NOTABLE REGULATIONS DIRECTLY AFFECTING LAND USE RIGHTS IN INDUSTRIAL ZONES FOR FOREIGN-INVESTED COMPANIES

Partner – Than Trong Ly

Associate – Nguyen Bao Ngoc & Junior Associate – Nguyen Minh Tuan

The Land Law 2024 and Law on Real Estate Business 2023, which will officially take effect on 01 August 2024, will have significant impacts on the use and management of land by the State and land users, including foreign-invested companies ("FIC"). We hereby highlight some new regulations that may directly affect land use rights in industrial zones for investors of investment projects to build and operate infrastructure in industrial parks (“IP Investor”) and land users in the industrial zones of IP Investors as follows:

1.     Conditions applied for IP Investors

According to Article 10.1 of Decree 35/2022/ND-CP dated 28 May 2022 on the management of industrial parks and economic zones, the IP Investor must meet the real estate business conditions in accordance with real estate business laws and the conditions for the State to allocate land, lease land, and change land use purposes to implement investment projects on construction and business of industrial park infrastructure as prescribed by land laws. Therefore, new changes related to the issues mentioned in the Land Law 2024 and the Law on Real Estate Business 2023 also affect the scope of activities and applicable conditions for the IP Investor.

Specifically, FIC that fall under the conditions and investment procedures for foreign investors as stipulated in Article 23 of the Law on Investment 2020 will have a narrower scope of real estate business activities compared to domestic investors, or FICs that do not fall under the conditions and investment procedures for foreign investors under Article 23 of the Law on Investment 2020 ("Deemed Domestic Investors").

Hence, IP Investors being FICs subject to conditions and investment procedures applicable for foreign investors are only allowed to conduct real estate business under the forms of: (i) investment in the construction of buildings associated with land use rights for sale, lease, or lease-purchase through real estate projects implemented according to the prescribed forms, purposes, and land use durations as per the land laws; (ii) investment in the construction of technical infrastructure within real estate projects for the transfer, lease, or sublease of land use rights with technical infrastructure implemented according to the prescribed forms, purposes, and land use durations as per the land laws. Conversely, IP Investors being Deemed Domestic Investors are permitted to conduct all forms of real estate business as stipulated by real estate business laws.

2.      Form of land rent payment

Pursuant to Article 202.3 of the Land Law 2024, IP Investors who lease land from the State with annual rent payments can change the payment method to a one-time payment for the entire lease term for the whole or a part of the leased land area. This right is new compared to the Land Law 2013, which expands flexibility for the IP Investor to choose appropriate payment methods based on their financial status. Accordingly, once IP Investors have changed to the form of lease land with one-time payment for the entire lease term and fulfilled payment for the land use fee, their rights to land and properties on land will be wider as prescribed in Article 43.2(a) of the Land Law 2024.

Additionally, Article 41.2(e) of the Land Law 2024 permits IP Investors to sublease the land use rights in the form of annual rent payments for land that has completed infrastructure construction in cases where investment in infrastructure construction and business is permitted for industrial zone land.

3.      New regulations relating to land price

Article 153 of the Land Law 2024 supplements provisions that the is applied from the time the State decides to lease the land, allowing for the change of land use purpose associated with the transition to the state leasing the land with annual land rent payment. The land rent is . In cases where the land rent , the land rent payable . The adjustment rate determined by the Government for each period does not exceed the total annual national consumer price index (CPI) of the previous 5-year period.

In terms of determining land price, Article 158 of the Land Law 2024 specifically introduces four (04) methods of land valuation, including (i) the comparison method, (ii) the income method, (iii) the surplus method, and (iv) the land price adjustment coefficient method. Additionally, the Land Law 2024 expands the scope of “Other methods of land valuation” to create a mechanism for the Government to further apply a new method of valuation so as to ensure smooth operation of land valuation in consistent with the market.

Notably, the Law on Land 2024 eliminates the land price frame and specifies that the land price list applies to the following cases: (i) Calculating land use fees when the state recognizes the right to use residential land of households or individuals; changing the land use purpose of households or individuals; (ii) Calculating land rental fees when the state leases land for annual rent, except for cases of land leasing through land use rights auctions; and (iii) Calculating land use taxes. Accordingly, the land price list is established annually, with the initial land price list being published and applied from 01 January 2026. For subsequent adjustments, the land price list shall be revised annually from January 1 to ensure alignment with market land prices.

4.      The subjects eligible for receiving mortgage

As per Article 43.2 of Land Law 2024, FICs who lease land in industrial zones are entitled to mortgage assets on the land to individuals or other organizations that are not credit institutions. In cases where FIC leases land with one-off rent payments, they are entitled to mortgage land use rights, addition to the assets attached to land.

This is a particularly progressive point of the law because previously, the only entities allowed to receive mortgages were licensed commercial banks and credit institutions in Vietnam. The expansion of eligible mortgagees allows organizations greater flexibility in raising capital to carry out their investment and business activities.

5.      Regarding the land use term

The Land Law 2024 clearly stipulates that the land use term for investment projects in industrial zones will depend on the term of the investment project. In cases where the operational term of an investment project exceeds the remaining land use term of the industrial zone, the IP Investors must obtain permission from the Competent State to adjust the land use term of the industrial zones accordingly. However, the total land use term must not exceed 70 years, and the IP Investor must pay land use fees or land rent for the area with an adjusted land use term. This provision is reasonable and consistent with the Law on Investment 2020, and issues related to the extension of investment projects will be entirely subject to the current investment law regulations.

We hope that the above sharing provides an overview of the material effects of new Land on Law and Law on Real Estate Business on land use rights in industrial zones in Vietnam. Please note that our analysis is based on current legal provisions, and in the future, the Government may issue various related guiding decrees, or practical application may vary in each locality. We will continue to keep you updated on any developments regarding this issues for your reference.

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