Investors call for land law revision

Since its enactment in 2003, the Land Law has effectively governed the rights and obligations of land users. In light of the pace of Viet Nam’s development and integration in the global economy, as well as changes in the laws on investment and commerce, the Land Law has demonstrated shortcomings which need to be addressed.

Two significant laws on investment and on enterprises were passed in 2005, helping level the regulatory playing field between domestic and foreign-invested enterprises. A uniform rate of corporate income tax has also been applicable to all investors domestic or foreign. However, the provisions of the Land Law relating to the rights and interests of investors remain unchanged and have not kept pace with other progress in the law.

Under Articles 34 and 108 of the Land Law, domestic investors are allocated land use rights to implement investment projects while foreign investors are only allowed to lease land or sublease it in an industrial park, hi-tech park or economic zone. The provision creates an unnecessary inequality between domestic and foreign investors.

Article 35 also stipulates that domestic investors may lease land on the basis of annual rental payments while foreign investors are given two options: (1) annual payment or (2) a one-off payment for the entire lease term. Many domestic investors would be happy and are willing to pay a lump sum amount for the whole lease term rather than paying annually, if only to avoid rental rates every year. By paying the rent on an annual basis, domestic investors have no way to avoid land price escalation.

Article 113 of the Land Law and Article 99 of Government Decree No 181/2004/ND-CP of October 2004 provide that domestic investors can receive the transfer of land use rights and also receive capital contributions in the form of land use rights from households and individuals while foreign investors cannot. These provisions prohibit foreign investors from taking over land use rights through a transfer. For instance, while the law allows the transfer of land use rights via a merger or acquisition of a company, a foreign investor cannot simply take over the land as an asset of a Vietnamese company to which it belongs. Consequently, a number of M&A transactions have been stuck on the issue of land use rights when the buyers are foreign investors.

One can see that the provisions in the Land Law regarding the rights and interests of domestic and foreign investors are uneven, directly affecting the rights and interests of investors while limiting their access to land use rights.

Under the Land Law, the State can recover land in certain circumstances for the purpose of socio-economic development. However, legal provisions on land recovery and compensation for land clearance for an investment project are also different for domestic and foreign investors.

Under Article 38.1 and Article 40 of the Land Law, as well as Article 36.2 of Decree No 181, the State may recover land for execution of a 100-per-cent foreign-invested project which has already been approved or permitted outside an industrial park, hi-tech park or economic zone. Domestic investors, on the other hand, have to struggle with the system of “mutual agreement and negotiation” with land users for site clearance compensation before receiving clear land for their projects.

In practice, many domestic firms have had to delay their projects because they have found it difficult to reach agreement on land prices with land users. These have resulted in serious consequences for projects that have had to be postponed and put investors under hardship.

In addition to differing treatment among investors, the Land Law also contains a number of vague provisions that make it difficult to refer to or apply the law.

While the Land Law specifies certain circumstances under which a land user is entitled to mortgage the land for a loan (Articles 110, 111, 112, 113 and 119), it is not clear to what extent a land user is entitled to mortgage the land at a credit institution.

Article 41 of Government Decree No 108/2009/ND-CP of November 2009 on Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO) and Build-Transfer (BT) contracts states that “project enterprises shall be permitted to pledge and/or mortgage assets and land use rights in accordance with the law.” However, Article 38.3 of this decree additionally provides that “the project enterprise shall be exempt from land rental for the entire duration of implementation of the project.” This exemption has, by accident, created a challenge for an investor to get a bank to accept the land in mortgage, since the land is deemed to have no income value for the entire lease term. Given the situation, many investors have requested a legal opinion from the Ministry of Justice.

It is undeniable that the Land Law has performed well for the last seven years. However, in the context of Viet Nam’s accession to the WTO and with the incessant changes in legal framework for investment, business and commercial activities, the Land Law cannot remain as is. State authorities must collaborate to review the law, taking into account the need for consistency and conformity with laws and regulations on investment and business activities such as the Law on Investment, the Law on Enterprise, and the Law on Construction. – VNS

Tags: Vietnam land law