Under Article 24.2 of the Investment Law 2020, offshore investors who intend to acquire equity in Vietnam-based companies must meet the land regulations on “conditions for receiving land use right” (LUR). However, the land law does not specify any conditions applicable to the offshore investors given that they are not a regulated land user.

Article 28.1(d) of the Land Law 2024 and its guiding provision, Article 9.1 of Decree 102/2024 only permit foreign-invested entities (FIEs), which can be established by offshore investors, to receive a transfer of equity being value of land use right originating from land allocation with land use fee payment or land lease with one-time rental payment to the State. Article 9.1 of Decree 102/2024 suggests that "equity being value of land use right " (vốn đầu tư là giá trị quyền sử dụng đất) (LUR Equity) is the equity in a company's charter capital created by contributing land use rights.

These provisions seem vague and can be interpreted differently, leading to varying conclusions. In particular,

Interpretation 1: One (possibly, the authority) may take a strict interpretation that an offshore investor cannot directly acquire LUR Equity. This is because:

Article 28.1 of the Land Law 2024 outlines the eligible recipients of the LURs and permissible methods of acquisition. Since Article 28.1(d) of the Land Law 2024 refers to FIEs receiving LUR Equity, rather than LURs, the law appears to treat the acquisition of LUR Equity as equivalent to acquiring the underlying LUR; and
By mentioning only FIEs and not offshore investors, Article 28.1 of the Land Law 2024 may be interpreted as prohibiting offshore investors from direct acquisition of LUR Equity.

This Interpretation 1 leads to a conclusion that, as a condition under the land law, offshore investors must establish FIEs in Vietnam in order to acquire LUR Equity. This appears unreasonable, as FIE’s acquisition of LUR Equity has the same effect as an offshore investor’s acquisition.

Interpretation 1 poses two problems:

First, Interpretation 1 would bar domestic investors from acquiring LUR Equity. This potentially contradicts Article 24.1 of the Investment Law 2020 which suggests that no such prohibition applies and, in our experience, common practice; and
Second, it is unclear how Interpretation 1 would apply if the acquired equity includes both LUR Equity and equity created by way of contributing other assets.

Interpretation 2: Another contrary interpretation is that offshore investors may directly acquire LUR Equity. This Interpretation 2 is based on the fact that Article 24.2 of the Investment Law 2020 only refers to the land law in general, and the land regulations do not explicitly specify any requirements for offshore investors acquiring LUR Equity. Given the absence of any such requirements, it is arguable that offshore investors can acquire LUR Equity.

However, this Interpretation 2 may not be what was intended by the draftsman of the law because it implies that offshore investors would be subject to less stringent investment requirements than FIEs, which run contrary to the norms.

This post is written by Ha Thanh Phuc and Nguyen Hoang Duong as co-authors.

Vietnam Business Law