The term “economic organisation” (tổ chức kinh tế) was first introduced under the Investment Law 2014 and refers to, among other things, any company or organisation incorporated in Vietnam. Over time, the term “economic organisation” has been used consistently in other legislations and allows for a consistent application of the law. However, the Land Law 2024 has introduced significant confusion as to the meaning of the term “economic organisation”. In particular, it is not clear under the Land Law 2024, if the term “economic organisation” only refers to companies or organisations, which are not controlled by foreign investors and do not include companies or organisations which are controlled by foreign investors. The lack of clarity has important implication on how the Land Law 2024 is implemented. For example, if the term “economic organisations” under the Land Law 2024 includes organisations which are controlled by foreign investors then a foreign bank branch could have a clear legal basis to take mortgage over land use rights and assets attached to land.    

The confusion starts with Article 4.1(b) of the Land Law 2024 which classifies the types of land users under the Land Law 2024. In particular, Article 4.1(b) of the Land Law 2024 reads as follows:

“Land users … include:

1. Domestic land users including:

(b) economic organisations under the provisions of the Investment Law, except for the case provided in paragraph 7 of this Article (hereinafter called economic organisation);

…       

7. Economic organisations having foreign-invested capital.”

“Economic organisation having foreign-invested capital” (tổ chức kinh tế có vốn đầu tư nước ngoài) (FIEO) is defined under the Land Law 2024 as economic organisations that are subject to investment conditions and investment procedures applicable to foreign investors under the laws on investment to implement a land-used project.

It appears from a literal reading of Article 4.1(b) that the draftsman of the Land Law 2024 intends to redefine the term economic organisations under the Investment Law by excluding FIEOs from the scope of economic organisations under the Investment Law 2024. This interpretation seems consistent with certain other Articles of the Land Law 2024 which use the term “economic organisations” and “economic organisations having foreign-invested capital” (FIEO) as two separate terms (e.g., Articles 30, 46, and 98). However, redefining the term “economic organisation” could give rises to several issues as discussed below:

·       Circular definition: Redefining the term “economic organisation” by excluding FIEO makes the definition FIEO becomes an incorrect definition. This is because an FIEO itself is defined as an “economic organisation” which in turn does not include FIEOs.

·       Scope of FIEOs: The scope of FIEO under the Land Law 2024 is not clear. This is because the Investment Law does not have specific “investment conditions and investment procedures” applicable to foreign investors to implement a land-used project. Instead, the Investment Law only requires certain FIEOs which are controlled by foreign investors as stipulated in Article 23.1 of the Investment Law 2020 to obtain an Investment Certificate when they implement an investment project whether or not such project uses land. It is not clear if the draftsman of Land Law 2024 intends that the term FIEOs under the Land Law 2024 refers to FIEOs which are controlled by foreign investors under Article 23.1 of the Investment Law 2020.

·       Impact on Other Provisions: It is not clear how other terms under the Land Law 2024 which have the words “economic organisations” should be interpreted. For example, Article 33 of the Land Law 2024 provides that an economic organisation which leases land from the State and pays the land rental for the whole term will be able to mortgage the land use rights and the assets attached to land to “credit institutions which are allowed to operate in Vietnam”
or at “other economic organisations”. It is not clear if the term “other economic organisations” (tổ chức kinh tế khác) in this provision refers to other economic organisations as defined in the Investment Law 2024 or in Article 4.1 of the Land Law 2024. This is because credit institutions which are allowed to operate in Vietnam could include foreign-invested credit institutions (e.g., wholly foreign owned banks or joint venture banks). Accordingly, credit institutions which are allowed to operate in Vietnam are not economic organisations as defined in the Land Law 2024. Accordingly, it is not reasonable to use the definition of economic organisations under the Land Law 2024 to determine the scope of “other economic organisations” in Article 33 of the Land Law 2024.

·       Several provisions under the Land Law 2024 only use the term “economic organisations” and if such term does not include FIEOs then the rights of FIEOs under the Land Law 2024 could be significantly limited or do not work at all. For example, the definition of making capital contribution by land use right only refers to capital contribution by land use rights to an economic organisation. If the term “economic organisation” used in this context does not include FIEOs then an FIEO cannot receive capital contribution by land use rights which is not consistent other provisions of the Land Law 2024. Article 126.6 of the Land Law 2024 provides that a foreign investor who has won a tender for a land-used project must establish an “economic organisation” to obtain the relevant land use right. If the term “economic organisation” in this context does not include FIEO then this provision obviously does not work.

·       National Treatment Concerns: By excluding FIEO from the scope of economic organisations, the Land Law 2024 may violate the national treatment commitment of Vietnam under various investment treaties. Under various investment treaties, in many circumstances, Vietnam undertakes to treat investment by foreign investors no less favourable than treatment applicable to Vietnamese investors.

In light of the above issues, while the draftsman of the Land Law 2024 may intend to redefine the term “economic organisation”, it would be more appropriate to apply the definition of “economic organisation” under the Investment Law in the Land Law 2024.

This post is written by Nguyen Quang Vu and Hoang Thi Thanh Thuy with research assistance by Pham Thi Thu Trang.