Land ownership issues for FDI enterprises: Lawyers' notes on land lease rights, transfer, and compensation

Legal regulations regarding land ownership for foreign-invested enterprises (FDI) in Vietnam differ significantly from those for domestic enterprises. Below are some important points that FDI businesses need to know about land lease rights, land transfer, and land compensation, which HTC Vietnam Law Firm will share with you.

1. Land lease rights of FDI enterprises

- Land lease arrangements: According to the 2024 Land Law, FDI enterprises do not have land ownership rights, but only land lease rights. There are two forms of land lease:

+ Leasing land from the State: FDI enterprises pay land rent annually or pay a lump sum for the entire lease period.

+ Leasing land from domestic economic organizations: FDI enterprises can lease land that has been allocated by the State or lease land from domestic economic organizations.

- Land lease term: The maximum land lease term is 50 years, and in special cases it can be up to 70 years (for large-scale projects, those requiring a long capital recovery period, or located in economically disadvantaged areas). Upon expiration of the term, FDI enterprises can apply for an extension of the land lease.

- Rights and obligations when leasing land

+ Rights: FDI enterprises have the right to use land to implement investment projects, construct buildings, and mortgage land lease rights at banks.

+ Obligations: FDI enterprises are obligated to use land for its intended purpose, pay land rent in full, and comply with regulations on environmental protection, public order, etc.

2. Right to transfer land use rights

- Transfer of land use rights with a one-time payment: According to regulations, FDI enterprises do not have the right to transfer land use rights. However, if the enterprise has paid the land lease fee in a lump sum for the entire lease period, it may transfer the assets attached to the land and the land lease rights. This transfer must be approved by the competent land management agency.

- Transfer of capital contributions associated with land use rights: FDI enterprises can transfer their capital contributions in the enterprise, which includes land use rights. In this case, the transferee will assume the rights and obligations related to the land use rights.

- Transfer of assets attached to leased land: In cases where FDI enterprises build factories and facilities on land leased from the State, they have the right to transfer the assets attached to the land. Along with this, the right to lease the land is also transferred to the transferee.

3. Rights and obligations regarding compensation when the State reclaims land.

- The principle of land compensation for FDI enterprises is that they are entitled to compensation when the State reclaims land if:

+ The business is legally using the land, possessing a valid land use right certificate or land lease contract.

The land is not subject to any violations of regulations regarding land management and use.

- Form of compensation:

+ Monetary compensation: The business will receive an amount of money corresponding to the value of the land lease rights and assets on the land.

+ Compensation in the form of land: In some cases, the State may grant FDI enterprises another plot of land to continue their production and business activities.

4. Legal risks and advice from lawyers

- Risks related to land lease terms: If FDI enterprises fail to renew their land leases in a timely manner after the lease expires, the land may be reclaimed. Businesses should monitor land lease terms and plan for renewals at least 6-12 months before the expiration date.

- Risk of land disputes: FDI enterprises may face risks when leasing land from economic organizations, especially when those organizations do not have the legal right to lease land. It is necessary to carefully check the legal documents of the land lessor and request written confirmation of the leasing right from the land management agency.

- Risks associated with land transfer: The transfer of land use rights and assets attached to the land may be rejected if the correct legal procedures are not followed. Businesses should fully complete the procedures for notarizing and certifying the contract and notifying the land management agency.

- Risks when the State reclaims land: Businesses may face difficulties in receiving compensation, especially when the value of the reclaimed land is lower than expected. Businesses should prepare complete legal documents regarding land lease rights and ownership of assets attached to the land to ensure their rights are protected when compensation is received.

Commitment to service quality:

HTC Vietnam Law Firm operates with the motto of dedication – efficiency – credibility, and is committed to ensuring the quality of its services, specifically as follows:

- Ensure that work is completed according to the agreed schedule, in compliance with legal regulations, and in accordance with the code of ethics and conduct for Vietnamese lawyers.

- We prioritize customer interests and strive to provide our customers with the best possible service quality.

- Protect the information provided by customers and information related to customers.

We look forward to a long-term partnership and mutual growth with our valued customers.

Best regards!

(Author: Vu Nam; Translator: Nguyen Phuong Anh; Date: December 18, 2024)

For detailed advice, please contact:

HTC Vietnam Law Firm

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