The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.
This summary is, necessarily, selective and is no substitute for detailed legal advice.
1. All land in Vietnam belongs to the People and its use is administered on their behalf by the State. Private ownership is not possible although the right to use land can be allocated by the State. Land cannot, subject to exceptions, be transferred or assigned without State consent.
2. The Law on Land of 14 June 1993 forms the basis of all existing land law. Under this, land was allocated for a specific purposes, for a fixed term of years.
In return, rent was to be paid unless the land was used for, broadly, an agricultural/ non -industrial purposes, or a specific exemption was obtained. In practice, rental payments were not strictly enforced.
3. In principle, it seems to have been envisaged that land for public use / agricultural / non-industrial purposes would be allocated by the grant of a land use rights certificate, and land for all other purposes would be dealt with the grant of a lease.
4. The distinction between the two, however, became blurred and, in practice, land use rights certificates were commonly granted in respect of all types of land use. On transfer of land or upon a change in its use, as approved by the State, a fresh land use rights certificate was required to be issued and a fee paid to the State. In practice however, such fees, like rental payments often went unpaid.
5. Gradually the original Vietnamese grantees of land began to transfer their rights to other Vietnamese, who paid for the value of the land. This led to a measure of speculation and an increase in prices.
6. The Law on Foreign Investment and the Law on Land permitted land to be contributed by a wide ranging list of organisations, both State and private, to a foreign invested enterprise, in return for which the contributing Vietnamese party was allocated a "share" in the venture equivalent to the value placed on the land use right contributed. The actual valuation was a matter for negotiation between the parties.
7. In the early years of market opening, the contribution was made and a land use rights certificate was issued in name of the Vietnamese Party. Following representation by foreign parties, land use rights certificates were issued to the joint venture company- some issued by lease and many by way of land use rights certificate. Whatever the form, the grant would be issued by the local People's Committee and/or the Department of Lands Administration for the duration of the investment licence.
8. Early in 1995, the position altered. Legislation sought to make it clear that only leases were to be granted of land that did not fall into the category of agricultural /non-industrial/ public use.
At the same time, the Law on Land was apparently changed so that, effectively, only State related and quasi-State enterprises could now contribute land by way of a lease to a foreign invested enterprise (private enterprises were now excluded). This may well not be the final position.
9. Foreign Invested Enterprises may lease land directly from the State, though they may not sublet it unless the transaction is in relation to an Export Processing/ Industrial Zone.
10. Decision 1417 of 31 December 1994 sets out how the rents for foreign invested enterprises are to be calculated. These are very detailed, but depend broadly upon the location of the land and its use. The rents stipulated do not include clearance or compensation costs.
11. If however, a Vietnamese Party makes a capital contribution to a foreign invested enterprise in the form of the right to use land, the foreign invested enterprise, is not liable for rent.
The valuation to be placed on that capital contribution is determined by law.
12. The rent may be increased by the Government every 5 years though not above a 15% increase. Rent increases do not apply where the Vietnamese party contributes land as part of its capital contribution nor do they apply where rent is paid in advance as a lump sum for the duration of the project.
13. Decision 1417 also allows a 50% reduction in rental during any construction period and provides for a reduction in rental (up to a maximum of 15%) where the JVC has made a substantial lump sum payment in advance. This reduction does not apply where the land is contributed by a Vietnamese party as its capital contribution.
14. Further legislation, effective from early 1995, was designed to bring to an end the situation where fees for land allocation/transfer went unpaid. Circular 2of 4 January 1995 Stipulated that all transfers /grants and changes in use made after 17 August 1994, or any made, but not registered within the period between 15 October 1993 and 17 August 1994, would require to be registered and a fee payable.
15. At the same time Decree 18 CP was issued on 13 February 1995, though back- dated to I January 1995.
The effect, broadly, is that enterprise.,; granted land use rights before 1995 must convert these to leases from the State and pay rent. The level of rent will be fixed by the relevant People's Committee within a framework set by the Ministry of Finance.
16. If the enterprise has not paid for the value of the land, or has paid out of State finds, it will have to pay the rental in full. If however it has already paid for the value of the land, the money paid to the State may be offset against the rental and treated as rent paid.
17. For existing joint ventures where land use rights have already been contributed as the capital contribution of the Vietnamese party and land use certificates issued to the JVC, the Vietnamese party must still relinquish its land use rights, obtain a lease and pay rental as above.
18. The legislation as it stands regarding land use rights/ leases is ambiguous and unclear in parts.
There have been calls for its amendment and clarification. This is expected to occur at the next Session of the National Assembly.
NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".