Issue of August 2024 – New policies on the Law on Land No. 31/2024/QH15 dated January 18, 2024 – Some salient notes for investors and enterprises

Dear Valued Clients,

On January 18, 2024, the National Assembly officially passed the Law on Land No. 31/2024/QH15 (“Law on Land 2024”). Compared to the Law on Land No. 45/2013/QH13 dated November 29, 2013 (“Law on Land 2013”), the Law on Land 2024 introduces many significant breakthroughs aimed at improving institutions, policies, and enhancing the effectiveness and efficiency of land management and usage. The Law on Land 2024 will officially take effect on August 1, 2024.

In this Legal Update, we summarize and clarify the new points of the Law on Land 2024 that investors and enterprises need to be aware of.

1. Enterprises are granted land use rights for socio-economic development projects through an agreement mechanism

The Law on Land 2024 allows enterprises to receive land use rights to implement socio-economic development projects through an agreement mechanism. Specifically, according to Article 127.1 of the Law on Land 2024, land use for socio-economic development projects through an agreement on receiving land use rights is applicable in the following cases:

• Implementing investment projects that do not fall under the category of land acquisition for socio-economic development in the national and public interest;
• Using land to implement a commercial housing project, where only agreements on receiving residential land use rights are allowed;
• Cases where state budget capital is not used, and land is recovered for socio-economic development for the public national interest, where the investor opts for receiving land use rights transfer instead of proposing land recovery.

Conditions for land use to implement socio-economic development projects through negotiation on acquisition of land use rights include[1]:

• The project must conform to district-level land-use master plans that have been approved and announced;
• The project owner must meet the conditions for land allocation, land lease, and permission to change land use purposes. For commercial housing investment projects, it is permitted to negotiate the acquisition of residential land use rights;
• The provincial-level People’s Committees has issued a written approval of negotiation on acquisition of land use rights to implement the project.

2. Allow enterprises to flexibly pay land rent

According to the provisions of the Law on Land 2024, enterprises leasing land from the State with a one-time payment can switch to annual payments. This is a new provision, stated in Article 30.2 of the Law on Land 2024, grants the option to choose the form of land rent payment. This aims to reduce financial pressure, potentially leading to lower housing prices.

Economic organizations, individuals, overseas Vietnamese, and foreign-invested economic organizations that are currently leasing land from the State and paying a one-time fee for the entire lease term may choose to switch to annual payments. The previously paid land rent will be deducted from the annual land rent according to Government regulations.

Previously, the Law on Land 2013 only allowed enterprises and individuals to switch from paying annual land rent to paying a one-time lump sum for the entire lease period[2]. It did not mention the right to switch back from a lump sum to annual payments. The Law on Land 2024 now allows enterprises that lease land from the State with a one-time payment to switch to annual payments. This change facilitates greater flexibility for enterprises in balancing and allocating capital when implementing investment projects. Additionally, it helps reduce the initial investment cost burden for enterprises, thereby contributing to lower housing prices and positively impacting demand in the real estate market.

3. Regulations on authority to resolve commercial disputes related to land

Regarding land dispute resolution, the Law on Land 2024 introduces several important amendments to help enterprises, individuals, administrative agencies, and prosecution agencies quickly identify and select competent agencies to resolve disputes, avoiding delays and inefficiencies.

Specifically, in addition to the Court and the People’s Committee, Article 236.5 of the Law on Land 2024 grants Vietnam’s Commercial Arbitration the authority to resolve disputes arising from commercial activities related to land, in accordance with the law on commercial arbitration.

People’s Committees at all levels are responsible for providing records and documents related to land management and use when requested by the Court or Vietnam’s Commercial Arbitration as a basis for resolving land disputes.

Furthermore, according to Article 235.2 of the Law on Land 2024, disputing parties must conduct conciliation at the People’s Committee of the commune where the disputed land is located before the competent state agency resolves the dispute. The competent state agency includes the Court and the People’s Committee at all levels. Since Vietnam’s Commercial Arbitration is a non-governmental organization, disputes arising from commercial activities related to land do not require conciliation before requesting this agency to resolve the dispute.

Allowing Commercial Arbitration to resolve commercial disputes related to land will help reduce the Court’s workload in adjudicating current land disputes. Additionally, conflicts and commercial disputes between enterprises and investors in business relationships related to land will be resolved promptly, thoroughly, and effectively in terms of time and cost.

4. Removal of Land Price Framework and Determination of Land Prices According to Market Principles

The Law on Land 2024 has removed the provision on the Government’s Land Price Framework, which was issued every 5 years. Instead, the Provincial-level People’s Committee will develop and submit the first Land Price List to the People’s Council of the same level for decision, with promulgation and application starting from January 1, 2026. Every year, the Provincial People’s Committee is responsible for submitting adjustments, amendments, and supplements to the Land Price List to the Provincial People’s Council for decision, with promulgation and application from January 1 of the following year. If the Land Price List needs to be adjusted during the year, the Provincial-level People’s Committee must submit it to the People’s Council for decision[3].

According to Article 158.2 of the Law on Land 2024, land prices will be calculated based on the following criteria: land use purpose for valuation, land use term, input information to determine land prices according to land valuation methods, other factors affecting land prices, and relevant laws at the time of valuation.

The input information for determining land prices includes land prices recorded in the national land database and the national price database, land prices recorded in transfer contracts, land auction winning prices, and information on revenue, expenses, and income from land use. The input information used must be formed within 24 months from the time of determining land prices, with priority given to information closest to the time of valuation.

Due to the valuation of land according to market principles, the determination of taxable income from real estate transfers is also specifically amended in Article 247 of the Law on Land 2024. It stipulates: “Taxable income from real estate transfer is determined as the transfer price each time; in case of transferring land use rights, taxable income is calculated according to the land price in the land price list.” This amends the provision in Article 14.1 of the 2007 Personal Income Tax Law (amended and supplemented in 2014) to correctly determine the tax value payable from real estate transfer transactions.

5. Regulations on land allocation and lease through auctions and bidding for projects using land

Article 125 of the Law on Land 2024, which has come into effect, specifically stipulates the “allocation and lease of land through auction of land use rights” for land created by the State, and the “allocation and lease of land through bidding to select investors to implement investment projects using land” for land that has not been cleared.

In particular, Article 126 of the Law on Land 2024 outlines the mechanism for implementing “bids to select investors” for land that has not been cleared. It stipulates that “the winning investor is responsible for providing capital to implement compensation, support, and resettlement as required by the competent state agency.” Additionally, within 36 months from the date of issuance of the decision recognizing the winning bid results, or another period according to the contract signed with the competent state agency, the People’s Committee at the competent level must complete the compensation, support, and resettlement to allocate and lease land to the winning investor.

The Law on Land 2024 also includes detailed regulations on land allocation and land lease without auction of land use rights or without bidding to select investors to implement projects using land. Notably, the Law on Land 2024 clearly stipulates that if land put up for auction of land use rights twice is unsuccessful, as specified in Article 125.6(b), or if there are no participants, the time for land allocation and land lease in this case shall only be implemented within 12 months from the date of the second unsuccessful auction.

6. Regulations on land not being put into use or projects that are behind schedule will be revoked

According to Article 81 of the Law on Land 2024, cases of land recovery due to violations of land laws include the following:

• Using land for purposes other than those assigned, leased, or recognized by the State for land use rights, and continuing to violate after being administratively sanctioned.
• Land users who destroy land and continue to violate after being administratively sanctioned for land destruction.
• Land allocated or leased to the wrong subject or without proper authority.
• Land received through transfer or donation from a person to whom the State allocates or leases land, which the recipient is not allowed to transfer or donate according to the provisions of this Law.
• Land assigned for management by the State but allowed to be encroached upon or occupied.
• Land users who do not fulfill financial obligations to the State.
• Land for growing annual crops and aquaculture that has not been used for 12 consecutive months, land for growing perennial crops that has not been used for 18 consecutive months, and land for growing forests that has not been used for 24 consecutive months and has been administratively sanctioned but not put into use within the time limit stated in the decision on administrative sanction.
• Land allocated, leased, permitted to change the purpose of use, recognized for land use rights, or transferred for investment projects by the State but not used within 12 consecutive months from the date of receiving the land handover on the ground, or the land use progress is 24 months behind the progress recorded in the investment project. In such cases, the investor shall be granted an extension of land use for no more than 24 months and must pay the State an additional amount corresponding to the land use fee and land rent for the extended period. After the extended period expires, if the investor has not put the land into use, the State shall reclaim the land without compensation for the land, assets attached to the land, and remaining investment costs on the land.

As usual, we hope you find this Legal Update helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC

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

[1] Article 127.2 Law on Land 2024.

[2] Article 172 Law on Land 2024.

[3] Article 159.3 Law on Land 2024.