Vietnam’s Land Law Goes Into Effect, More Room for FIEs

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HCMC – On July 1st, 2014, Vietnam’s 2013 Land Law (revised) officially came into effect, The new law has seven more chapters and 66 more articles than the original 2003 Land Law. The new law institutionalizes the points of view and orientations contained in Resolution 11-NQ/TW of the sixth Plenum of the Party Central Committee.

Although the new Land Law still does not allow foreign-invested enterprises to receive the transfer of land use rights or purchase land, it does not prohibit foreign investors from buying the capital associated with the land, for example, factories.

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Therefore, the foreign investors can first purchase the capital associated with the land, then the land owners repay the land to the government, and the foreign investors can rent this land from the government. In the case of land that users are not entitled to transfer, if the capital associated with the land is purchased, the government will recover the land and rent it to the capital buyers.

Key differences of the 2013 law:

Offers clearer terminology

  • The introduction of a new concept of a “foreign invested enterprise (FIE)”, which is defined to mean a 100 percent foreign owned enterprise, joint venture, or domestic enterprise to which the foreign investor has invested in via share purchase, merger, or acquisition in accordance with the Law on Investment;
  • Clarification that, in the case of domestic enterprises, the foreign investor(s) must have a controlling interest (according to the Law on Enterprises) in the domestic enterprise in order for it to be treated as an FIE (however, no such requirement is set for joint venture enterprises, suggesting that all joint venture enterprises will be treated as FIEs)

RELATED: Revised Laws Could Help Foreigners Build Vietnam’s Real Estate Sector

Contains clear stipulations on land users’ rights to compensation and resettlement assistance

  • Compensation:
    • For economic organizations, overseas Vietnamese, and foreign-invested enterprises who are subject to land recovery while using land for their housing construction projects, the compensation is implemented in accordance with the following principles:
      • If the recovery is a portion of the project land area but does not impinge on the continued implementation of the project, the recoveree shall be compensated in cash for the recovered land area;
      • If the recovery is the whole or a sufficiently large part of the project land area, making the continued implementation of the project unfeasible, such individuals or organizations shall be granted land compensation to implement projects or monetary compensation;
      • The projects that were put into commercial operations shall be compensated in cash upon land recovery by the State.

Offers equal opportunities for Vietnamese and foreign investors, enabling foreign investors to get involved in housing projects for residence, lease or sale.

  • Allows FIEs to obtain the same forms of Land Use Rights (LUR) as those to which the domestic enterprises are entitled, including allocation of LUR for the purpose of development of housing for sale and lease only.

Acquisition of LUR by FIEs

  • There is a more transparent process by which FIEs could obtain LUR through auction. Most allocations and leases of LUR by the State will be conducted through an auction and both FIEs and domestic enterprises will be allowed to participate in this process.
  • FIEs may sublet land from domestic enterprises and overseas Vietnamese; FIEs may also receive assignment of LUR as a result of realization of a mortgage and assignment of “investment capital being the value of LUR”.

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