Draft New Land Law No.4 dated 3 January 2023 – What are key highlights

A new land law is expected later this year to replace the current one which has been passed since 2013 (“Current Land Law”).

To date, the Government has been working on four draft versions of the new land law of which draft no. 4 dated 3 January 2023 (“Draft New Land Law”) has introduced an enhanced land management system from the state level down to the province and district levels on matters such as land use master planning and planning, land pricing, allocating and leasing. New entitlements of land users including foreign invested enterprises have been also addressed.

Below are the key highlights of Draft New Land Law:

It is clearly provided that land lessees are permitted to conduct one-time payment of land rental¹ only if they are:

• implementing investment projects on agricultural production, forestry, aquaculture, and salt production; and 
• leasing land in industrial parks, industrial clusters, export processing zones, and high-tech zones.

The rest of the land lessees are subject to annual payment of land rental.

All wholly foreign owned enterprises, joint ventures, and any enterprises with foreign shareholders/members, regardless any percentage of their paid equity, are classified into a single term: “Foreign invested economic organizations”².

This new definition of the Draft New Land Law has adopted the same approach of the current Law on Investment and such means to treat all foreign investors equally.

Land users on the land rental annual payment term will be entitled to³:

• transfer, contribute and mortgage their own assets attached to lands; and
• transfer, and mortgage the right to lease under the land lease.

This “right to lease under the land lease” constitutes a new legal entitlement to land users on the annual rental payment term. That is to say that foreign-invested economic organizations will be legally able to mortgage and/or transfer their right to lease under their land lease contracts even if they pay their land rental annually.

In case of the transfer of assets attached to land and the right to lease under the land lease executed with the State and with the annual land rental payment term, new transfer conditions for both the transferor and the transferee, namely⁴:

• For the transferor: The compensation and ground clearance money has been paid in advance, but the amount is not yet fully deducted from the rental.
• For the transferee: After the transfer, the transferee must perform land registration prescribed by law.

It would be interesting to follow up how the requirement applicable on the transferor will be finalized and addressed in the Draft New Land Law, its implementing decree and circular as the rational for such is controversial to a certain extent.

The original five-year land price bracket to be provided by the Government is replaced by the annual land price list to be provided by the provincial authorities⁵. The land price list will be the basis for determining the starting land price in the case of an auction of land use rights, and land use fees when the State allocates land to the selected investor(s) through bidding procedures⁶.

Households and individuals having their land recovered shall be ensured to have a place to live, secure income and living conditions equal to or better than their former place of residence⁷.

Furthermore, they may be compensated with a house or land of the use purpose different from the recovered land⁸.

These new principles aim to ensure the rightful interests of the land users whose land is recovered; however, it remains to be seen how they will be enforced once the Draft New Land Law and its implementing decree and circulars come into effect.

If the investor is behind the registered schedule, regardless how late, they will have to pay an administrative fine which is equal to applicable land use fee and taxes (if any).

Upon the end of the 48th month behind the registered schedule, if the investor has not finished the construction of their project to put the land in use, the State will recover the land without any compensation⁹.

In other words, instead of the requirement on “bringing the land into use” under the current land law, the investor is required to finish the construction of the project within these “extended” 48 months, for avoidance of land recovery.

For investment projects using land, there are: 

• cases not subject to auction or bidding of land uses right¹⁰; 
• cases subject to auctions of land uses right¹¹; and
• the rest are subject to biddings for land use rights.

Among these, urban projects, rural residential area projects, commercial housing (including those which are converted from agriculture land) subject to auction of land use right are rare as: (i) such land use purpose must have been already included in district-level land use plan, (ii) the 1/500 detailed planning is approved, and (iii) the land clearance and compensation has been completed at the time of the auction¹². The winner of the auction must complete the investment project within five years from the date of the handover of land and is not allowed to change land use purpose¹³.

Any of the following investment projects¹⁴ must be subject to bidding procedures:

• leasing land for public use with business purposes;
• leasing land to non-public and non-business units for business purposes;
• allocating land with collection of land use fee for implementation of infrastructure investment projects in cemeteries and graveyards for the transfer of land use rights associated with infrastructure;
• having land use fee or land rental exempted but is shared by two or more investors;
• converting land use purposes for embellishment and development of urban centers and rural residential areas according to planning approved by competent state agencies, in case investors must be selected; and
• urban projects, commercial housing with scale of 50 hectares or more in rural areas and 20 hectares or more in urban areas.

The Draft Land Law is largely anticipated to bring about significant changes which is aimed at enhancing the multi-level system on land use planning, pricing and management by the State, and at the same time, optimizing rights and benefits of the State and land users from an overall perspective.

At this drafting stage, it remains to be seen how the newly introduced issues will be finalized and guided for enforcement purposes in the final version of the new land law as well as its implementing decrees and circulars.

If you have any questions or require any additional information, please contact Geraldine Oh and Ly Thanh Hien of KPMG Law in Vietnam.

This alert is for general information only and is not a substitute for legal advice.

KPMG Law is a leading provider of legal services in Vietnam. Our team comprises approximately 100 legal professionals spread across four offices representing the major financial and commercial hubs in Vietnam and Cambodia. This coverage ensures that we are able to bring our depth and breadth of experience to support our clients when and where they need it most.

Associate Director
KPMG Law in Vietnam
E hienly@kpmg.com.vn
T +84 24 3946 1600