Interpretation of Land Use Rights Policy for Foreign Enterprises

Vietnam’s land policy may appear complex to foreign investors. According to the Land Law of 2013, land is owned by the state, but individuals and organizations can obtain use rights. For foreign investors, land use rights are mainly acquired through leasing. This basic framework provides a legal foundation for investors to conduct business in Vietnam while also presenting some special considerations.

1. Methods of Acquiring Land Use Rights

There are three main ways for enterprises to acquire land use rights in Vietnam: direct leasing from the government, leasing from industrial zone management committees, and transferring land use rights from Vietnamese enterprises. Direct leasing from the government applies to new industrial or agricultural projects, with the process including submitting applications to provincial People’s Committees, obtaining investment licenses, and finally signing land lease contracts. While this method involves more complex procedures, the rent is often lower.

Leasing from industrial or economic zone management committees is the preferred choice for many enterprises due to simplified procedures and typically well-developed infrastructure. However, this method may involve higher rent, so it’s advisable to compare conditions of different industrial zones before making a decision. Transferring land use rights from Vietnamese enterprises usually applies to acquisition or joint venture projects, but special attention must be paid to assessing the legality of the original land use rights to avoid potential disputes.

2. Land Use Duration and Rent

The duration of land use is a particular concern for foreign investors. Generally, the maximum use period for industrial land is 50 years, which can be extended to 70 years in special cases. Renewal can be applied for after the expiration of the use period, but it must comply with land use planning and adhere to relevant laws during the use period. For investors, the key is to ensure that the investment period matches the land use period and to pay close attention to local government attitudes towards renewal.

General Provisions

  • Industrial land: Maximum 50 years
  • Special cases: Can be extended to a maximum of 70 years (large projects, economically disadvantaged areas)

Renewal Provisions

  • Can apply for renewal upon expiration
  • Renewal conditions: Comply with land use planning, adhere to land laws during the use period
  • Application time: 6 to 12 months before expiration

The method of determining land rent varies by location. In cases of direct leasing, rent is priced by the government based on land grade and location. In industrial zones, rent is determined by the management committee. It’s worth noting that certain regions and industries may enjoy rent concessions. For example, investments in economic zones, high-tech parks, or underdeveloped areas may receive rent reductions. Investors should carefully compare rental costs in different regions, assess the risk of long-term rent increases, and consider the feasibility of one-time full rent payment.

3. Land Use Rights Certificate (Red Book) and Its Importance

Obtaining a land use rights certificate, colloquially known as the “Red Book,” is crucial for Chinese enterprises operating in Vietnam. The Red Book is not only legal proof of land use rights but also a necessary condition for financing, transfer, and mortgage. The application process for the Red Book includes preparing necessary documents (such as investment certificates, land lease contracts, etc.), submitting applications to the provincial Department of Natural Resources and Environment, paying relevant fees, and then waiting for approval, which usually takes 15-30 working days.

Application Process

  1. Prepare necessary documents (investment certificate, land lease contract, etc.)
  2. Submit application to the provincial Department of Natural Resources and Environment
  3. Pay relevant fees
  4. Wait for approval (usually 15-30 working days)

For investors, ensuring all documents are complete and valid is key to smoothly obtaining the Red Book. Given the complexity of the procedure, it’s often wise to hire legal advisors familiar with local regulations to assist with the application. Proper safekeeping of the Red Book after obtaining it is also very important, as it will play a crucial role in the enterprise’s future operations.

4. Special Situations in Land Use

Land use purpose changes, transfer of use rights, and mortgages are special situations that investors may face. Changing land use purpose requires application to the provincial People’s Committee, followed by signing a new lease contract and updating the land use rights certificate after approval. This process can be complex, especially when converting agricultural land to industrial use.

The transfer and mortgage of land use rights provide flexibility for enterprises but are also subject to strict regulations. Transfers require approval from the provincial People’s Committee, while mortgages are limited to banks within Vietnam. Investors should view these options as potential strategic tools for financing or adjusting investment strategies. However, it’s crucial to carefully assess their impact on the long-term development of the enterprise when conducting these operations.

5. Risks, Challenges, and Coping Strategies

Acquiring and managing land use rights in Vietnam faces many challenges, including common issues such as disputes over land acquisition compensation, sudden rent increases, and uncertainty in renewals. To address these risks, investors should adopt the following strategies:

  1. Conduct thorough due diligence to ensure the selected land is free of disputes.
  2. Clearly stipulate rent adjustment mechanisms in contracts to reduce uncertainty in future cost increases.
  3. Maintain good communication with local governments and establish a solid network of relationships.
  4. Closely monitor the latest changes in land laws and adjust strategies in a timely manner.

A successful case is a Chinese manufacturing enterprise’s land lease in a northern Vietnam industrial zone. The enterprise negotiated rent concessions for the first three years, effectively reducing initial costs. However, they also recognized the need to assess the risk of long-term rent increases and developed detailed financial plans accordingly.

6. Conclusion and Practical Advice

In the investment process in Vietnam, land use rights are a complex but crucial area. By thoroughly understanding relevant policies, carefully evaluating various options, and seeking professional advice, investors can effectively avoid risks and lay a solid foundation for their projects. Remember, in Vietnam, good government relations and flexible strategies are often key to success.

For investors seeking further information, the following resources may be helpful:

  • Ministry of Natural Resources and Environment of Vietnam (www.monre.gov.vn, Phone: +84 24 3795 6868)
  • Economic and Commercial Office of the Chinese Embassy in Vietnam (vn.mofcom.gov.cn, Phone: +84 24 3845 3736)
  • Vietnam Investor Relations Network (www.investorrelations.vn, Phone: +84 24 3934 7453)

By comprehensively understanding and strategically addressing Vietnam’s land use rights policies, investors can gain an early advantage in this market full of opportunities.

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