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Tony Milton MRICS

BSc (Hons) Est Man
MRICS
APREA (CREIF)

Land Laws
Friday, 27 February 2009

Land Laws

 

 1 GENERAL INVESTMENT LAWS.........................................................

1.1 LAW ON ENTERPRISES.............................................................

1.2 INVESTMENT LAW...................................................................

1.3 DECREE 108...........................................................................

1.4 BUSINESS REGISTRATION & INVESTMENT LICENCING.....................

1.5 TAXATION OF FOREIGN INVESTED ENTERPRISES..........................

2. LAND LAW 2003...........................................................................

2.1 DECREE 181 / 2005..................................................................

2.1.1     CIRCULAR 01 / 2005..........................................................

2.1.2     CIRCULAR 05 / 2005..........................................................

2.1.3     CIRCULAR 04 / 2006..........................................................

2.1.4     CIRCULAR 08 / 2006..........................................................

2.1.5     OFFICIAL LETTER 523 / 2007...............................................

2.1.6     OFFICIAL LETTER 2057 / 2007.............................................

2.1.7     DECISION 216 / 2005.........................................................

2.1.8     CIRCULAR 145 / 2007.........................................................

2.2. DECREE 182 / 2004.................................................................

2.2.1.    CIRCULAR 05 / 2006..........................................................

2.3. DECREE 188 / 2004.................................................................

2.3.1.     CIRCULAR 114 / 2006........................................................

2.4. DECREE 197 / 2004.................................................................

2.4.1.     CIRCULAR 116 / 2004........................................................

2.5. DECREE 198 / 2004.................................................................

2.5.1.     CIRCULAR 117 / 2004........................................................

2.6. DECREE 142 / 2005.................................................................

2.6.1.    CIRCULAR 120 / 2005.........................................................

2.7. DECREE 84 / 2007...................................................................

2.7.1.    CIRCULAR 14 / 2008..........................................................

2.8. DECREE 17 / 2007...................................................................

2.9  CIRCULAR 145 / 2007..............................................................

3. CIVIL CODE / 2006.......................................................................

3.1 DECREE 95 / 2005....................................................................

3.1.1     CIRCULAR 13 / 2005..........................................................

4. LAW ON RESIDENTIAL HOUSING / 2005............................................

4.1 DECREE 90 / 2006....................................................................

4.1.1     CIRCULAR 05 / 2007..........................................................

5. LAW ON REAL ESTATE BUSINESS / 2006..........................................

5.1. DECREE 153 / 2007.................................................................

5.1.1     CIRCULAR 13 / 2008..........................................................

5.1.2     OFFICIAL LETTER 62.........................................................

5.1.3     OVERVIEW......................................................................

6. HOUSING LAW / 2008....................................................................

7. LAW ON REAL ESTATE REGISTRATION (PENDING)..............................

 

There have been many changes to the real estates laws in recent years, but hopefully now most of the laws are written future changes will be limited to the enacting Ministerial Decrees & Circulars, providing a more predictable and stable platform for potential investors in the future. Nonetheless, it still remains a tricky and unpredictable area for foreign investors who should obtain professional legal advice with regard to company and land law which is complex, open to various interpretations and constantly changing.

 

1     GENERAL INVESTMT LAWS    

 

The structure of the Vietnamese economy has significantly developed during the last few years. Many reforms have been undertaken, particularly to promote foreign exchange with other countries, attract foreign investors and reinforce cooperation in the field of development. Since the first Law on Foreign Investment, passed in 1987, the investment regime has been comprehensively revised on many occasions and most recently in 2005 with the promulgation of the Investment Law and the Law on Enterprises which unified the foreign and domestic enterprises and investment regimes and came into effect on 1 July 2006. These texts represent major changes to the corporate and commercial legal framework of Vietnam and will hopefully streamline formalities.

 

The Investment Law regulates how an investment is approved while the Law on Enterprises establishes the type of corporate vehicles investors may establish to carry out their investment projects. Both laws apply to both Vietnamese and foreign investors.

 

1.1  Law on Enterprises                     

 

On November 29, 2005, the National Assembly passed the Law on Enterprises (Law No. 60/2005/QH11) on Enterprises which became valid on the 1st July 2006. To carry out an investment as a JVC or WFOE a new Vietnamese legal entity must be established and this is governed by the Law on Enterprises. The incorporation of the Vietnamese company takes place simultaneously with the licensing of the project under the Investment Law.

 

The Law on Enterprise sets a clearer legal framework for investment, by introducing management rules for both domestic and foreign invested enterprises. The Law enshrines the principle of freedom for Vietnamese organizations, individuals and foreign organizations to establish and manage enterprises in Vietnam. In addition, the same entities are entitled to contribute capital and purchase shares in companies set up in accordance with the law.

 

Under the former regulation (Law on Foreign Investment passed in June 2000), the standard corporate structure was that of the JVC or WFOE, established in the form of limited liability companies. Foreign investors are now eligible to establish either limited liability companies, partnerships, private enterprises or shareholding companies.

 

All enterprises established under this text by both domestic and foreign individuals and organisations are guaranteed equal treatment, most importantly, incorporation is made via registration rather than an approval process.

 

Re-registration: Existing foreign-invested enterprises have two options : -

 

(i)         Re-register their business under the provisions of the 2005 Law on Enterprise within two years from its effective date; or

 

(ii)        Continue to operate and be entitled to the rights and benefits defined in their existing investment license.

 

Group Companies: The Law on Enterprise also introduces the concept of companies being part of the same group. Accordingly, a subsidiary company is a company : -

 

(i)         Wholly owned by or is majority-owned by another company; or

 

(ii)        Its managers and business and financial operations are directly or indirectly controlled

by the other company. Previously, this concept did not exist.

 

Management: The Law on Enterprise also sets out criteria and conditions for a person to become : -

 

(i)         A director or general director (i.e. head) of a company;

 

(ii)        A member of the board of management / board of directors;

 

(iii)       A member of supervisory board which is a special control board to review the activities of the board of management / board of directors.

 

Decision Making: The Law on Enterprise provides that most decisions can be made by the vote of holders of 65% interest in a company (and in special cases, such as sale of assets exceeding 50% of the value of a company, approval of 75% of the shareholders are required). This is an important change as previously under the FIL in respect of certain decisions, unanimous approval is required. This had led to the failures of many foreign-invested joint ventures as the requirement gives minority shareholders an unreasonable power to veto many key issues. Note that under the previous LOE, only 51% of the vote was required for most decisions. Thus, the 65% in the 2005 Law on Enterprise seems to be a compromise between the LOE and FIL.

 

Protection of Minority Shareholders: The Law on Enterprise also contains other provisions to protect the interests of minority shareholders (members) such as : -

 

  • In case of a limited liability company : -

 

(i)   Member(s) who own(s) 25% of the charter capital or a lower percentage as set out in the company charter is(are) entitled to call for a board meeting;

 

(ii)  A member who does not agree with the decisions of the board may request the company to buyback his / her contributed capital;

 

(iii) Increase in legal capital by way of receiving a new member shall be subject to the approval of all members of the company, unless otherwise defined in the charter of the company.

 

  • In the case of a shareholding company, shareholder(s) who own(s) more than 10% (or a lower percentage as set out in the company charter) of the common shares continuously for 6 months is (are) entitled : -

 

(i)   To nominate a person to the board of management;

 

(ii)  Review the company's books, board minutes and resolutions, half-yearly and annual financial report;

 

(iii) Call for a board meeting in some special cases;

 

(iv) Request the supervisory board to control and review a particular issue in respect of management or operation of the company.

 

Legal Status: The Law on Enterprise also introduces the concept of "piercing of the corporate veil". A company generally acquires separate legal status from the shareholders or owners once it is established and generally shareholders' liability is limited to capital contributed by them. Under the Law on Enterprise, the competent authorities may, however, impose personal liability on the members / shareholders where the company is seriously undercapitalized on formation. The members / shareholders of a company may also be personally liable based on certain actions taken by them.

 

Restructuring: The Law on Enterprise also sets out procedures for re-structuring, liquidation and bankruptcy of the company.

 

1.2  Investment Law                    

 

The Investment law replaces the previous Foreign Investment Law and the Law on Promotion of Domestic Investment and contains provisions in respect of investment activities, rights and obligations of the investors, protection of the investors' legal rights, investment incentives and State management on investment.

 

The intention of the Law is to unify the dual investment regime into a single and more favorable law to attract greater investment from foreign as well as domestic investors. Indeed, the Law contains a number of important undertakings including commitment from the State: -

 

•           That all investors will be treated equally and the State will create favorable conditions for investors to make their investment.

 

•           To protect the assets, properties and income of investors and in particular will protect investors against State confiscation of their assets. Only in the interest of national security may assets be confiscated but in such circumstances the investor will be paid market value for the assets / business confiscated.

 

•           To comply with all international treaties on investment to which it has acceded.

 

•           To protect intellectual property rights of investors and open the Vietnamese market.

 

•           That there will not be any dual pricing system discriminating between foreign and domestic investors.

 

•           That investors will be protected in the event of any change in law.

 

Below are several other key issues that have been addressed in the Law : -

 

Application: The Law covers both direct and indirect investment : -

 

•           Direct investments include investments in : -

 

(i)         Enterprises such as 100% foreign invested enterprises, joint ventures;

 

(ii)        Contractual forms such as business co-operation contracts, Build-Operate-Transfer, Build-­Transfer-Operate and Build-Transfer Contracts;

 

(iii)       Shares buyout, capital contribution to enterprises;

 

(iv)      Mergers and acquisition of enterprises;

 

(v)       Business development

 

•           Indirect investments are broadly characterized as investments via intermediaries including investments in securities and investment funds. Issuing bonds and rights to buy apartments can be an ef­fective way for real estate companies to mobilise capital when faced with limited options. Decision 52/2006 permits joint stock companies and limited companies and foreign-invested companies to issue bonds to mobilise capital which is totally legal and in line with the Law of Enterprise and the Law of Securities. The bonds typically issued for about 8 months with a nominal interest. This provides the developer with sufficient time to complete construction of the basic infrastructure so that they are then able to enter in formal pre-sales contracts. Bond holders usually have the right to transfer the bonds and to buy a house or apartment at a discount.

 

Registration and Licensing: Despite the fact that the purpose of the Law is to create a level playing field for investors, there are still some differences in terms of formalities between local and foreign investors. Namely, foreign investors which have not yet made any investment in Vietnam must have an investment project to establish a company and thereafter it can carry out multiple projects via such company whilst local investors do not have to follow this requirement.

 

Approval of Project: Projects are categorized into 2 types being subject to either registration or evaluation.

 

(i)         Domestic investment projects with investment capital of less than VND 15 billion and which do not fall into projects defined as "conditional" pursuant to the 2005 IL are not required to register and are not subject to evaluation.

 

(ii)        Domestic projects with investment capital from VND 15 to below VND 300 billion and are not "conditional" projects and foreign-invested projects with investment capital below VND 300 million and are not "conditional" projects must register to receive an investment certificate. Such certificate has to be issued within 15 days.

 

(iii)       Projects having investment capital of more than VND 300 billion and projects being categorised as "conditional", regardless of whether they are to be carried out by domestic or foreign investors, shall be subject to evaluation which may not exceed a maximum of 45 days.

 

Conditional Sectors: Under the 2005 IL, "conditional" projects include projects impacting on social order and safety, public health, those relating to culture and information, finance, banking, entertainment, real estate, exploration, exploitation of natural resources, education and other types of projects as stipulated by law. In respect of these projects there is only general language stating that conditions will be placed on the establishment, forms of investment and market access for foreign investment. It is still unclear what conditions will be placed on investments in these sectors.

 

A conditional project must be evaluated based on compliance with the master plan and zoning for land use, master planning for construction, land use requirements, project implementation schedule and environmental solutions. Licensing of a real estate project can take up to 6 months.

 

Incentives and support: Incentives and support are granted to investments in encouraged sectors and geographical areas. Incentives range from preferential tax rates, carrying forward losses, depreciation of fixed assets, to land lease benefits.

 

Investors are not permitted to mortgage land use rights and assets attached to the land to credit institutions not licensed to operate in Vietnam (offshore lenders).

 

1.3  Decree 108                     

 

Effective as of 25 October 2006, Decree 108-2006-ND-CP of the Government dated 22 September 2006 is the most important decree to implement Vietnam's investment regime introduced under a new Investment Law. The Decree delegates the authority to issue investment certificates to the local People's committee for most types of investment including real estate. Decree 108 sets out the types of documentation (but not the form thereof) that must be submitted as part of an investment file. The types of documentation vary according to the category of project. For all foreign invested projects subject to investment evaluation below VND300 billion @USD$18.75 million and in a conditional sector, the project file must contain : -

 

(i)         request for investment registration (standard form yet to be issued)

 

(ii)        report on financial capability of investor (no standard form)

 

(iii)       an explanatory statement on ability to satisfy relevant conditions (no standard form).

 

For all foreign invested projects subject to investment evaluation of VND300 billion or more and in a conditional sector, the project file must contain : -

 

(i)         request for investment evaluation (standard form yet to be issued)

 

(ii)        report on financial capability of investor

 

(iii)       written certification of legal status of investors (e.g. business registration certificate or passport)

 

(iv)      Feasibility study (no standard form, but contents prescribed in Decree 108)

 

(v)       an explanatory statement on ability to satisfy relevant conditions.

 

In addition to the above, if the investment is in the form of a business co-operation or joint venture between a domestic investor and foreign investor, the relevant contract must also be submitted (no standard form, but mandatory contents of such contracts are prescribed in Decree 108). If the investment involves the establishment of a corporate body, the investor must also submit the file for business registration corresponding to the corporate form (the contents of which are prescribed in the Enterprise Law and its implementing decree).

 

1.4  Business Registration & Investmt Licence

 

Application for business registration

 

Documents required for business registration are the following : -

 

(i)         A request for business registration in the standardized form published by the authorized business registration body.

 

(ii)        The draft charter of the company.

 

(iii)       The list of partners / shareholders / members, copy of the identity card, passport or other lawful personal identification of each partner / shareholder being individuals / member being individuals., copy of the establishment decision, business registration certificate or other equivalent document, power of attorney, people's identity card, or passport or other lawful personal identification of the authorized representative of each partner / shareholder being an organization / member being an organization, and for foreign organization, a copy of the business registration certificate which is certified by the body at which the organization has made the registration within three months before the date of submission of the business registration documents.

 

(iv)      Document of an authorized body or organization certifying the legal capital in respect of enterprises conducting lines of business for which legal capital is required by law.

 

(v)       Practicing certificates of unlimited liability partners / general director and other individuals in respect of partnerships / enterprises conducting lines of business for which a practicing certificate is required by law.

 

The request for business registration must contain certain compulsory information including the name of the enterprise, the address of its head office, its telephone number, facsimile number, email and transaction address (if any), its lines of business, its charter capital in the case of a company, or initial investment of the owner of the enterprise in the case of a private enterprise, the share of capital contribution of each member in the case of a limited liability company or a partnership; the number of shares of founding shareholders, the classes of shares, the face value of shares and total number of shares of each class which may be offered for sale in the case of a shareholding company, and documents related to the identities of the founders and representatives of the entity.

 

Issuing of the business registration certificate

 

An enterprise will be issued a business registration certificate provided it meets the following conditions : -

 

(i)         Its line of business does not fall within the sectors in which business is prohibited.

 

(ii)        The name of the enterprise complies with the regulations in force.

 

(iii)       Its head office is located within the territory of Vietnam and has a definite address.

 

(iv)      It has valid business registration documents in accordance with law.

 

(v)       It has paid in full the prescribed business registration fee.

 

1.5  Taxation of Foreign Invested Enterprises

 

According to regulations on investment, enterprises are mainly subject to the following taxes:-

 

(i)         Corporate Income Tax (CIT)

 

(ii)        Value Added Tax (VAT)

 

Corporate Income Tax

 

Enterprises are mostly subject to regulations provided by the Law on CIT No 09/2003/QH11 in force since January 1st 2004 and its implementing texts, Decree No 164/2003/ND/CP as amended on August 6th 2004 and September 22nd 2006 and Circular No 128/2003/TT/BTC as amended on September 1st 2004.

 

The Law on CIT provides for a standard tax rate of 28%. However, companies may benefit from preferential rates. Such incentives will apply to companies according to their sector of activity and their geographical area that are listed in detail in the Decree's exhibit II.

 

Deductible Expenditures : - include proper and reasonable expenditures of the year. Such expenditure relating to the calculation of taxable income of an enterprise or a party in a BCC in a tax year include the following : -

 

(i)         Depreciation of fixed assets used in production and business or for provision of services. The depreciation rate of fixed assets shall be in compliance with assets standards and depreciation rates specified by the Minister of Finance.

 

(ii)        Expenditure on raw materials, supplies in energy, fuel, working tools and goods actually used for production and business or for provision of services related to the revenue and taxable income of the year.

 

(iii)       Wages, salaries, allowances and so on paid to both foreign and Vietnamese employees pursuant to the Labor code, except for those of owners of private enterprises, founding members not taking part in the management, and head of individual business households.

 

(iv)      Expenditure on scientific and technological research, technological initiatives and improvements, education, training, or healthcare.

 

(v)       Expenditure on external services including: Electricity; water; telephone; Repair of fixed assets; Rent of fixed assets; Audit; Legal services; Designing, establishing and protection of trademarks; Property insurance; Payment for use of technical materials, patents, technological licenses not belonging to fixed assets; Technical services and other services purchased from outside.

 

(vi)      Obligatory payments made to the relevant authorities in accordance with labor laws (including social insurance, health insurance, and labor protection, trade union funding, etc).

 

(vii)     Payment of interests on loans for goods production and trading; service provision to credit institutions or economic organizations; interests on borrowing at the rate at the time of signing the contract of borrowing.

 

(viii)    Deduction of reserves.

 

(viii)    Expenditure relating directly to the sale of products or provision of services, such as costs of preservation, packaging, transportation, loading, unloading, rental of warehouses and warranty of goods and products.

 

(ix)      Expenses for advertising, marketing, trade promotion directly related to goods production and trading and service provision activities and other expenses for an amount less than 10% of the total expenditure.

 

(x)       Payable charges fees, taxes and land rents related to the production of goods or provision of services;

 

(xi)      Business management expenditures allocated by foreign companies to their entities located in Vietnam.

 

(xii)     Expenses relating to the purchase of goods or services from organizations or individuals who do not dispose of invoices or vouchers as stipulated by the Government.

 

Other taxable income includes, inter alias, profits related to purchase and sales of securities, goods and services overseas and foreign currency, ownership of intellectual property or copyright activities, income from assignment of land use rights or land lease rights (subject to specific rates), and interest on loans. Losses incurred by enterprises may be carried forward to the following year, and set off against the profits of subsequent years for a maximum of five years.

 

If a foreign investor has invested in several business or cooperation contracts in Vietnam, the corporate income tax is calculated for each enterprise or contract separately. In accordance with the present Vietnamese legislation, consolidation of taxation is not permitted.

 

Tax payment : - Enterprises must make a self-declaration of their contemplated turnover, expenses, taxable income and amount of tax payable for the year to come within 25 days after the last day of the financial year. The CIT is collected quarterly in accordance with such declaration. At the end of the financial year, enterprises must conduct a tax finalization with the tax office. Allotted time for making the tax settlement is normally of 90 days from the last day of the financial year. An adjustment is made after the annual declaration, which is submitted within a period of 10 days from the stipulated date for the tax finalization declaration. If the amount paid in advance is more than the declaration, the enterprise will deduct such excess from the amount of the next period.

 

For construction businesses it is now formally required that taxable revenue should be recognised on a "percentage of completion" basis. With respect to real estate busi­ness, revenue recognition may be taken when : -

 

a) Land-use-right and property ownership rights are transferred; or

 

b) Physical handover of the property; or

 

c) Issuance of invoice.

 

There have been many Tax Official Letters confirming that taxable revenue should only be recognised on the earlier of (a) or (b) which are in line with the Viet­nam general accepted accounting principles. Accordingly the collection of pre-sale cash accompanied with the issuance of invoices and recogni­tion of these pre-sale cash as tax / accounting revenues have to date not been allowed. The intro­duction of (c) above may again confuse the matter. This is also not in line with the similar provision of the VAT Circular 32 on revenue recognition and invoice issuance for VAT purposes.

 

Value Added Tax

 

Beginning from January 1st, 1999, turnover tax has been replaced by VAT, under the Law on VAT (No 07/2003/QH11), passed by the National Assembly on May 10th, 1997. This law was amended on June 17th 2003 and on November 29th 2005 (Law 57/2005/QH11). According to the amended law on VAT, conditions for deductibility and reimbursement of VAT for enterprises have been made more precise and stricter, even if the time allotted for declaration has been increased from one to three months.

 

All goods and services are subject to VAT at the rate of 10%. Several goods and services in the sectors of health, agriculture, education, arts and others are not subject to VAT or to a reduced rate of 5%.

 

2     LAND LAW 2003     

 

The Land Law was amended and supplemented in 1998 and in June 2001. The Land Law 2003, which was issued on 26 November 2003 and came into effect on 1 July 2004, is the current version.

 

There was no change to the fundamental principle that land is owned by the Vietnamese people and is managed by the State. Land, therefore, is not privately owned. Rather, organizations and individuals may only acquire Land Use Rights via a land lease or a land allocation with or without payment of Land Use Fee ("LUF"). The most important differences between a land lease and a land allocation with LUF are : -

 

(i)         Under a land allocation, the land user pays the fees on one-off basis while under a land lease, the land user may choose to pay Land Rental annually or lump sum for the entire term of the lease;

 

(ii)        Whilst a land allocation may be for an indefinite or definite term, a land lease is only for a fixed term.

 

Foreign organizations and individuals are not entitled to a land allocation. They may only acquire LURs through a land lease under which they can pay the Land Rental on an annual or lump sum basis. Except for certain cases, where land is allocated on an indefinite long term and stable basis, the term of a land lease and a land allocation must not exceed 50 years, although for some major projects it is possible for the term to be longer but not to exceed 70 years.

 

The Land Law allows foreign investors the right to build homes and condominiums for sale and transfer the right to use land associated with the premises on a "long-term" use (or essentially freehold) basis to qualified purchasers. Land Rental must be pre paid for the whole term of the lease and the purchasers of residential housing shall be issued certificates of Land Use Right pursuant to the provisions of the Land Law.

 

A significant provision is Article 119.3, providing that "foreign organizations which invest in Vietnam and to which the State of Vietnam leases land with a one-off payment of rent for the whole term of the lease", are entitled to, among others, assign, sub-lease, mortgage, and contribute the LURs and assets attached to the land during the term of the lease.

 

Can Leased Land be an Asset?

 

Under Article 93.3 a 100% foreign owned enterprise may lease land from either the State (as previously) or from Vietnamese economic organizations (a new route). If the 100% FOE pre-pays the land rental fully in advance, then according to Article 119.3 of the 2003 Land Law it has rights similar to those of an owner of land in most other countries, eg the right to mortgage, right to sublease, right to use land for capital contribution, and the right to assign. But what does the "right to assign" mean in practice? Can the 100% FOE assign the land use right directly to another entity at any price and, if so, what are the procedures? Does the State have the authority not to approve / register an assignment and, if so, on what grounds? If the State has a broad discretion not to approve / register an assignment, then the land probably cannot be classified as an asset of the 100% FOE. At the very least, it seems, the State would have to approve the identity of the assignee, its intended use and the duration of use.

 

When can a Vietnamese company contribute land to a joint venture?

 

Although the Land Law was introduced in 2003, there remains a great deal of confusion regarding the form of title to land that a Vietnamese company must hold in order to be able to contribute that land to a joint venture (JV) with a foreign partner. The most common mistake is the assumption that a Vietnamese company which leases land from the State may contribute that land to a JV. This is usually incorrect. Usually, the land must be allocated, not leased, from the State. In summary, according to the Land Law, a Vietnamese company may only contribute land to a JV where : -

 

(i)         The company has been allocated the land by the State and has paid land use fees (not land rental) fully in advance, with monies not sourced from the State budget (this last condition may be an issue for some State owned enterprises, which often hold the best sites);

 

(ii)        The company originally leased the land from the State, but converted the lease to an allocation, and paid land use fees fully in advance, with monies not sourced from the State budget;

 

(iii)       The company originally received an allocation of the land from the State, but without any obligation to pay the land use fees (e.g. agriculture land), and then converted the land use purpose (e.g. to commercial land) and paid land use fees fully in advance, with monies not sourced from the State budget;

 

(iv)      The company has leased the land from the State since before 1 July 2004, and paid land rental fully in advance;

 

(v)       The company received a transfer of Land Use Rights from a person / company to which the land has been allocated, and the transferee paid the purchase price with monies not sourced from the State budget.

 

What does Land Use Rights Certificate (LURC) mean? This may sound like a rhetorical question, but the answer is not academic. In fact, how Vietnamese law and authorities answer this question will only become more important as the number and type of property transactions in this country increases, as they inevitably will, with economic growth and liberalization. Surprisingly (to some, but not others) neither the Land Law nor any of the subordinate decrees and other legal instruments issued to guide the implementation of the Law define the meaning of a "land use right certificate" ("LURC"). Sure, they tell you how you can get one (eg lease or allocation of land from the State, or assignment from another entity), and what you can do with it (eg the circumstances in which you can assign, sub-lease, mortgage or contribute to a joint venture). They describe a LURC, as "a certificate which is issued by a competent State body to a land user in order to protect the lawful rights and obligations of such land user". And they say that a LURC entitles the owner to use the land for the purpose and duration stipulated in the LURC. But fundamentally, they do not say whether the rights represented by a LURC are indefeasible, ie not capable of being annulled or voided. What happens when someone claims a right to land in respect of which the authorities have issued a LURC to another person or entity? What if the LURC was issued on the basis of an application that subsequently proves to he fraudulent or incorrect. In practice, perhaps, a relevant authority or court may consider the case and act on it - but pursuant to what authority and in accordance with what rule"? Indefeasibility of title, and the rare exceptions to it, are a fundamental feature of land laws in most developed countries. The ability to rely on a document as being conclusive evidence of ownership facilitates efficient dealings in property, thereby promoting economic growth and avoiding disputes. There may need to a few serious, high profile disputes involving LURCs before the concept of indefeasibility attracts the serious attention it deserves.

 

2.1  Decree 181 / 2005

 

Decree 181/2004/ND-CP ("Decree 181") was issued by the Government on 29 October 2004 in order to implement the 16th November 2004 Land Law. The Decree contains 186 articles and covers a wide range of land issues. It repeals nine Decrees and partly repeals certain other legal instruments. Decree 181 deals with land use, allocation of land, lease of land, change of land use purpose, land requisition, certificates of LURs, the real estate market, rights and obligations of land users, procedures for exchange, transfer, lease, mortgage and inheritance of land and regulations on settlement of claims and disputes in respect of land.

 

Uniform Land Management

 

In line with the new Land Law, Decree 181 specifies how the Government will revamp the system and centralize the management of land in Vietnam. The Ministry of Natural Resources and Environment (MNRE) is the body in charge of managing all land use in Vietnam at the central government level. The People's Committees at local levels take management over land use at their localities.

 

Real Estate Market

 

Decree 181 for the first time recognizes the "real estate market" and describes land as a "special commodity". Permitted activities in the real estate market include conversion, assignment, lease, sub-lease, mortgage, inheritance of or gifting LURs, use of LURs as security for loans, contribution of capital by way of LURs and investment in construction and development of residential property. However, not all land users are entitled to carry out all these activities. The activities which are allowed depend on who is the land user (for example foreign or domestic organisations or individuals), whether the land is allocated or leased from the State and how the land user's financial obligations to the State in respect of the land have been performed, e.g. whether Land Rental or Land Use Fee (LUF) have been paid, Land Rental has been paid annually or for the entire term of the lease, or the payment of LUF was sourced from the State budget, etc.

 

Rights to Sell Houses / Apartments - additional payments

 

According to Decree 181, foreign investors who build residential houses / apartments for sale may only transfer the LURs in respect of the land area on which the construction of the houses / apartments has been completed. In respect of projects to be carried out in phases, the LUR can be transferred upon completion of each phase. This means that developers are prohibited from transferring "empty" land on which construction has not taken place. Thus, the practice of subdividing a parcel of land into smaller plots is prohibited until the house / apartment buildings are built. Foreign Invested Enterprises (FIEs) are not entitled to a land allocation. Thus, they acquire LURs in the form of a land lease from the State or industrial zone developers and are, therefore, subject to payment of Land Rental rather than LUFs. However, for residential for sale projects invested / built by FIEs, the FIEs are responsible to pay the difference between the LUF and the prepaid Land Rental when selling the residential housing (Article 81.2 of Decree 181 but amended by Decree 84). The LUF amount is determined by the provincial People Committee based on the frame issued by the Government (Decree 198/2004/ND-CP dated 3 December 2005 (Decree 198). Payment of this difference is paid : -

 

(i)         for houses, at the time of sale of the houses / villas; and

 

(ii)        for apartments, at the time of completion of the entire project.

 

There is inconsistency in terms of payment of the difference between Decree 181 and Decree 198. Specifically, under Decree 181, the investor will pay the difference between the Land Rental which has been paid and the LUF (i.e. all Land Rentals will be deducted), while per Decree 198 and Circular 117/2004/TT­BTC dated 7 December 2004, deduction is available only for Land Rentals paid for unused term of the lease. The timing of payment of the difference in respect of projects building apartment buildings for sale also gives rise to uncertainty as it is unclear whether "the difference must be paid at the completion of the project', means when all units are sold or when the building is completed, or when the operation of the project expires. LUFs are to be calculated by the provincial People's Committee at the time of payment based on the prevailing official rates for that location. JVCs investing and developing residential for sale projects on land contributed by the Vietnamese party are not subject to payment of Land Rental and LUF provided that the local partner has paid LUF (Article 107.2 of Decree 181 and Article 3.6 of Decree 198). However, if the JVC is converted into a WFOE, the land used by the WFOE must be converted into the form of leased land and, therefore, the WFOE is liable to Land Rental (Article 107.5 of Decree 181). In this case, the WFOE must prepay Land Rental for the remaining duration of the WFOE in order to retain the same rights as the previous JVC. Decree 181 also stipulates that overseas Vietnamese and foreign organisations or individuals developing land for construction of houses and apartments for sale are only entitled to assign the land use right to purchasers after the construction of the project has been completed. To discourage speculation, vacant land cannot be simply "sub-divided" and sold. The developer must construct a dwelling on the land. This has been somewhat amended by Decree 17.

 

Lease of Land

 

The State can lease land to others with annual payment of Land Rental or with a lump sum payment of Land Rental for the whole term of the lease. As a general rule, a land lessee may choose to pay the Land Rental annually or as a lump sum for the entire term of the lease, except foreign investors who are licensed to construct residential houses for sale who must pay the rent for the entire term of the lease. The major difference between a land lease with payment of Land Rental annually and that with payment of Land Rental for the entire term of the lease is that in the latter case the lessee may assign, sub-lease, mortgage, and contribute the LURs together with the attached assets on the land as capital contribution while in the former case only assets attached on land may be assigned, mortgaged or used as capital contribution. Land may be leased to : -

 

(i)         family households and individuals for agriculture, forestry, aquaculture or mining, for production and business purposes, or for construction of public works for business purposes;

 

(ii)        domestic, overseas Vietnamese and foreign investors; and

 

(iii)       foreign diplomatic, UN and Government organisations for construction of offices.

 

Land Use Right Certificates

 

Land users (including FIEs) are issued LUR Certificates (Articles 41.1 and 43 of Decree 181). Buyers of villas / apartments from FIEs are now assured that they will be issued with LUR Certificates on the basis of stable and long term LURs, i.e. in perpetuity. (Article 81.1 of Decree 181). Decree 181 provides that land used to build apartments for sale and other related land areas for joint use by apartment owners shall be jointly owned by the owners of the units in the building. The LUR certificates will be issued as follows : -

 

1.         The developer will be issued the LUR certificate for the entire land area.

 

2.         When the developer sells the relevant unit in a building, the apartment owner will receive a LUR certificate stating that the land is jointly owned and the LUR certificate of the developer will also be amended to reflect joint ownership. This LUR certificate is only issued to the buyers upon handover of the unit by the developer and in practice can be up to 12 months later.

 

3.         A separate LUR certificate can be issued to the developer or management company for the common area land jointly used by one or more apartment building. If there is no developer or management company, the relevant People's Committee will be delegated the responsibility to manage these areas.

 

4.         Decree 181 also confirms that in respect of foreign invested projects that build houses and apartments for sale, Vietnamese purchasers will receive a LUR certificate for long-term use, on the same basis as a locally invested project. The investor, however, must pay the difference between Land Rental already paid to the State and the LUF calculated by the relevant People's Committee at the time of payment.

 

Circular 01 / 2005 : - Issued by the Ministry of Natural Resources and the Environment on 13th April 2005 regarding land allocation and leasing; investments using land; and land use right certification.

 

Circular 05 / 2005 : - Land Mortgages & Guarantees

 

Inter-Ministerial Circular 05-2005-TTLT-BTP-BTNMT of the Ministry of Justice ("MoJ") and the Ministry of Natural Resources and Environment ("MoNRE") dated 16th June 2005 Providing Guidelines on Registration of Mortgages or Guarantees using Land Use Right ("LUR") or Assets Attached to Land Circular 05 is issued pursuant to the 2003 Law on Land (effective as of 1 July 2004) and the implementing Decree 181. Circular 05 became effective as of 29th July 2005. Circular 05 repeals Interministerial Circular 03-2003-TTLT-BTP-BTNMT of the MoJ and the MoNRE dated 4th July 2003 on the same subject. Circular 03 was issued pursuant to Decree 17-1999-ND-CP of the Government dated 29th March 1999 on procedures for conversion, assignment, lease, sublease and inheritance of land use rights and for mortgage and capital contribution of value of land use right as amended in 2001 (now repealed). Below are some of the main reforms applicable to the registration of mortgages and guarantees relating to LUR and / or assets attached to land introduced under Circular 05.

 

Definition of assets attached to land

 

Circular 03 : - Assets attached to land are immoveable assets, including: Residential houses and other construction works attached to land; Assets attached to residential houses and other construction works where the mortgaged or guaranteed assets also include those assets; Perennial tree gardens and forests; Other assets attached to land.

 

Reforms under Circular 05 : - No definition of assets attached to land.

 

What agreements must be registered? (compulsory)

 

Circular 03 : - Mortgage of or guarantee with LUR and assets attached to land; Assets attached to land which are subject to ownership registration; Assets attached to land if the mortgagor of third party keeps such assets; Assets attached to land if it is security for performance of multiple obligations. Notices on disposal of mortgaged or guaranteed assets.

 

Reforms under Circular 05 : - Agreements to be registered at the Office for Registration of LUR - Mortgage of or guarantee with: LUR; Residential houses, other architectures, forest trees and perennial trees; LUR and assets attached to land; LUR and future assets attached to land; future assets attached to land. Amendments or removal of registrations. Notices on disposal of mortgaged or guarantees assets. Any registration of mortgages of or guarantees with assets attached to land other than the above cases shall be carried out at the National Registration Agency for Secured Transactions.

 

What agreements may be registered on request?

 

Circular 03 : - Option - Any guarantee of assets attached to land that does not fall within the above category of compulsory registration may be registered on request.

 

Reforms under Circular 05 : - No option - all mortgages and guarantees must be registered.

 

What changes must be registered?

 

Circular 03 : - Change of one of the signatories to a mortgage or guarantee contract; Change of names, addresses, identity card or passport, serial number, business registration numbers, establishment or investment license number changes; Partial withdrawal of mortgaged or guarantee assets; Replacement or addition of mortgage or guarantee assets; Change of payment of priority order upon disposal of mortgaged or guaranteed assets; Completion of construction works or new planning of perennial trees or forests.

 

Reforms under Circular 05 : - Slight difference in the first 2 changes which must be registered under Circular 03 as follows : - Change of a signatory / signatories to mortgage or guarantee contract; Change of name of a signatory / signatories to a mortgage or guarantee contract. The other 4 changes which must be registered under Circular 03 remain unchanged. The following changes were subject to new registration under Circular 03 but are now just subject to registration of change under Circular 05 : - Replacement or addition of mortgaged or guarantee assets being LUR; Change of LUR mortgagors or guarantors.

 

Cases subject to new registration

 

Circular 03 : - Replacement or addition of mortgaged or guarantee assets being LUR; Change of LUR mortgagors or guarantors.

 

Reforms under Circular 05 : - The cases subject to new registration under Circular 03 are now subject to registration of changes udner Circular 05 (as above).

 

Who can register?

 

Circular 03 : - Mortgagor or mortgagee; Guarantor or beneficiary of guarantee; New mortgagor / guarantor / mortgagee / beneficiary of guarantee, if a party changes. Persons authorized by one of above parties.

 

Reforms under Circular 05 : - No change. Circular 05 adds that the head of the committee for management and liquidation of assets will be the person who requests registration in case of registration of mortgage or guarantee in accordance with Law on Bankruptcy.

 

Priority

 

Circular 03 : - Registered contracts of mortgage and guarantee take priority over third party claims. If the assets or LUR are sold to a third party, the mortgagee or guaranteed still has the right to the LUR / assets unless the assets are goods circulated in the production of business process.

 

Reforms under Circular 05 : -Registered contracts of mortgage and guarantee take priority over third party claims. Second point under Circular 03 not mentioned in Circular 05.

 

Effectiveness of registration

 

Circular 03 : - The registration is effective from the time when a valid registration file is lodged. If assets are replaced, the registration is effective from the time when a new registration file is lodged.

 

Reforms under Circular 05 : - The registration is effective from the time when a valid registration file is lodged. Second point under Circular 03 not mentioned in Circular 05.

 

Time-limit for registration

 

Circular 03 : - Not specified.

 

Reforms under Circular 05 : - 5No. working days as from date of execution of the credit agreement. Failing this time limit, the registration requestor shall be subject to a fine of between VND200,000 to VND500,000.

 

Fee payable

 

Circular 03 : - See Joint Circular 33 dated 12 April 2002.

 

Reforms under Circular 05 : -No change.

 

What is the relevant body for registration?

 

Circular 03 : - If the mortgagor or guarantor is an organization : - the Department of Natural Resources and Environment in the locality where the land and assets are located. If the mortgagor or guarantor is a household or individual : - the local People’s Committee.

 

Reforms under Circular 05 : - The Office for Registration of LUR under the provincial level Department of Natural Resources and Environment for mortgagors or guarantors being economic organizations, overseas Vietnamese carrying out foreign investment projects in Vietnam, foreign organizations and foreign individuals. The Office for Registration of LUR under the district-level Division of Natural Resources and Environment (or the Division of Natural Resources and Environment where the Office for Registration of LUR is not established or not yet established): for mortgagors or guarantors being family households or domestic individuals, overseas Vietnamese people permitted to purchase residential houses.

 

What documents are required?

 

Circular 03 : - If LUR or LUR plus assets attached to land : - Application; Letter of authorisation (if lodger of application is an authorised person); Contract of mortgage (2No. copies) or guarantee (3No. copies); LUR certificate/Certificate of resiential house ownership; Extract of cadastral map or the cadastral measure extract (if cadastral map not yet made); Land rent payment vouchers (if land leased by the State).

 

Reforms under Curcular 05 : - If LUR or LUR plus assets attached to land : - Application (2No. copies); Letter of authorization (if lodger of application is an authorized person); Contract of mortgage or guarantee (1No. notarized or certified copy); LUR certificate or equivalent papers, Certificate of residential house ownership. If assets (now also including future assets) attached attached to land only : - Application (2No. copies); Letter of authorization (if lodger of application is an authorized person); Contract of mortgage or guarantee (1No. notarized or certified copy); Certificate of LUR or equivalent papers; Certificate of ownership of assets (if any); For future assets attached to land : - Construction license or investment project approved by competent State body.

 

Must the documents be notarised?

 

Circular 03 : - A mortgage or guarantee using LUR or     assets attaceched to land must be notarised if the parties so agree or if so provided for by law.

 

Reforms under Circular 05 : - Mortgage or guarantee using LUR must be notarized (no exceptions). A mortgage or guarantee using LUR by a family household or an individual must be notarized by a notary public or certified by the people's committee of the commune or ward where the land is located (Article 130.1 (a) of the Law on Land).

 

Circular 04 / 2006 : - Notarisation of contracts in Vietnam has always been a time-consuming process and can actually delay completion of transactions, because the Notary Public which belongs to the Ministry of Justice has to review contracts to confirm their validity and as a result would often require changes to documentation especially if they are not in the standard forms issued.  In the hope to alleviate this delay and to simplify the process, on 13th June 2006, the Ministry of Justice and Ministry of Natural Resources and Environment issued Inter-Ministerial Circular 04/2006/TTLT-BTP-BTNMT to Guide the Notarisation, Certification of Contracts to Carry Out the Rights of Land Users with effect from 2nd August 2006. According to the Circular  the authorities in charge of Export Processing Zones, Industrial Parks, Hi-Tech Parks and Economics Zones are legally empowered to formally notarize contracts involving lands and buildings in these zones.

 

Official Letter 523: - Contributing Land Use Rights to Joint Ventures

 

Official Letter 523/BTNMT-DKTKDD of the Ministry of Natural Resources and Environment dated 7th February 2007 Guiding the Department of Natural Resources and Environment of Ho Chi Minh City on the procedures for capital contribution by land use rights to establish a joint venture. In June 2006, the Ministry of Natural Resources and Environment and the Ministry of Justice issued Inter-Circular 04/2006/TTLT-BTP-BTNMT providing guidelines for notarization and certification of contracts and documents in relation to certain rights of land users (Circular 04). According to the standard forms issued with Circular 04, the capital contribution agreement by land use right (CCLUR Agreement) must be signed by both the party contributing land use rights as capital to a joint venture and the party receiving the capital contribution. The party that receives the capital contribution should, in all cases, be the joint venture company established by the joint venture investors. According to Official Letter 523, in order to contribute capital by land use rights, the following steps should occur : -

 

  • The parties must first execute the CCLUR Agreement.

 

  • The CCLUR Agreement must be notarized by the Notary Office.

 

  • The investors will then register to establish the joint venture in accordance with the Law on Investment and the Law on Enterprises.

 

  • The parties will register the capital contribution by land use right with the Land Registration Office.

 

  • A new land use right certificate, in the name of the joint venture, will be issued.

 

Therefore, according to Official Letter 523, the notarized CCLUR Agreement must first be registered with the licensing authority in order to obtain an investment certificate to establish a joint venture, despite there being no Vietnamese law requiring a notarized CCLUR Agreement to be included in the application file to obtain an investment certificate. Although an official letter is not recognised as legal instrument under Vietnamese law, it still has influential value, and the Department of Planning and Investment of Ho Chi Minh City has relied on Official Letter 523 as the basis for requesting a notarized CCLUR Agreement be included in the application file to establish a joint venture when one party contributes capital by LUR. It can be argued that this requirement is contrary to Circular 04 because it means the CCLUR Agreement is now a part of the application file for an investment certificate when it should properly and legally be signed after issuance of the investment certificate establishing the joint venture. It also is practically difficult to apply Official Letter 523: how does the joint venture company execute the CCLUR Agreement before its exists? While pre-incorporation contracts are contemplated by article 14 of the Law on Enterprises, we are not sure it was the drafters' intention that article 14 extend to contracts relating to capital contributions, particularly when the result is that the same investor may sign the CCLUR twice: once as the investor contributing the land use right, and once on behalf of the to-be-established company, receiving the land use right.

 

 

Official Letter 2057: - Mortgaging Future Assets : Notarisation

 

Official Letter No. 2057-BTP-HCTP of the Ministry of Justice dated 9th May 2007 (Official Letter 2057) by the Ministry of Justice has tried to ease confusion in the banking and finance sector by clarifying the rules for the notarisation of mortgages of future assets. The notary public requires documents proving ownership of certain assets requiring registration (eg land use rights) before the notary can notarise mortgage contracts. However, what happens when a person mortgages future assets and does not have the ownership documents (eg land use rights certificate or home ownership certificate) simply because they do not yet exist? Official Letter 2057 instructs the Notary Offices to notarise mortgages of future assets on the basis of other documents that evidence an "interest" in the future asset such as capital assignment contract or a decision allocating or leasing land. The Notary Offices is to use their judgment based on the specific context of the mortgage transaction. This represents quite a departure from past practice in the notarisation context, where notaries have insisted, to the letter, on presentation of all documents relevant to the transaction at hand. If Official Letter 2057 is indeed followed by notaries, it will be a welcome improvement for investors.

 

Circular 08 / 2006 : - Issued by the Ministry of Natural Resources and the Environment dated 21st July 2006 regarding land use rights certificates.

 

Decision 216 / 2005 : - Issued by the Prime Minister on 31st August 2005 regarding land use rights auctions.

 

2.2  Decree 182 / 2004

 

Circular 05 / 2006 : - Issued by the Ministry of Natural Resources and the Environment dated 24th May 2006 regarding administrative penalties and foreign contractor taxes including VAT, corporate income tax (CIT), special sales tax, import and export duties, personal in­come tax, and other taxes, fees and charges. However, Cir­cular 05 only provides detailed guidelines on VAT and CIT. Other taxes apply in accor­dance with the current respec­tive legislation.

 

CIT formula:   Amount of CIT payable = CIT taxable turnover x CIT rate as a percentage of taxable turnover.

 

Foreign contractors pay VAT and CIT by way of with­holding by the payer, ie be­fore the payer makes its pay­ment to the foreign contrac­tor, the payer must deduct the taxes from the payment and forward the deducted amount to the tax authorities on be­half of the foreign contractor. Under Circular 05, the proce­dures for tax declaration and payment have been simplified.

 

2.3  Decree 188 / 2004

 

Circular 114 / 2004 : - Issued by the Ministry of Finance dated 26th November 2004 regarding the determination and framework for official land pricing.

 

2.4  Decree 197 / 2004

 

Circular 116 / 2004 : - Issued by the Ministry of Finance dated 7th December 2004 regarding the compensation, assistance and resettlement of occupants of land.

 

2.5  Decree 198 / 2004

 

Circular 117 / 2004 : - Issued by the Ministry of Finance dated 7th December 2004 regarding land use fees.

 

2.6  Decree 142 / 2005

 

Land Rents: - From 1st January 2006, the calculation of land rent is pro­vided for in Decree 142-2005­ND-CP of the Government dated 14th November 2005 on Land Leasing and Collection of Land Rent. Generally, De­cree 142 applies to all indi­viduals and economic enti­ties, including foreign invested enterprises, which di­rectly lease land from the State. It does not apply to individuals or economic en­tities which are allocated land from the State or sublease or receive land assignment from others. Main points of Decree 142 include : -

 

  1. Land rent : Land rent = Land rent rate x Number of leas­ing years x Land area-Amount of reduction and land compen­sation already paid (if any).

 

  1. Land rent rate : Provin­cial and municipal govern­ments are required to issue a list of land prices for their re­spective provinces and cit­ies. Based on these lists of land prices, they then issue another list of land rent rates, taking into account the type of land, location of the land area, etc. The land rent rate must be equal to 0.5% of the land price applicable to a spe­cific type of land. However, the land rent rate can be in­creased up to 2% of the land price with respect to apiece of land which is located in a com­mercial center, residential area, etc. The land rent rate can also be lowered to 0.25% of the land price with respect to a piece of land which is located in a remote region or encour­aged to be invested. The director of the de­partment of finance of the rel­evant province or city is re­quired to determine the spe­cific land rent rate for a foreign invested project based on the list of land rent rates issued by the provincial or municipal government.

 

  1. Payment of land rent : Land rent is calculated from the time when the lessee is issued with a decision to lease land by the relevant authority. Land rent can be paid annually or for the entire lease term in accordance with the land lease contract.

 

  1. Adjustment of land rent rate : The land rent rates can be adjusted every 5 years based on the list of land prices issued by the provincial or municipal government.

 

  1. Land rent rate appli­cable to projects leasing land from the State pre 1st January 2006 : If land rent has been paid annually, then the land rent must be adjusted in ac­cordance with Decree 142 commencing from 1st January 2006. If land rent has been paid for a longer period which extends beyond 1st January, the land rent must be ad­justed upon expiry of such period. If the land rent has been paid for the entire lease term, the land rent will not be adjusted. With respect to foreign invested projects in which the Vietnamese party has been allowed to contribute the value of leased land use rights as capital (eg in joint ventures), the land rent under Decree 142 will not apply.

 

  1. Land rent exemption or reduction : Reduction of land rent will apply when a lessee's business activities are adversely affected by natural disasters, fires or other force majeure events. Full exemption is available for projects satisfying the 2 cri­teria of being engaged in es­pecially encouraged invest­ment sectors and being lo­cated in regions having es­pecially difficult social and economic conditions and for projects for building houses for workers in industrial zones. Partial exemption is available in prescribed cases.

 

Circular 120 / 2005 : - Issued by the Ministry of Finance dated 30th December 2005 regarding land rent.

 

2.7  Decree 84 / 2007

 

Decree 84/ND-CP became valid on 1st July 2007 and concerns the length of projects, the land rental and land use fee relating to residential for-sale developments, and how land may be acquired. Vietnam's Land Law stipulates that 'foreign investors' (which probably means FIEs) engaged in residential development for sale must pay land rental fully in advance, unless the FIE is a joint venture to which the Vietnamese party has contributed the land. Under Decree 84, the total land rental is equal to the land use fee (LUF) ie “market value” that would have been payable had the land been allocated, rather than leased.

 

The lease is treated as a 70 year lease that may be extended without additional land rental. Neither the developer nor the house / apartment buyer is liable for any extra payment upon sale / purchase of the house / apartment, on account of the land use right certificate being issued to the buyer on a “long and stable basis” (commonly understood to mean 'in perpetuity'). Depending on how the land is acquired, the LUF is either the official land price annually published by the provincial people's committee or the successful bid price for the land.

 

Previously, an FIE which leased land from the State for residential development was required to fully prepay the land rental for the full duration of the project, normally 50 years. Upon sale of a house / apartment, the FIE was then liable to pay an extra payment equal to the difference between the land rental it had prepaid and the LUF payable upon sale of the house / apartment.

 

This legislative reform is positive in that will allow FIE developers to know exactly the amount payable to the State in respect of the land; however, the down side is that although the initial advance payment is now more certain, it maybe greater than was due before (when only rent in advance was due, with the difference being paid later).

 

Other important articles in the decree are : -

 

(i)         Dealing with compensation and clearance. The investor may either undertake direct negotiations or ask the Government to undertake this directly.

 

(ii)        Allowing foreign developers (including possibly FIEs) to acquire land for residential development through auctions organized by the State. The successful bid price is deemed to be the full advance land rental (equal to the LUF) payable in respect of the land (as noted above). Previously, foreign investors (including FIEs) were not permitted to acquire land through auctions.

 

(iii)       Concerning the purchase of land by a foreign investor from a local developer if the local developer has already carried out infrastructure.

 

(iv)      From 1st January 2008 all Land Use Rights holders must use a LUR certificate or otherwise will not be able to make transactions with their LUR.

 

100% Foreign Owned Enterprise converted from a Joint Venture: - Decree 84 stipulates that if a joint venture to which the Vietnamese party has contributed land converts into a 100% FOE, the 100% FOE must lease the land from the State, with land rental payable either annually or fully in advance. There are 2 possibilities here : -

 

(1)       if the Vietnamese party which has contributed the land to the joint venture had been allocated the land on a “long and stable” basis, then the 100% FOE will be entitled to a lease term of 70 years;

 

(2)       if the Vietnamese party had been allocated the land for a definite (ie limited) period only, then the 100% FOE will be entitled to a lease term equal to the remainder of such definite period.

 

If the Vietnamese party had already paid the LUF to the State, the 100% FOE will likely not be liable to pay any extra LUF or land rental to the State upon sale of the house / apartment. This reform, together with the above land rental payment reform, paves the way for many more residential for-sale development joint ventures to be converted into 100% FOEs, without the foreign investor being concerned with losing its rights to the land (although the land title will be changed from 'allocated land' to 'leased land'). Previously, the law also required the land in such case to be converted into a lease, but did not provide any detail on the mechanism or duration of lease.

 

Project assignment: - Under Decree 84, an FIE may receive an assignment of the following investment projects (including land) from a domestic company : -

 

  • projects for development of infrastructure for industrial zones, export processing zones, urban zones and rural residential zones;

 

  • projects for development of residential housing, the infrastructures of which have completed;

 

  • projects belonging to economic zones and hi-tech zones; and

 

  • projects relating to production business.

 

The assignee FIE will be required to lease land from the State for up to 70 years, with or without payment of land rental, depending on the land nature prior to the assignment. Previously, the Land Law and implementing regulations did not specifically permit an assignment of an investment project. However, the concept of project assignment was introduced in the Law on Investment. The Government instructed the Ministry of Natural Resources and Environment and the Ministry of Finance to provide further guidelines on the above matters, which may mean that they will not in practice be implemented until such guidelines are issued.

 

Circular 14/2008

 

Assigning Free Land Use Rights to Enterprises: - Enterprises with 100% foreign ownership which accept assignment of land use rights from Vietnamese parties must conduct procedures to lease the land rent-free for the duration of the term that the Vietnamese parties have assigned. After that time they must pay land use rights fees in accordance with Vietnamese law, according to Joint Circular No 14/TTLT-BTC­BTNMT issued 31st January by the Ministry of Finance and the Ministry of Natural Resources and Environment. The joint circular provides guidelines for implementing a number of articles of Decree No 84/ND-CP of 25th May 2007, on issuance of certificates of land use rights, land withdrawal, implementation of land use rights, order and procedure for compensation and resettlement, and dealing with complaints about land. Under the circular, domestic enterprises which accept an assignment of land use rights, or which have leased the land before 5th July 2004, and pre-paid land use fees for at least 5 years in advance from non-state budget sources, accepts the land use rights in compliance with the law in effect at the time the project assignment contract was notarised. If land rentals have originated from the State budget or the land is leased under annual payments, or is exempt from fees, then the assigner shall submit the project assignment contract and certificate of land use right to the Land Registry Office under the provincial Department of Natural Resources and Environment to conduct procedures appropriate to selling assets attached to the land, once the project assignment contract has been notarised.

 

2.8  Decree 17 / 2006

 

Vietnam's new Land Law was passed by the National Assembly at the end of 2003 and became effective as of 1 July 2004. The Government issued its guidance decrees for implementing the new Land Law in October-Decem­ber2004. By Decree 17-2006-ND-CP dated 27 January 2006, the Government has amended its Decrees 181,182,197 and 198 implementing the new Land Law (as well as its Decree 187 on equitization of State ­owned enterprises). The amendment of so many de­crees so soon after being issued would be worrying if not for the welcome reform introduced into Decree 181. By Decree 17, effective as of 27 February 2006, the Gov­ernment has relaxed the re­striction on selling vacant land lots under Article 101 of Decree 18 1. Until being passed, De­cree 181 restricted inves­tors in residential property development projects from selling land lots without houses built. Many investors had complained about this restriction because it denied them a fallback position in the event that their financial posi­tion deteriorated and they lacked sufficient capital to continue to building residential houses as planned for their property developments. Calls for reform were supported by vari­ous authorities, including the HCMC People's Committee. Decree 17 provides some relief for property de­velopers (including foreign invested ones), as follows : -

 

  • With respect to land in (i) cities, (ii) towns, (iii) new ur­ban areas of cities and towns, and (iv) new urban areas zoned for development in cities and towns;

 

  • Investors may not sell land lots on which houses have not been built to family households or individuals; but

 

  • Investors may sell land lots to other property devel­opment companies so that those companies may con­tinue to build the approved residential housing project provided that the infrastruc­ture for the whole project land has already been developed eg road and drainage sys­tems have been built.

 

With respect to land in other regions, the same as above but, in the case of investment projects for the construction of integrated infrastructure in a residential zone, investors may sell land lots on which residen­tial houses have not been built to individuals, households and economic organizations (not just property development companies, it appears) provided that the integrated infrastructure far the residential area has been developed.

 

2.9  Circular 145 / 2007

 

Issued by the Ministry of Finance dated 6th December 2007 guiding implementation of Government Decree No 188/2004/ND-CP of November 2004 on real estate appraisal methods. Circular 145 also guides Decree No. 123/2007/ND-CP, a 2007 amendment to Decree No 188. Appraisal methods specified in the circular include the direct comparison method, income method, discount cash flow method, and surplus method. The circular is expected to give local authorities a firmer basis for determining land values in a manner that reflects market status.

 

Four prescribed methods: - Under Circular 145, there are 4 methods to be used by the authorities in Vietnam in determining land price. They are the following : -

 

(i)         the direct comparison method

 

(ii)        the income method

 

(iii)       the subtraction method

 

(iv)       the and surplus method

 

Provincial people's committees are responsible for applying the four methods, as appropriate, to determine a value of specific land parcels or vacant blocks in their localities, and then publishing the same.

 

(i)         Direct comparison method:

 

Using this method, the price for the land is determined by using the average of prices for 3-5 comparable land parcels or vacant blocks which have been successfully sold on the market. Such selected land parcel or vacant blocks must adjoin or be situated in an area neighbouring the. land in question and have similar characteristics to it in terms of land type, location, land area, infrastructure, legal grounds and use purpose. The direct comparison method is the favoured method to determine a land price and shall prevail over the other methods in event of a conflict in values.

 

(ii)        Income method:

 

Under the income method, the authorities calculate total annual income derived from the land. With respect to a vacant block for lease, or land on which there is constructed property for lease, total annual income derived from the land is the land rent or rental amount of the real estate (comprising the land plus assets on the land) collectible annually. The land rent or the rent of real estate is calculated on the basis of actual prevailing rates and prices in the local market at the calculation time. For agricultural land which the person allocated with such land farms himself, total income earned from the land is the total turnover from production activities on the land collectible annually.

 

(iii)       Subtraction method:

 

The price of the land, using this method, is based on the information with respect to at least three properties (including improvements and construction attached to the land) which have been successfully sold on the market and which have similar characteristics to the land in question in terms of location, status quo, infrastructure, legal grounds, use purpose, cost and so forth.

The value of the improvements for the three comparison parcels is subtracted from the value of each property, and an average per square meter price for the land only is obtained and used as the value of the land in question.

 

(iv)      Surplus method:

 

Under this method, the authorities determine the optimal use and purpose for the land, based on characteristics, advantages and plans for the land. The value of the land in question is calculated by reference to the total developed value of the property and the total cost of developing the property.

 

All methods or just one?: - In most cases, the provincial people's committees will price land by using only one of the above methods. However, in certain circumstances, the Ministry of Finance requests such local authorities to combine at least two of the land price determination methods to examine and compare estimated prices for the purpose of determination of a specific price.

 

New land prices: - Circular 145 provides general methods for calculating land price. Provincial and municipal people's committees must publicly proclaim the official land prices for land within their province / city on 1st January each year. Such land prices are used as the basis for calculating : -

 

(a) land use taxes and income tax payable on assignment of land use rights;

 

(b) land use fees and land rent for allocation or leasing of land without an auction of land use rights or tendering for projects which will use land;

 

(c) the value of land use rights for allocation of land without collection of land use fees, registration fees, or compensation when the State recovers land; and

 

(d) compensation payable by persons in breach of the laws on land causing damage to the State.

 

Notwithstanding the OLPs, land users may freely agree a land price for their land / property transactions in a normal market transaction.

 

3     CIVIL CODE 2006     

 

3.1  Decree 95 / 2005

 

Decree 95-2005-ND-CP of the Government dated 15th July 2005 on Issuance of Certificates of Ownership of Housing and Other Construction Works reiterates that all land is owned by the people and subject to exclusive administration by the State. Ownership of land by an individual or organization is not permitted. Individuals and organizations are able to own the right to use land ("LUR") which is obtained by way of allocation from the State or by lease from the State. Ownership of buildings and other assets attached to land is permitted. Land is allocated to Vietnamese individuals or households for residential and agricultural purposes. It may be allocated to State owned enterprises and private domestic businesses for agricultural purposes and residential / infrastructure purposes. Land allocation is for a definite period, up to 50 years. Or subject to stable and long term use - in the residential context, this is considered to be indefinite use. Land is leased to State owned enterprises and private domestic businesses for production and business purposes. Leases are for a fixed period, up to 50 years. Land is also leased to foreign invested enterprises. In the case of investment projects with large capital but a slow capital recovery rate and investment projects in areas with difficult socio-economic conditions or specially difficult socio-economic conditions which require a longer period of land allocation or land lease, the period may be as high as 70 years. In the past, LUR was evidenced by a land use right certificate ("LURC"), commonly known as a red book. A LURC traditionally related solely to the land. This is consistent with the concept of buildings being owned, rather than the subject of a use right. A pink book was issued to the owner of a house and it evidenced the ownership of both the LUR and the house attached to that land. Circular 01 of the Ministry of Natural Resources and Environment dated 13 April 2005 provides for the ownership of a house to be recorded in the same document as the land on which it stands, but in the LURC, or so called red book, not the pink book as before. Since Circular 01 was publicized, the Prime Minister has expressed his opinion that the ownership of a house should be recorded in a separate certificate from the LURC. This approach has been adopted by the Government in Decree 95. Under Decree 95, the former system of red and pink books is replaced. Now, certification of ownership of housing and construction works will be completely independent from certification of ownership of the land on which they stand. Certificates of ownership of housing and construction works will be issued by the Ministry of Construction. The Ministry of Natural Resources and Environment will issue the LURC in respect of the land on which such housing and construction works stand. Certificates of ownership of housing and construction works will be the legal basis for owners to exercise their rights with respect to such buildings. To be eligible for a certificate, an owner being an individual must fall in one of the following categories: (i) Vietnamese citizen living in Vietnam; (ii) Vietnamese citizen living abroad but permitted by law to own housing or construction works in Vietnam; (iii) a foreign citizen permitted by law to own housing or construction works in Vietnam. To be eligible for a certificate, an owner being an organization must satisfy the following conditions: (i) have legal entity status, established and operating under Vietnamese law and (ii) lawfully own housing and construction works by way of investment in construction, purchase, acceptance of gift, donation, acceptation of inheritance, transfer. In the case of owners being (domestic and foreign) organizations, certificates will be issued by the Department of Construction of the relevant provincial-level people's committee. In the case of individuals, certificates will be issued by the people's committee at the relevant district level (after submission of applications to the people's committee at the level of the commune, ward or township where the land is situated). Certificates will only be issued after payment by the owner of the fees payable. Certificates will not be issued in respect of temporary housing; housing and construction works under the whole people's ownership; housing and construction works in respect of which a decision or notice on clearance, destruction, withdrawal of land or prohibited from construction. Decree 95 replaces Decree 60 of the Government dated 5th July 1994 became effective as of 10th August 2005.

 

CIRCULAR 13 / 2005 : - Issued by the Ministry of Construction dated 5th August 2005 regarding Certificates of Ownership of residential housing and construction works.

 

4     LAW ON RESIDENTIAL HOUSING     

 

Law 56-2005-QH11 of the National Assembly dated 29th November 2005 on residen­tial housing was a significant part of a raft of new and very significant laws which become effective as of 1st July 2006. The issuance of the Law on Residential Housing was a remarkable development with respect to the laws regulating residential housing matters in Vietnam. The main points of the Law on Residential Housing are : -

 

1.         Entities entitled to buy and own residential houses now comprise : -

 

(a)       Domestic organizations and individu­als (regardless of places of business registration / registration of permanent resi­dence),

 

(b)       Vietnamese resid­ing overseas, in certain pre­scribed cases, and

 

(c)        Foreign developers of residential houses for lease in Vietnam.

 

2.         A certificate of owner­ship of residential house and residential land use rights will be issued to:- 

 

(a)       an owner of a residential house which is also the user of the attached residential land and

 

(b)       an owner of an apartment or residential house.

 

3.         Foreign developers of residential houses for lease in Vietnam will be issued with a certificate(s) of ownership "with respect to" such resi­dential houses. Foreign developers of residential houses for sale in Vietnam will not be issued with such certificates; instead, such certificates will be issued to buyers of residential houses of that developer.

 

4.         Ownership certificates will be issued by : -

 

(a)       a provin­cial people's committee if the owner is an organization or

 

(b)       a district people's com­mittee if the owner is an indi­vidual.

 

5.         The construction of new residential houses in projects for development of residential houses must satisfy the minimum requirements on the area of apartments. In particular, apartments must account for at least : -

 

(i) 60% of the total floor area with respect to urban areas in the special category,

 

(ii) 40% of the total floor area with respect to urban areas in I and II categories,

 

(iii) 20% of the total floor area with respect to urban areas in III category.

 

6.         Most developers rely on advanced payments significantly to fund their development projects. In the past, developers could raise advance payments as much and as early as they like. All this changed with the passage of the Housing Law which permitted developers the right to receive advance payments only after the designs had been approved and the foundations completed. Further, advance payments received by the developer before the handover of the purchased unit or villa to the buyer must not exceed 70% of the unit / villa. However, these legal requirements were not strictly observed resulting in the ‘CapitaLand fever’ of late 2007 where thousands of potential buyers were almost fighting each other as they queued-up on 'opening day' for the right to own a 'ticket' to buy apartments. The developers of these and many other projects required the buyers to pay what they termed 'deposits' or 'goodwill cash'. The authorities later declared these payments to be disguised advance payments and ordered the developers to refund the 'deposit' or 'goodwill cash' to the buyers. It is unclear how successful the developers have been in forcing purchasers of 'tickets' to return them since many of the original ‘buyers’ immediately 'flipped' theirs to other buyers (who also might have done the same). Lots more is sure to happen in this area with many apartment blocks in the works and with presales and receipt of advance deposits an integral aspect of these deals. Our bet is that we will see more 'creativity' from developers before the law on this point is clarified, revised or enforced.

 

7.         The developer of resi­dential houses for sale is re­sponsible for warranty of resi­dential houses for at least : -

 

(i)         60 months with respect to apartment buildings with nine stories or more and other types of residential houses the con­struction of which is funded from the State Budget,

 

(ii)        36 months or more with respect to apartment buildings with 4 to 8 stories,

 

(iii)       24 months with respect to other residen­tial houses.

 

8.         Under both the old Civil Code and current Civil Code, residential housing lease contracts of 6 months or more; contracts for sale or purchase; hire-purchase; donation; exchange; mortgage or lending; permission to reside with the owner; or authorization to manage a residential house had to be either notarized or certified. However, from 1st July 2006, under the new Law on Residential Housing, such contracts are no longer required to be notarized (and probably also certified) if the lessor is licensed to be in the "residential housing business."

 

9.         Selling prices and rents may be agreed by the parties, but are subject to the limits stipulated by the State (if any).

 

10.       An apartment build­ing must have a management committee which is the representative to protect the law­ful rights and interests of owners and users during the process of use of the apartment building.

 

After a long period in which there was a debate about whether there should be only one ‘Certificate Of Ownership’ of residential houses (CO) or two certificates for land and housing, the 2005 Law on Residential Housing stipulates that only one certificate shall be issued, certifying both land use right and home ownership. The certificate of ownership of a residential house is similar to the former "pink certificate" under Decree 60 (dated 5th July 1994). However there are two new " pink certificates", and the second pink certificate is the same form as the first except with the single difference that the second does not contain certification of land use right, where the home owner is not also the owner of the residential land use right. As from 1st January 2007, residential land can only be traded if it has been issued with a legal land use right certificate; and this provision is confusing many owners of different types of residential land who have different types of valid papers. The Law on Residential Housing provides that in order to be issued with a CO, an applicant must have one of the following documents: certificate of land use right or one of the valid documents on land use right as stipulated by the law on land, a residential house construction permit, a contract for purchase and sale of a State owned house, a document on allocation of a charitable house, a document on purchase and sale or donation of a house. If a residential house already has an old "red certificate", or "pink certificate" or other type of valid document as stipulated by law, then the citizen can trade without exchanging such papers for a new certificate. It is only when a purchaser, donee or heir conducts registration procedures that a new certificate is issued; although if any citizen does wish to exchange his or her papers for the new certificate, then such applications are resolved via fairly simple procedures. Authority to receive application files for issuance of residential housing ownership certificates are stipulated as follows: organizations should submit files to the provincial administrative body, and individuals should submit files to the district administrative body. With respect to rural areas, individuals may submit files to the commune people's committee. The time-limit for issuing a pink certificate is 30 days from the date of receipt of a valid and complete application file. If an applicant for a CO fails to pay tax within 60 days of receipt of a tax notice, the application file for issuance of the CO shall be deemed invalid and thereafter the applicant must prepare a new application file.

 

4.1  Decree 90 / 2006

 

On 6th September 2006, the Government passed Decree 90/2006/ND-CP ("Decree 90") guiding the implementation of the Law on Residential Housing. In general, Decree 90 provides details on the implementation of the main issues of the Housing Law. In particular, it sets out procedures for obtaining the House Ownership Certificate, management of residential houses, house transactions and others.

 

The key issues to note are summarised below : -

 

•           Under Decree 90, developers must have equity of at least 15% of total investment capital for the implementation of such projects which utilise less than 20 hectares of land and 20% for projects utilising more than 20 hectares of land respectively.

 

•           Decree 90 provides that ownership of houses only as opposed to, houses and land, shall be documented via the issuance of House or House and Residential Land Ownership Certificate issued by the Department of Construction where the houses and / or houses and the land are located. However, the 2003 Land Law provides that such ownership is evidenced by the issuance of a Land Use Right Certificate by the Department of Natural Resources and Environment. Thus, there is an inconsistency in the law that needs to be resolved.

 

•           Lease contracts with a term of more than 6 months and leases signed with landlords licensed to engage in real estate business must be notarised by a Notary Public and registered with the relevant body.

 

•           Decree 90 sets out the mechanism for contribution of the maintenance budget in respect of condominiums. In respect of condominiums which are sold AFTER the effective date of the Housing Law, developers must pay an amount of 2% of sale income for maintenance purposes.

 

•           In respect of condominiums which were sold BEFORE the effective date of the Housing Law, the apartment owners shall contribute 70% of maintenance budget and the remaining fund of 30% shall be paid by the local state budget. However, it is unclear how this fund of 30% shall be established, allocated and used.

 

•           Decree 90 provides for a number of forms in respect of sales and purchases and leases of relevant types of houses. However, in respect of the House Sale and Purchase Contract, it is likely that this form is to be used for guideline purposes only.

 

Circular 02/2006

 

New Urban Zones :  - Pursuant to Construction Law No. 16/2003/QH11 of 26th November 2003, the Ministry of Construction’s Circular 02/2006/TT­BXD, which provides guid­ance for the implementation of the government's Decree 02/2006/ND-CP, states that developers are not allowed to sell houses in new town developments before site clearance works are complet­ed, and goes on to set out the financial conditions for developers to qualify for building new town developments. The decree stipulates that developers are not permitted to sell houses prior to projects commencing, while the circu­lar adds specific details, stat­ing that developers can mobilise cash from buyers only after they have cleared the site and begun construction on project infrastructure as defined in the investment decision. Advance payments must be divided in line with construction progress and the amount must not exceed 70% of contractual value, the circular says. Developers have raised concerns over the decree, which requires foreign and Vietnamese developers to ready 20% of total investment capital for new town developments, which must have at least 50 hectares or no less than 20 hectares in areas with limited land available. Local developers have claimed that the rule is too strict, as the total investment required by new urban devel­opments is beyond the reach of many companies without pre-sales. However, the circular makes a concession when it states that total investment capital for a new development includes land rents, compen­sation and site clearance and infrastructure construction costs. "The rule aims to sort out dodgy developers," said the head of the min­istry's legislation department. "It has been a common practice in recent times for developers to take advance payments from customers and then not be able to hand over houses although the deadline has been passed for one or two years.” The Real Estate Trading Law also puts forward principles that developers must follow when selling properties. It states that developers can only take upfront deposits from buyers after they have completed infrastructure construction for properties according to approved plans. Fund raising must be paid by installments. The law requires developers to use upfront deposits to build properties, with payment of interest on the deposits required if they hand over properties at a date beyond the contractual. The law also stipulates that buyers who do not make payments in line with a con­tract will have to pay interest on the sum they fail to pay developers. Meanwhile the decree on the implementation of the Housing Law states that housing developers must have ownership capital equal to at least 15% of the investment capital of a res­idential development. The ministry says the 15% rate is appropriate, as a commercial residential development is smaller than a new town project, the implementation period is shorter and mobilisation of cash from buyers is easier.

 

Circular 05/2007: - Issued on 21st May 2007 clarifying the registration of residential housing and / or residential land use rights mortgages. It acknowledges that the registration of mortgages shall be performed upon a request of either party and where the Office of Land use rights regis­tration receives such a request, it must record the contents of the mortgage on the cadastral book, red book and / or the regis­ter of residential housing mort­gages.

 

5     LAW ON REAL ESTATE BUSINESS     

 

The Law on Real Estate Business (No 63/2006/QH­11) was passed on 29th June 2006 and came into force on 1st January 2007. This law clarifies certain real estate activities. Vietnamese individuals / businesses are permitted to engage in all forms of real estate activities, comprising : -

 

-           "real estate business" : development of real estate for sale / lease; purchase, sale and lease of real estate; assignment of real estate for profit making; and

 

-           "real estate related services" : brokerage, organization of transaction floor, consultancy, valuation, auction, advertisement, and management of real estate.

 

In contrast, foreign invested enterprises are only be permitted to :

 

  1. invest in development of housing / construction works for sale / lease, and

 

  1. provide brokerage services; and

 

  1. provide real estate management services.

 

This means that foreign investors may not, by law, engage in the business of purchasing housing/construction works for sale, lease or hire purchase; receiving assignment of land use right for re-assignment; leasing housing/construction works (with or without adding value) for sale, lease and hire purchase; or leasing undeveloped land (with basic infrastructure) for sublease.

 

Individuals / businesses engaged in real estate business may only conduct real estate business on licensed "transaction floors". The rationale for this provision is understood to have been to ensure transparency, publicity and a healthy market, although it is still the subject of controversy and most real estate businesses are against it. However, the pre-sale of real estate is now formally recognised so long as the developers’ have approved construction designs and only use the buyers' advances for development of those particular properties. The Law stipulates that all contracts relating to real estate activities (including related services) must follow standard forms prescribed by the Government. Notably, the notarisation / certification of sale / lease contracts is only required if agreed between the parties, and subject to other laws. The 2005 Civil Code (effective 1st January 2006) stipulates that residential housing sale contracts and long-term lease contracts must be notarised / certified, unless otherwise provided by law (currently, the 1995 Civil Code requires all such contracts to be notarized / certified). Hence, it is now easier to arrange sales / lease contracts, which was a significant hurdle for real etate developers before. Another aspect of the Law is that it requires real estate brokers to be issued Practicing Certificates by provincial people's committees. However, it is still unclear how the provincial people's committees who will issue the practicing certificates can ensure that they are correctly awarded, given their lack of training and experience in real estate.

 

5.1  Decree 153 / 2007

 

5.1.1   Circular 13/2008

 

Circular No. 13/2008/TT-BXD dated 21st May 2008  introduced some provisions in Decree No. 153/2007/ND-CP dated 15th October 2007 and stipulated the guiding procedures for the implementation of the Law on Real Estate Business for individuals and enterprises seeking to conduct real estate business activities. They include : -

 

-     Certification of the legal capital of a new enterprise conducting real estate business or an existing enterprise applying for a new line of real estate business;

 

-     Certification of the real capital an investor puts into projects of establishing a new urban zone, residential housing project or industrial zone technical infrastructure;

 

-     Assignment of a project of establishing a new urban zone or residential housing project or industrial zone technical infrastructure;

 

-     Activities to be conducted on a real estate trading floor;

 

-     Requirements relating to the real estate trading floor;

 

-     Issuance of practising certificates to real estate brokers and valuation companies;

 

-     Administrative management of activities of real estate brokers and valuation companies.

 

A real estate business enterprise must conduct all assignments, transfers, leases and hire purchases of real estate on a real estate trading floor (Trading Floor). Information about real estate transactions must be available on the Trading Floor for at least 7 days. During this period, information about the project such as the name, types and quantity of real estate, locations and time of assignments, transfers, leases and hire purchases must be published in the local newspaper for at least 3 consecutive instalments, on 1 local television channel on at least 1 occasion, and on the website of the Trading Floor (if any). In addition to the conditions contained in the practising certificate, a real estate business enterprise must satisfy requirements in relation to the size of its Trading Floor. The Trading Floor must be at least 50sqm in order to conduct brokerage and trading activities and have an additional 20sqm for available for other services activities. A real estate business enterprise must also ensure that it has the appropriate facilities and equipment available for its operational activities. Circular 13 also provides the procedures for the issuance of real estate broker and valuation company certificates. The Department of Construction shall be the primary authority responsible for receiving and considering applications for the issuance of these certificates.

 

5.1.2   Official Letter 62

 

Official Letter 62 by the Ministry of Construction providing guidelines on procedure for certifying legal capital in order to register a real estate business (dated 26th August 2008) was sent to the Hanoi Department of Planning and Investment in response to the department's request for clarification of the confusing requirements for legal capital of companies engaged in real estate business. The Law on Real Estate Business and its implementing Decree 153 dated 15th October 2007 require companies conducting real estate businesses to have a legal capital ie a minimum charter capital, of VND6 billion - approximately USD$363,500. These legal capital requirement apply to both newly established and existing companies which wish to add real estate business to their business lines. When registering to operate real estate business activities, these companies must satisfy the above legal capital requirements. On 31st May 2008 the Ministry of Construction issued Circular 13 specifying the documents which are required to be submitted for this purpose. In respect of a newly established company, the founding shareholders or members may choose to contribute the legal capital in cash and in kind. Circular 13 requires the founding shareholders / members to deposit the amount of cash contribution with a commercial bank in Vietnam which will be disbursed only after the company is established and submits a certificate from bank on such deposit to the licensing authority. Under Circular 13, "the minimum amount of such deposit must equal the capital contribution in cash by founding members". This vaguely drafted provision has led to different interpretations as to the amount of required deposit: is it only the minimum legal capital of VND6 billion or is it the full amount of anticipated cash contribution by the members which is required to be deposited? The lack of certainty on this question has led to difficulties in establishment of real estate companies, as every licensing authority has its own interpretation. To clear these murky waters, the MOC has issued Official Letter 62 which expressly provides that the minimum deposit amount must be the total amount of capital to be contributed in cash by the founding shareholders / members to the company to be established. Accordingly, the founding shareholders/members will be required to deposit the total amount of charter capital of the company to be established (which in a large number of cases will be higher than VND6 billion) with a Vietnamese bank. Once the company is established, the deposit amount will need to be fully contributed to the company. The above position of the MOC will definitely have a significant (negative) affect on investors in real estate business and is not likely assist in creating a favourable environment for foreign investment in this sector. As a result, foreign investors may be re-considering their investments as they understandably may not want to make any significant financial commitment by way of depositing funds with a bank in Vietnam until they have secured an investment certificate to establish their company in Vietnam. Furthermore, it does not seem at all practical to require the total amount of charter capital to be contributed to the company on day one when the company may not need that level of funding. To some extent, one may also find the clarification of the MOC in Official Letter 62 contrary to provisions of the Law on Enterprises, which allows founding members or founding shareholders to contribute charter capital over a period of time, and to stipulate a schedule of capital contribution in the company's charter. The purpose of the requirement for minimum legal capital should be to ensure that real estate companies have minimum capital to carry out its activities. Therefore, it would be more reasonable for the licensing authorities to ensure that real estate companies have the minimum charter capital ie VND6 billion, after their establishment and allow the total amount of the charter capital to be contributed over a period of time in accordance with the schedule of capital contribution. It is unlikely, however, that local licensing authorities will accept the above interpretation given the MOC's position in Official Letter 62. As such, property investors (at least for now) have one more hurdle to face in investing in Vietnam.

 

5.1.2   Overview

 

The following focuses on the real estate area (including real estate businesses and real estate services businesses) as at 6th August 2008. Although this area is not covered by the Commitments of Vietnam Government to the WTO (ie there are no particular restrictions on foreign investment in real estate other than the general ones applied to all areas), investors continue to face certain challenges, as real estate is a "conditional business sector" under Vietnam law. The following table summarises key real estate terms and restrictions and conditions that continue to exist in this sector in Vietnam law:-

Item        Term                                       Description                             Restriction on foreign investment?    

 

1 Real estate business           Activities involving the investment of  New foreign invested company (FIC) will

capital in order to develop, purchase,   be permitted to engage in real estate

receive an assignment of, and lease or development without restriction; foreign

hire purchase real estate in order to     investment (FI) in existing domestic firm

sell, assign, lease out or sublease out     (DC) engaged in this activity maybe OK

or grant a hire purchase of such real     without restriction, however, the business

estate for profit-making purposes        registration authority in some provinces

                                                                  may not accept registration of more than

                                                                 49% foreign ownership in such a DC in practice

 

New FIC will not be permitted to engage in real estate trading (ie purchase and sale) or in subleasing (ie lease for sublease); Fl in existing DC engaged in these activities may also not be possible, however, the business registration authority in some provinces may accept registration of up to 49% foreign ownership in such a DC in practice

 

2 Real estate services           Activities of assisting real estate       See 3. - 9. below

   business                               business and real estate market,

comprising (a) real estate trading

floor; (b) real estate auctioneering;

(c) real estate valuation; (d) real

estate management; (e) real estate

brokerage; (f) real estate

consultancy; and (g) real estate

advertising.

 

3 Real estate trading floor   A place where real estate transactions New FIC will be permitted to

take place and where services are      engage in real estate trading

provided for real estate business.       floor without restriction.

FI in existing DC engaged in this activity

maybe permitted, subject to an

applicable cap*

 

4 Real estate auctioneering The public sale or assignment of real      New FIC will be permitted to engage in

estate to the highest bidder in                 auctioneering without restriction

accordance with the procedures for       FI in existing DC engaged in this activity

the auction of assets                                 may be permitted, subject to a cap*

 

5 Real estate valuation         A form of consultancy activity where     New FIC will be permitted to engage in

-by the value of a specific item of real   valuation without restriction

estate (as of a specified date) is             Fl in existing DC engaged in this activity

determined                                                  maybe permitted, subject to an

                                                                     applicable cap*

 

6 Real estate management    Activities consisting of preserving,        New FIC will be permitted to engage in

maintaining, superintending, operating   management without restriction.

and exploiting real estate pursuant to a

contract for management of real estate  Fl in existing DC engaged in this activity

with the real estate owner or user.           maybe permitted, subject to an

Such activities may only be conducted     applicable cap.*

by an organization or individual registered

to provide real estate services business

 

7 Real estate brokerage        Activities comprising (a) finding parties    New FIC will be permitted to engage

for negotiation and signing real estate        in brokerage without restriction

contracts; (b) representing clients in

work related to real estate business           Fl in existing DC engaged in this may

activities; and (c) providing                        be permitted, subject to an applicable

information and assisting                            cap.*

parties in relation to negotiation and

signing real estate contracts.

 

8 Real estate consultancy     Activities comprising (a) legal advice on   New FIC will be permitted to

real estate matters; (b) advice on                engage in real estate consultancy,

real estate business; (c)                                other than investment

market research, without restriction

advice on real estate finance; (d)

advice on real estate pricing; (e) advice   Fl may be permitted in real estate

on real estate contracts for purchase       research under the form of JV

and sale, assignment, lease and hire          company (JVC) with a Vietnamese,

purchase; and (f) advice on other              so long the foreign contribution 

matters relating to real estate.                   is subject to an applicable cap**

      Fl in existing DC engaged in this

      consultancy activity may be OK

      subject to an applicable cap*

 

9 Real estate advertising     No specific definition is provided        Fl may be permitted in the form of a JVC

                                                in real estate advertising law.                or a business cooperation contract (BCC)

                                                                                                                  with a Vietnamese partner licensed to

                                                                                                                  engage in advertising business.

                                                                                                                  Foreign contribution to the JVC is 

                                                                                                                  subject to an applicable cap***

 

Fl in existing DC engaged in this

activity may be permitted,

subject to an applicable cap*

 

* If the existing DC is not listed on the securities market, foreign investors may hold together an interest of up to 30% of the charter capital of the DC. If the existing DC is engaged in property development, the foreign investors may hold up to 49% of the charter capital. If it is listed on the securities market, the foreign investors may hold together an interest of up to 49% of listed shares of the company.

 

** Prior to 1st January 2009, the foreign investors can contribute not more than 51 % of legal capital of the JVC. From 1st January 2009, a 100% FIC is permitted to engage in real estate market research.

 

*** Prior to 1st January 2009, the foreign investors can contribute not more than 51 % of legal capital of the JVC. From 1st January 2009, this restriction will be abolished.

 

 

6     HOUSING LAW     

 

 

The Draft Housing Law of the Ministry of Construction permitting foreigners to purchase and own residential houses in Vietnam was issued on 10th April 2008 indicates that foreigners must fall into one of 7 categories and satisfy 2 conditions to be eligible to purchase residential houses in Vietnam : -

 

(1)       Foreign individuals directly investing in Vietnam according to the investment laws of Vietnam or holding management positions in enterprises (both local and foreign-invested enterprises) in Vietnam;

 

(2)       Foreign individuals who contribute to the country's development and have received the President's certificates of merit or medals, or have been granted titles as emeritus citizens of Vietnam; former Ambassadors, former heads of Consul Generals and former heads of international recognized organisations such as the United Nations organization in Vietnam;

 

(3)       Foreign cultural activists and scientists who are working in Vietnam and hold academic titles and/or academic distinctions awarded by Vietnamese organisations or foreign organisations in science-technology, health, sports, culture, or art fields;

 

(4)       Foreigners who are married to Vietnamese residents;

 

(5)       Persons who are allowed to purchase houses according to special decisions of the Prime Minister;

 

(6)       Persons who have been living in Vietnam for five years or more and who do not fall into categories (1) to (5) above; and

 

(7)       Foreign-invested enterprises operating in Vietnam, excluding those operating in the real estate sector, who will be allowed to buy residences for their employees.

 

In addition to falling in one of the categories set out above, the following two conditions also met by foreigners wishing to buy residences in Vietnam : -

 

(1)       Foreign businesses must have an investment license/certificate granted by authorised agencies of Vietnam; and foreign individuals

 

(a)       Who fall into categories (1) to (5) must have been granted a residence permit proving that they have been living or working in Vietnam one or more years, and

 

(b)       Who fall into category (6) must be certified by the local authority where they reside to have been living in Vietnam for five years or more; and

 

(2)       The purchased residence is an apartment in a commercial housing development project and not within a prohibited area or an area in which residence and movement of foreigners is restricted. Again, note that stand-alone houses still appear not to be permitted to be purchased or owned by foreigners under the Draft.

 

According to the Draft, eligible foreigners will be allowed to buy apartments (not houses, notwithstanding the official title to the draft) in commercial housing development projects. However, the Draft stipulates that each foreign individual will be allowed to purchase only one apartment and he / she may sell the residence only after one year from obtaining the housing ownership certificate. The maximum duration for owning apartments for foreigners will be 70 years. This duration may be renewed once. The local provincial people's committee will be the only authority entitled to issue housing ownership certificates to the foreigners.

 

7     LAW ON REAL ESTATE REGISTRATION 

 

Officials from the Min­istry of Natural Resources and Environment claim that in the long term, house ownership should be regulated by the Property Registration Law, which is under consideration by the Min­istry of Justice.

Last Updated ( Thursday, 19 March 2009 )
 
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