will contribute capital in the form of land use rights. In these cases, the receiver of the land use rights will become the land user of the relevant land area.
Among the above options, Option 3 (leasing land in an industrial zone) is the most straightforward option since the landlord of the industrial zone should have completed all the necessary procedures and payments with the State and prior land users. Between Option 2 (leasing from the State) and Option 4 (acquiring from an existing land user), Option 2 is more commonly used in practice.
If a land area is not available through the above four options, then a Local Co may consider entering into a business cooperation contract (the BCC) whereby the parties do not establish an entity but cooperate to use their available resources (including land use rights) to do business. In this case, the party having land use rights remains the title over the land without transferring them to the other party in the BCC. But this option is riskier than other options.
A Local Co can only use a relevant piece of land within the duration decided by the State. Accordingly, it is important that a Local Co should acquire the land use rights with the sufficient duration for its business. Where a land user leases land from the State for project implementation or commercial or service purposes, the granted land use term must not exceed 50 years, or not exceed 70 years for some exceptional cases.
A land user leasing land from the State may choose to pay land rental on an annual basis or a lump sum basis. A land user paying land rental on a lump sum basis would be entitled to further rights in comparison to those paying land rental on an annual basis, including:
- to assign the land use rights;
- to mortgage the land use rights at credit institutions permitted to operate in Vietnam; and
- to contribute capital being the land use rights to engage in business or production co-operation with other organizations and individuals.
The land use rights may be evidenced by various types of documents. However, the most conclusive document evidencing land use rights over a piece of land is the Certificate of land use rights, the ownership of residential houses or assets attached to land (LURC). A LURC, so-called “red book” will usually contain the key information regarding the relevant land use rights including form of land use right, land use purpose, land use duration and land payment method.
This is written by Nguyen Bich Ngoc and Nguyen Hoang Duong, of Venture North Law.