04 important notes for foreign-invested enterprises when directly leasing land in industrial zones for factory construction

04 notes for companies leasing land directly from industrial zones

Directly leasing land from industrial zones to build factories is a common choice for many foreign-invested enterprises undertaking investment projects in Vietnam. When leasing land directly from industrial zones, enterprises not only need thorough financial preparation but also must ensure compliance with relevant legal regulations.

In this article, BLawyers Vietnam would like to present 04 important notes that enterprises should consider when leasing land directly from industrial zones for factory construction and operational activities.

1. Land-use forms when leasing land in industrial zones

Pursuant to the Land Law 2013 and Land Law 2024, an investor who is leased land by the State for investment in constructing infrastructure for industrial zones has the right to sublease the land using the following 02 forms:

  1. For the leased land area with annual rent payment: The investor can sublease the land with an annual rental payment form; and
  2. For the leased land area with a one-time rental payment for the entire lease period (“one-time land rental payment”): The investor can sublease the land with either a one-time rental payment or an annual rental payment.

Therefore, the land-use form for enterprises leasing land within industrial zones will depend on the leasing method and the decision of the investor.

2. Rights and obligations of foreign-invested enterprises when leasing land in industrial zones

Foreign-invested enterprises investing in production and business within industrial zones by leasing land from the investor have several important rights as follows:

  1. In the case of paying a one-time land rent:
    • Transferring land-use rights and land-attached assets within the industrial zone;
    • Using their land-use rights and land-attached assets as collateral with credit institutions permitted to operate in Vietnam; and
    • Contributing capital using their land-use rights and land-attached assets for cooperation in production and business with domestic organizations, individuals, Vietnamese expatriates, and foreign-invested economic entities.
  2. In the case of paying annual land rent:
    • Using their assets attached to the leased land as collateral with credit institutions permitted to operate in Vietnam or other economic organizations or individuals as stipulated by law;
    • Contributing capital using their assets attached to the leased land; and
    • Selling assets attached to the land, including assets associated with the land-lease contract.
3. Land-use duration in industrial zones

Pursuant to the Law on Investment 2020, the operating period for projects outside economic zones should not exceed 50 years, calculated from the date of issuing the initial investment registration certificate.

Pursuant to the Land Law 2024 and Decree No. 43/2014/ND-CP, enterprises must ensure that the land-use duration for projects within industrial zones is equivalent to the operating period stated in the initial investment registration certificate.

In cases where the project’s operating period exceeds the remaining land-use duration of the industrial zone, the investor must seek approval from the competent authority to adjust the land-use duration. However, the following conditions must be met:

  1. The total adjusted land-use duration should not exceed 70 years; and
  2. Enterprises with projects must pay land rent for the adjusted land area.

In contrast, if the project’s operating period is shorter than the industrial zone’s land-use duration, the lessee and industrial zone shall mutually agree on the lease duration specified in the contract, ensuring compliance with the provisions of the Land Law 2024 and Decree No. 43/2014/ND-CP.

4. Cases in which enterprises’ leased land lots in industrial zones are revoked

Pursuant to Decree No. 43/2014/ND-CP, if the lessee fails to put the land into use or delays the utilization of the land beyond the agreed schedule in the lease contract (except in cases of force majeure), the investor as the lessor has the following rights:

  1. Requesting the lessee to take measures to put the land into use; or
  2. Unilaterally terminating the land lease contract with the lessee.

On the lessee’s side, if the land is not put into use or the land-use schedule is delayed compared to the schedule recorded in the investment project, the enterprise is allowed to extend the land usage period but only by 24 months or less.

Accordingly, the provincial People’s Committee has the authority to expropriate the land area in violation from the lessee and return it to the lessor when the following conditions occur:

  1. The 24-month deadline as mentioned above has expired, and the lessee has not put the land into use; and
  2. The lessor has already requested the lessee to take measures for land utilization, but the lessee has failed to utilize the land or has delayed the usage schedule.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. BLawyers Vietnam would love to hear from you.

Date: 27 June 2024

Writer: Chi Huynh

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