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:
Land rental payment terms to the State
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.
Definition of land users
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.
New “right” for land-users
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.
New conditions for the transfer of assets attached to land/ the right to lease under the land lease
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.
Determination of land price through land price list
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.
Compensation for land recovery
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.
Land law violation
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.
Auctions and bidding of land use right
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.
Conclusion
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.
1 Article 129 of Draft New Land Law
2 Article 5.7 of Draft New Land Law
3 Article 44 of Draft New Land Law
4 Article 50 of Draft New Land Law
5 Article 154.1 of Draft New Land Law
6 Article 154.3 of Draft New Land Law
7 Article 89.2 of Draft New Land Law
8 Article 89.3 of Draft New Land Law
9 Article 89 of Draft New Land Law
10 Article 125 of Draft New Land Law. These cases are mostly diplomatic, salt production, public projects, residential land for special cases (public employees, people affected by extreme socio-economic situations, etc.) with exempted land use fees and the like.
11 Article 126 of Draft New Land Law
12 Article 126.2 of Draft New Land Law
13 Article 126.3(h) of Draft New Land Law
14 Article 127.2 of Draft New Land Law
About KPMG Law in Vietnam
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.