Vietnam's Land Law Overhaul: 3 Key Points Manufacturers and Industrial Park Tenants Need to Know
NEXORA Lawfirm, Managing Attorney
Attorney admitted in Vietnam
Mediator, Insolvency Administrator, Outside Corporate Auditor
Table of Contents
01 - Changes to how land prices and land rent are calculated
02 - Points to note on land rent payment methods and contractual risk
03 - Administrative measures for unused land and the risk of delayed investment schedules
04 - Expanded land use rights for foreign-invested enterprises and relaxed sub-leasing rules
The 2024 amendments to Vietnam's Land Law bring sweeping changes to land rent, land use, and sub-leasing arrangements for manufacturers. This article explains the latest practical implications.
The new Land Law was passed by the National Assembly on January 18, 2024 and took effect on August 1, 2024. The amendments substantially overhaul land use, land price determination, taxation, and investment procedures, and carry direct implications for companies operating manufacturing businesses in Vietnam in particular.
01 - Changes to how land prices and land rent are calculated
1.1. Key points of the amendment
The previously existing "land price bracket" system has been abolished in its entirety.
The "land price list" that each province formulates annually now serves as the benchmark, under a new mechanism that brings valuations closer to actual market levels.
The new land price lists are calculated on the following bases:
Land use fees and rent (in particular, land rent within industrial parks)
Tax calculations for land transfers and changes of land use purpose
As a result, land prices going forward will be set at more realistic levels, while at the same time the risk of rising costs for companies is likely to increase.
Impact on companies
Category
Before the amendment
Impact of the amendment
Land leased under a lump-sum payment
Financial burden largely unchanged; payment to the State already completed.
Minor tax adjustments possible, but the impact is limited.
Land leased under annual payments
Rent fluctuates each year based on the price list issued by the State.
Risk of rising land rent is expected to increase from 2025 onward.
1.2. Commentary and practical points to note
Under this amendment, manufacturers leasing industrial park land under the annual payment method in particular are increasingly likely to be affected by rising land rent from 2025 onward.
Accordingly, the following points warrant attention.
① Re-examining existing lease agreements
Where a contract contains a "price adjustment clause," a recalculation may be triggered based on the local authority's new land price list.
② Reviewing long-term contracts
Companies planning long-term operations can mitigate the risk of future cost increases by considering the lump-sum (advance payment) method.
③ Careful land valuation at the time of new investment
At the investment consideration stage, it is important to build sufficient headroom into cash-flow planning, taking into account both current and anticipated future land price trends.
02 - Points to note on land rent payment methods and contractual risk
2.1. A case example from Industrial Park A in Ho Chi Minh City
Japanese-affiliated Company X leased land from the developer of Industrial Park A under a lump-sum payment. However, the developer itself paid land rent to the State under an annual payment contract.
At the end of 2024, the revision of the land price list caused a sharp rise in land rent, and the authorities assessed additional tax against the developer. If the developer is unable to pay this additional amount, there is a risk of compulsory collection or cancellation of the project.
As a result,
Industrial Park A could potentially be handed over to another investor, or
the State could conceivably seek to collect the additional land rent directly from lessee companies, including Company X.
2.2. Countermeasures companies should take
In light of this amendment, companies including manufacturers should be sure to check the following points.
① Confirm the land rent payment method and land rights under the contract
Always confirm the "land rent payment method" and "location of land use rights" specified in the contract. In particular, in the case of a sublease, there is a risk that changes to the terms of the primary contract will also affect the secondary contract.
② Reviewing annual payment contracts and managing risk
Where the developer pays the State under an annual payment contract, consider renegotiation or contract amendments in light of the risk of rent increases arising from land price revisions.
③ Monitoring revisions to the land price list
The land price list is expected to be published around January each year. It is important to regularly track trends in price revisions and run cost simulations.
④ Adding a contract amendment clause (a rent-fluctuation response clause)
In preparation for future revisions, specifying a "clause addressing land rent fluctuations" in the contract can minimize the risk of unexpected cost increases.
2.3. Practical advice
In Vietnam, the three-way relationship among the developer, the industrial park management company, and the State is intricately intertwined, and there is a growing number of cases in which trouble arises from inconsistencies between the primary and secondary contracts.
Accordingly, it is essential to:
legally verify the land use rights scheme before entering into a contract, and
update contract terms to align with the tax and land price system following the amendment.
NEXORA LAWFIRM provides Japanese-affiliated companies expanding into industrial parks around Hanoi, Ho Chi Minh City, and Binh Duong Province with contract review, land rent risk analysis, and renegotiation support.
03 - Administrative measures for unused land and the risk of delayed investment schedules
Under Vietnam's new Land Law (Article 81, Clause 8), a company that has been allocated, leased, or granted a change-of-use permit for land by the State or a local government may be subject to administrative measures if either of the following applies:
the land remains unused for 12 consecutive months or more, or
progress under the investment plan is delayed by 24 months or more.
3.1. Content of the applicable measures
① An extension of up to 24 months may be requested
However, an extension request requires an explanation of the reasons and approval from the authorities.
② An obligation to pay additional land use fees/rent during the extension period
The additional amount is calculated using the following formula:
Extended area × the land price list then in effect × 2% × extension period (in months) ÷ 12
* Any period of 15 days or more is counted as one month.
③ If the land remains unused even after the extension period expires, the State may recover the land without compensation
In this case, no compensation is paid for the land or the assets on it.
This measure could have a particularly significant impact on investment projects within industrial parks.
3.2. Administrative moves
The State and industrial park management boards nationwide are currently conducting a sweeping survey of unused land.
The following cases in particular are subject to priority review:
plots for which a lease agreement has already been signed but construction has not yet begun, and
projects that have been licensed but where investment has stalled.
The authorities are requiring developers and lessee companies to submit reports and are instructing them to present concrete land use plans.
3.3. Practical points to note
① Re-confirm land rights and the scheduled start of land use under the lease
Delays in commencing land use or failure to begin construction as planned carry the risk of administrative action (recovery or fines).
② Reporting obligations apply even to land within industrial parks
Tenant companies (including manufacturers) are also being asked, through the developer, to report on their land use status.
③ Early response is important
Where progress is delayed, promptly reviewing the investment plan, submitting reports, and applying for an extension may make it possible to avoid administrative action.
NEXORA LAWFIRM provides Japanese-affiliated companies expanding into industrial parks in Ho Chi Minh City and the northern region with legal review of land use contracts, support with extension applications, and assistance in dealing with the authorities.
04 - Expanded land use rights for foreign-invested enterprises and relaxed sub-leasing rules
4.1. Expansion of the areas in which land use rights may be acquired and transferred
Previously, the areas in which land use rights could be acquired and transferred were limited to industrial zones. Under this amendment, the scope has been expanded to also apply to industrial clusters and hi-tech parks.
This gives foreign-invested enterprises greater flexibility in investing in factories, warehouses, and equipment.
4.2. Sub-leasing rules and companies' rights
Under the pre-existing regime, a company may sub-lease the unused portion of land or buildings it owns to a third party.
Examples: part of a warehouse, unused floor space, an idle equipment area, etc.
This allows companies to make effective use of their land assets and can help improve investment recovery and cash flow.
However, the following requirements must be kept in mind when sub-leasing.
■ Whether real estate business registration is required
For small-scale or ancillary leasing activity, registration as a "real estate business" under the Law on Real Estate Business is not required.
Registration may be omitted where the following conditions are met:
the company's principal business is manufacturing, and
the sub-leasing remains an ancillary source of income.
However, where sub-leasing is conducted on an ongoing basis, registration as a real estate or warehousing business may be required.
■ Tax points to note
When recognizing income from sub-leasing, an invoice must be issued.
However, in some cases companies that have not formally registered as a real estate leasing business are not permitted to issue invoices.
For this reason, the following steps are needed in practice:
additionally register as a real estate leasing or warehousing business, and
properly declare sub-leasing income by reporting it to the tax authority.
■ Contractual points to note
When actually carrying out a transfer or sublease, it is essential to check the terms of the land lease agreement with the industrial park developer.
Depending on the contract,
a "transfer prohibition clause," or
a "conditional transfer clause"
may be in place, and violating it can result in breach of contract or penalties.
NEXORA LAWFIRM provides foreign-invested enterprises with comprehensive support for the transfer and sub-leasing of land use rights, including legal review, contract negotiation, and tax matters.