Land rental incentives in Vietnam

Land ownership Under Vietnam’s Constitution

All land is collectively the property of all the people of Vietnam. As such, no one, whether Vietnamese or foreign, is permitted to ‘own’ land in respect of holding indefeasible title. Instead, a person (a land user) can get access to land use rights in one of the following ways: 

  • by allocation from the State, for a definite or indefinite period; 

  •  by leasing from the State; 

  • by sub-leasing through a developer of an industrial zone or high-tech zone; 

  • by transfer from an existing land user; or 

  • by way of capital contribution by an existing land user. 

The availability of each of these options, and the nature of the land use rights conferred under them (eg whether for a definite or indefinite period and whether the land user has the right to lease or sublease or use their land use rights as security) will depend on whether the land user is: 

  • Vietnamese (either an individual or a domestic entity); 

  • ‘overseas Vietnamese’ (an ethnically Vietnamese individual who is not a Vietnamese citizen); 

  • or > a foreigner (either an individual holding a foreign passport or a foreign-invested enterprise established in Vietnam). 

Land use rights and ownership of assets located on land are evidenced by a ‘Certificate of Land Use Right, House Ownership and Other Assets attached to Land’, commonly referred to as a Land Use Rights Certificate (LURC). Allocation of land by the State Allocation of land use rights by the State, in particular for an indefinite period, is the closest thing to true land ownership available in Vietnam. Land allocation can be made for residential purposes and for investment into housing development projects. 

  • For residential purposes: Foreigners cannot be allocated land from the State for residential purposes. Land allocated to Vietnamese individuals for residential purposes will be for an indefinite period (also known as ‘stable and long term use’). 

  • For investment purposes: A foreign-invested enterprise can be allocated land for the construction of residential housing for sale or lease. In this case, the land is allocated for a definite period up to a maximum of 50 years, but not exceeding the duration of the relevant investment project. However, Vietnamese buyers in residential housing projects may be entitled to ‘stable and long term use’ without having to pay additional land use fees. 

Rights of users of allocated land

Generally, a land user who has been allocated land and has paid land use fees may assign (ie sell), lease, donate or mortgage those rights. Additionally, the land user may contribute those rights as capital into a joint venture. Land leased from the State 

Land can be leased from the State by both domestic and foreign-invested enterprises and by Vietnamese individuals. Land can be leased for agriculture, production and business purposes. This includes infrastructure construction, manufacturing facilities, hotels and resorts, mining and residential housing for lease. 

  • Lease tenor: Maximum lease terms are prescribed for different types of leases. Leases to domestic and foreign-invested entities may be for a maximum 50-year period (although, in certain cases – such as projects of national importance – a 70-year term is permitted). The term however must not exceed the duration of the relevant investment project. Extensions are possible, but not guaranteed, and the extended term must not exceed the original term. 

  • Rights of lessee: All lessees of land from the State must pay land rental. Domestic enterprises and foreign-invested enterprises may pay rental either annually or in a lump sum upon commencement of the lease. Land users paying rental annually may not mortgage or contribute their land use rights (although they may mortgage or contribute any assets on the land). By contrast, a land user who pays the full land rental upfront (where the costs are akin to purchasing the land use rights) may transfer, sublease, mortgage or contribute their land use rights in much the same way as a party to whom land has been allocated

Vietnamese laws also establish and recognise specific zones for development, including industrial, export processing and high-tech zones. Land for these zones can be leased to foreign-invested enterprises and domestic enterprises (ie the developer), who develop and operate in these zones. Once construction of the infrastructure for the zone is completed, the developer can sub-lease the land to sub-lessees, including to foreign-invested enterprises. If the developer pays land rental on a lump sum basis, it may sublet the land and collect rent either by an annual payment or a lump sum payment. 

However, if the land rental is made annually, the developer must only collect the rent annually from the sub-lessees in the relevant zone. 

  • Features of land sub-leased in development zones: Each zone is supervised by a management committee made up of representatives of various government bodies. A number of incentives may be available to developers of the zones, as well as the sub-lessees in the zones, depending on the nature of the zone and the sub-lessee’s project. Land may be leased in a zone for production and business purposes on a long term basis. Sub-lessees must pay land rental and infrastructure fees to the developer in accordance with their land lease contract, and they are entitled to be issued with an LURC. 

  • Rights of sub-lessees: Sub-lessees paying annual rent may not assign, mortgage or contribute their land use rights (although they may mortgage or contribute any assets on the land). By contrast, a sublessee who pays the full land rental up-front to the developer may transfer, mortgage or contribute their land use rights in much the same way as a party to whom the State has directly leased land with upfront payments of land rental.

Land transfer 

The law contemplates and regulates several forms of land transfer, including assignment (equivalent to ‘sale’), inheritance, gift and capital contribution. 

  • Right to transfer land and receive transferred land: Land users with the right to assign their land use rights can generally assign them to any Vietnamese individual or domestic enterprise. Foreign-invested enterprises and foreign individuals cannot receive assignments of land use rights from existing land users, other than by way of capital contribution from a Vietnamese enterprise, or as part of the purchase of residential housing or transfer of an entire real estate project. 

  • Rights of land user receiving transferred land: Generally the rights of the entity or individual to whom rights are transferred will be the same as those held by the person initiating the transfer. For example, transferred land use rights which are subject to a maximum term will be transferred for the duration of that term (except for Vietnamese purchasers in residential housing projects, who will be entitled to land use rights for an indefinite period). A person or entity to whom rights are transferred can generally transfer, lease, donate, mortgage or contribute those land use rights

Contribution of land use rights as capital 

Some land users are able to use their land use rights as capital to invest in enterprises. A common example of this is where the Vietnamese party to a joint venture contributes their rights as capital to the joint venture company. 

  • Generally, in order to contribute land use rights, the Vietnamese party must have been allocated or leased the land use rights and have paid all land use fees or land rental in full. 

  • Once contributed, the joint venture enterprise has the same rights as the land users who were allocated or leased land by the State with full payment of land use fees or land rental. They may assign, lease, donate, mortgage or even contribute those land use rights.

Property development ‘Real estate business’, which includes property development and property related services, is a ‘conditional’ investment sector. Foreign investors who wish to conduct real estate business in Vietnam need to take into account the following:  

  • Permitted activities of foreign-invested enterprises: foreign-invested enterprises can 

    • (i) lease houses or other buildings for sub-letting; 

    • (ii) lease land from the State for the development of residential housing for lease or for the development of non-residential properties for lease or sale; 

    • (iii) receive an allocation of land for development of residential housing for sale or lease; and 

    • (iv) receive an assignment of the whole, or part, of a real estate project which is incomplete and requires significant development. 

  • Prohibited activities of foreign-invested enterprises: foreign-invested enterprises cannot purchase houses or other buildings for resale or lease, nor receive an allocation of land for subdivision of land lots for sale. In contrast, there is no such prohibition on Vietnamese enterprises conducting these real estate activities.

Presales: the presale of residential housing during the construction and development phase is subject to completion of the foundation construction of the houses/apartment buildings. An approval from the provincial construction department on qualification

of the housing for sale must be granted prior to the presale. In addition, the developer must obtain a bank guarantee to secure its obligation to refund advance payments to purchasers. 

Capital requirement: A real estate company must have a minimum equity capital of VND 20 billion (equivalent to USD 866,000). Housing regime for foreigners Effective from 1 July 2015, restrictions on the purchase of residential houses by foreigners have been significantly relaxed. In principle and subject to restrictions, a foreign individual may purchase and own houses in Vietnam, if that person is permitted entry into Vietnam. 

Foreign organisations (including foreign-invested enterprises established in Vietnam) eligible to purchase and/or own houses in Vietnam include: 

  • Foreign invested enterprises that are licensed to develop residential projects; 

  • Foreign invested enterprises that are not engaged in residential development; and

  • Branches, representative offices of foreign companies; foreign funds and foreign bank branches that are licensed to operate in Vietnam. 

However, in the second and third scenarios above, the foreign organisation must use the purchased houses only to provide accommodation for their employees and must not use the houses as office space or to lease out. The current housing regime sets out restrictions on the maximum number of houses in an apartment building, residential area or a street that foreigners can purchase and own. For example, the total number of apartments that may be purchased in one building by foreigners is capped at 30 per cent of the total number of apartments in the building. Generally, foreign owners may have the same rights as those of Vietnamese owners, including the rights to sell, mortgage, lease, contribute as capital, donate and bequest. However, the ownership term is limited to 50 years for foreign individuals (except those who are married to Vietnamese citizens), or to the term of the investment registration certificate for foreign organisations.