Issue 021223 – Duration of investment projects

Dear Valued Clients,

The duration of investment projects is the timeframe that an investor registers, and in most cases, is approved by the state authorities to carry out the projects officially. In this article, we will delve into regulations and considerations regarding the timeframe for the operation of investment projects according to Vietnamese law.

1. Concept and Classification of Investment Projects

The concept of investment projects is defined in Clause 4, Article 3 of the Law on Investment No. 61/2020/QH14 (hereinafter referred to as “the Law on Investment”), which states, “Investment project means a collection of proposals for the expenditure of mid-term or long-term capital to carry out investment activities in a particular administrative division over a certain period of time.”

In terms of form, an investment project is a detailed dossier presenting systematically organized business investment activities and costs according to a plan with specific deadlines and locations to achieve certain results and objectives. In terms of management, an investment project is a tool to manage the use of capital, materials, and labor to generate financial, economic, and social results within a specific timeframe. In terms of content, an investment project is an overall proposal for capital allocation for business investment activities that will be carried out according to a tightly planned schedule with specific deadlines and locations.

In Clauses 5, 6, and 7, Article 3 of the Law on Investment, investment projects are classified as follows:

(1)      Expansion project means an investment project on development of a running project by expanding the scale, improving the capacity, applying new technologies, reducing pollution or improving the environment.

(2)        New investment project means a project that is executed for the first time or a project independent from any other running project.

(3)        Start-up project means an investment project that implements ideas on the basis of exploiting intellectual property, technologies and new business models and is able to grow quickly.

2. Duration and Commencement of the Duration of Investment Projects

2.1. Duration of Investment Projects  

According to Clauses 1 and 2, Article 44 of the Law on Investment 2020, the duration of investment projects is stipulated as follows:

(1)      The duration of an investment projects inside an economic zone shall not exceed 70 years.

(2)      The duration of an investment projects outside an economic zone shall not exceed 50 years. The duration of an investment projects in a disadvantaged area or extremely disadvantaged area or a project with large investment capital but with slow rate of capital recovery may be longer but shall not exceed 70 years.

During the duration of the investment projects, investors are allowed to adjust and extend or shorten the duration of the investment projects. The period of adjustment of the investment projects shall not exceed the maximum prescribed in Clause 1 and 2, Article 44 of the Law on Investment.[1]

In addition, upon expiry of the duration of an investment project, if the investor wishes to keep executing the investment project and satisfies the conditions as prescribed by law, the duration of the investment projects may be extended but shall not exceed the maximum prescribed in Clauses 1 and 2, Article 44, except for the following investment projects:

(1)      Investment projects using obsolete, environment threatening or resource-intensive technologies (such projects will only be licensed once, and upon completion, the investor must liquidate or consider establishing a new project);

(2)       Investment projects in which the investor must transfer assets without reimbursement to the State of Vietnam or the Vietnamese side [2] (such projects typically involve mandatory transfers, such as BOT projects related to infrastructure, energy, waste treatment, etc. The investor transfers the entire project to the state after the investment and business period expires).

Notably, for service-oriented investment projects, the project’s duration is usually not more than 30 years (with the possibility of extension). For production projects using land in industrial zones or economic zones, the investment duration of the project will depend largely on the remaining land use duration of that industrial zone or economic zone but is typically under 50 years.

2.2. Commencement of Duration of Investment Projects

According to Clause 1, Article 27 of Decree No. 31/2021/NĐ-CP, the commencement of duration of investment projects is determined as follows:

(1)      The duration of an investment project specified in Clauses 1 and 2 Article 44 of the Law on Investment begins from the date on which the investor is issued with the decision on investor approval, decision on approval for both investment guidelines and investor or the investment registration certificate for the first time.

(2)       For the investment project which uses land allocated or leased out by the State or is permitted by the State to repurpose land, its duration begins from the date on which the investor is issued with the decision on land allocation, decision on land lease or decision on land repurposing.

If the investor has obtained the decision on land allocation, decision on land lease or decision on land repurposing but the transfer of land is delayed, the duration of the investment projects begins from the date on which land is transferred on site.

Furthermore, if land is transferred slowly to the Vietnamese Party being a state-owned enterprise (hereinafter referred to as “the Vietnamese Party”) to contribute capital in the form of land use rights, the time of slow transfer of land shall not be included in the duration of the projects with a commitment to transfer assets without reimbursement.[3]

3. Extension of the Duration of Investment Projects

3.1. Conditions for Extension of the Duration of Investment Projects

Except for cases where the duration of investment projects cannot be extended (as mentioned in section 2.1), upon expiry of the duration of an investment project, the authority that has the power to approve investment guidelines and the investment registration authority will consider and decide to extend duration of such projects if the investor wishes to keep executing the investment project and satisfies the following conditions:

(1)        The project conforms to the national planning, regional planning, provincial planning, urban planning and special administrative-economic unit planning (if any); conforms to the objectives and orientations for urban development or residential housing development plans and programs (with respect to projects on investment in residential housing and urban area construction);

(2)        The conditions for land allocation or land lease prescribed by the law on land are met (in the case of applying for extension of land use term).[4]

If the investment project satisfies the condition prescribed in (1) but fails to satisfy the condition prescribed in (2), the authority that has the power to approve investment guidelines and the investment registration authority shall consider extending its duration on a year-by-year basis until the district’s annual land use plan is available in accordance with regulations of law on land. The investor shall only follow procedures for extending the duration for the first year of extension.

3.2. Period of Investment Project Extension

The period of extension of duration of the projects specified shall be considered on the basis of objectives, scale, location and operating requirement of the project and shall not exceed the maximum duration mentioned in Clauses 1 and 2 Article 44 of the Law on Investment, as follows:

(1) Not exceeding 50 years for investment projects outside economic zones.

(2) Not exceeding 70 years for investment projects within economic zones and investment projects outside economic zones implemented in areas facing difficult economic and social conditions or in areas with particularly difficult economic and social conditions or for projects with significant investment capital but experiencing delayed capital recovery.

As always, we hope you find this Legal Article useful and look forward to working with you in the future.

Kind regards,

ENT LAW LLC

The full version of this Legal Article can be found here.

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[1] Clause 2 Article 27 Decree No. 31/2021/ND-CP Elaboration of some articles of the Law on Investment

[2] Clause 4, Article 4 of the Law on Investment No. 61/2020/QH14

[3] Clause 3 Article 124 Decree No. 31/2021/ND-CP Elaboration of some articles of the Law on Investment

[4] Clause 4 Article 27 Decree No. 31/2021/ND-CP Elaboration of some articles of the Law on Investment