Key takeaways
In summary, this Amended Land Law provides the following key updates:
- New cases when the state will consider leasing land with upfront land rental payment as opposed to annual land rental payment, with changes to how land incentives are applied
- Emphasis on public tendering and land auctions as the preferred methods for granting land use rights for newly planned projects
- A methodology for calculating land prices (for the purposes of arriving at land rental and land compensation figures) that is based more on market prices instead of mandated limits
Guidance on the rights of foreign-invested enterprises (FIEs)
In more detail
- Annual land rental will be the default form of land use rights in most cases
Under the 2013 Land Law, there is virtually no distinction between the cases when upfront land rental payment will apply as opposed to annual land rental payment. The Amended Land Law2 currently proposes that the state will only lease land with upfront land rental payment in two cases: (1) agriculture, forestry, aquaculture and salt-making; or (2) the development of industrial zones, industrial clusters, processing zones and hi-tech zones. However, there is a right to convert to annual land payment for the above cases.
In all other cases (except for residential land, which is always granted by way of "land allocation"), the investor will pay annual land rental to the state by default. In other words, land users subject to annual land rental payment by default can no longer request to pay land rental upfront.
This may impact new commercial real estate projects and other important incentivized projects (e.g., power projects and hospitality projects), which are subject to annual land rental payment and may not have the right to mortgage and/or transfer land use rights.
- Change to the application of land incentives
The 2013 Land Law and relevant implementing decrees provide that land incentives may be granted if the project is (i) located within disadvantaged (or especially disadvantaged) socioeconomic areas or (ii) listed within one of the incentivized sectors. Both criteria are currently defined in the Law on Investment and its guiding decrees. Land incentives include reduction of or exemption from land rental or land use fees for a number of years (three to 15 years) or for the entire land use term.
The Amended Land Law mostly maintains this principle, with the addition of new carve-out cases:3
- Using land in urban areas and areas zoned for urban development
- Commercial housing projects
- Projects using land for commercial and service purposes
This means that, even if the projects may be entitled to land incentives according to the criteria under the Law on Investment, they may not be granted such incentives under the Amended Land Law if they fall under the carve-out scenarios.
If land rental exemption is granted, both the current 2013 Land Law and the Amended Land Law are similar in that land users who are entitled to land rental exemption would have their land use rights limited to a certain extent (e.g., the rights to transfer and mortgage land use rights). However, the Amended Land Law proposes that, if land users wish to exercise the right to transfer or mortgage the land use rights (in cases of upfront land rental payment), the land rental/land use fee corresponding to the exempted period will become payable to the state.4 On the other hand, the current 2013 Land Law does not provide clear guidance for when land users already granted with land incentives wish to transfer the land use rights.
- Emphasis on granting land use rights through public tendering or land auctions
The government aims to focus on (1) land auction (i.e., granting land use rights to the highest-paying investor) and (2) public tendering/bidding (i.e., selecting the most cost-effective and qualified contractor to carry out an approved land-using project).5
The Amended Land Law improves the 2013 Land Law by prescribing more specific criteria as outlined below (which may be further detailed in subsequent guiding regulations):
Land auction criteria6
| Purpose of land auction |
Conditions of the land |
Conditions for participating investors |
- Developing urban (township) projects, rural communities and commercial residential projects through allocation of land. This include residential and nonresidential land that has been expropriated by the state.
- Granting land for nonagricultural production and commercial projects by using land reserves under state management, land acquired from a state-led campaign to create land reserves or land that has been expropriated from state-owned properties.
|
- The district-level annual land use plan must be approved.
- The 1/500 detailed construction zoning must be approved.
- All clearance, compensation and resettlement processes have been completed if required.
|
- The investor must present a project proposal and project timeline.
- The investor must commit to complying with the project timeline.
- The investor must commit not to repurpose the land or change the approved height, depth or density of the construction works.
- The investor must complete their project within five years from the date of land handover.
|
Public tendering/bidding criteria7
| Eligible cases |
Conditions of the land |
Conditions of participating investors |
- Leasing land for public use (with commercial purpose)
- Leasing land to nonpublic administrative units for commercial purposes
- Cases subject to land rental/land use fee exemption with two or more interested bidders
- Leasing land for building underground works with two or more interested bidders
- Urban or rural renovation/development projects in accordance with approved zoning
- Urban and commercial housing projects with an area of at least 50 hectares in rural areas or at least 20 hectares within urban areas
|
- The district-level annual land use plan must be approved.
- The land belongs to the statutory cases of land expropriation for socioeconomic development.
|
- The investor must be eligible to be allocated or leased land in accordance with the law.
|
Exceptions
In addition, the Amended Land Law provides specific exceptions to the tendering/auction processes.8 Some noteworthy exceptions are as follows:
- Cases where the land rental or land use fee exemption applies (see above) and there is only one investor proposing to be leased or allocated land
- Land lease for commercial underground projects
- The land user exercises the right of converting the land use purpose
- Land lease for nonagricultural production/business (at a new location) as a result of land expropriation or forced relocation in response to environmental pollution
- Land lease/allocation with regard to small and narrow land plots
- Other specific investment incentives or social policies as decided by the prime minister from time to time
- Abolishment of land price 'brackets'
With regard to calculating land rental and land compensation payments (as well as land-related taxes and fees), the current approach under the 2013 Land Law is for the government to issue land price "brackets" setting out the ceiling/floor limits for land prices for each land type and region. The "brackets" are supposed to be updated every five years or when the difference in market prices exceeds 20%.
The Amended Land Law thus proposes that the local authorities can set their own land prices based on market fluctuations. These land prices are to be publicized in a table every year and shall be updated as necessary.9
- Guidance on the rights of FIEs
The Amended Land Law now uses "foreign-invested economic organizations" to refer to FIEs, which is consistent with the investment regulations.
Like the 2013 Land Law, the general principle is that FIEs still cannot directly receive land use rights transfers from third parties. However, the Amended Land Law proposes an exception for land within industrial zones/clusters, processing zones and hi-tech zones.10 Namely, FIEs can receive direct transfers of land use rights of land located in an industrial zone from a tenant that paid upfront land rental. The Amended Land Law also proposes that the industrial zone developer may only convert the annual land rental payment to upfront payment for portions of the industrial zone.11 As such, tenants that paid annual land rental and wish to transfer the land use rights should be able to request the conversion without affecting the rest of the industrial zone.
On a related note, the right to mortgage land use rights has been expanded slightly. "Economic organizations" (i.e., not considered foreign-invested) that are subject to land allocation or land lease with upfront rental payment may mortgage the land use rights and assets on the land to (i) credit institutions operating in Vietnam and (ii) "other economic organizations or individual.s"12 The Amended Land Law states that FIEs that sublease land in industrial zones have the same rights provided above.
1 https://xaydungchinhsach.chinhphu.vn/toan-van-du-thao-luat-dat-dai-sua-doi-lay-y-kien-lan-hai-11923010312182186.htm.
2 Amended Land Law, Article 120.
3 Amended Land Law, Article 152.
4 Amended Land Law, Article 35.4(b).
5 Article 4.12 of the Law on Bidding.
6 Amended Land Law, Article 126.
7 Amended Land Law, Article 127.
8 Amended Land Law, Article 125.
9 Amended Land Law, Article 154.
10 Amended Land Law, Article 30.
11 Amended Land Law, Article 194.3.
12 Amended Land Law, Article 35.
* Contributed by senior associate Phuc Thuy Hien Nguyen and trainee Nguyen Minh Ta.
