The Land Law no. 31/2024/QH15, effective fully from 1 August 2024 (“LOL 2024”), expends land use rights of foreign-invested economic organizations (“FIEO”) in Vietnam, which includes the right to receive the capital contribution in the form of land use rights (“LUR”). Details of which will be discussed in this article.

1. FIEO receiving capital contributions in the form of LUR

1.1 LUR contribution to FIEO

LUR is a form of asset for capital contribution to an enterprise and only its legitimate users are permitted to contribute it to an enterprise.  However, LUR is a special type of asset governed by the LOL 2024. Therefore, contributing it to an enterprise must comply not only with the Law on Enterprises 2020 (“LOE 2020”) but also with the LOL 2024.

Who is eligible to contribute LUR to FIEO? According to Article 28.1(dd) and Article 42 of the LOL 2024, FIEO may receive LUR contributions from economic organizations and another FIEO. Therefore, it is understood that only economic organizations or another FIEO is permitted to contribute LUR to FIEO provided that the LUR contributor has been granted a LUR certificate for a land parcel allocated by the State with land-use fees or leased by the State with a lump-sum rent for the entire lease term as specified under Articles 119 and 120 of the LOL 2024;  its use term remains; it is  free from disputes (or any disputes having been resolved by a competent authority), or  restraint order or other enforcement measures under the law on civil judgment enforcement or interim injunctions measures under the law...  For its contribution, the LUR must be appraised and valued in Vietnamese Dong in compliance with valuation principles that vary depending on the time of contribution as stipulated by the LOE 2020.

1.2 FIEO receiving LUR contribution

What is FIEO? Previously, it was not either mentioned or defined in the Land Law 2013 (“LOL 2013”). Instead, LOL 2013 referred to foreign-invested enterprises (FIE)  and limited their right to receive capital contributions in the form of LUR. In particular, an FIE was permitted to receive a LUR contribution from economic organizations if it was a joint venture between foreign organizations, foreign individuals, overseas Vietnamese and economic organizations (“JVC”).

However, the concept of FIE does not exist in the LOL 2024 which, instead, refers to FIEO and their right to receive capital contributions in the form of LURs. Article 3.46 of the LOL 2024 defines FIEO as ‘economic organizations that meet the conditions and carry out investment procedures applicable to foreign investors under the Investment Law in order to implement projects involving land use.’ FIEO is permitted to receive a LUR contribution from an economic organization and another FIEO, as stipulated in Article 28.1(d) and Article 42 of the LOL 2024. Such a right of FIEO is no longer limited to JVC as stipulated in the LOL 2013. This is a fundamental difference between the LOL 2013 and the LOL 2024 regarding the right of these entities to receive LUR contributions.

How is a capital contribution in the form of LUR construed? According to Article 3.22 of the LOL 2024, that is explained as to ‘form the charter capital of an economic organization, including making capital contribution to establish an economic organization or to inject additional capital to the charter capital of an existing economic organization […]’ which, however, excludes  any FIEO.  Based on this legal interpretation, only ‘economic organizations’ are allowed to receive the LUR contributions, which does not only contradict Article 28.1(dd) and Article 42 of the LOL 2024 but also completely differs from capital recipients which are ‘companies’ under the LOE 2020.  These inconsistencies create difficulties in implementing land regulations and adversely affect the lawful rights and interests of FIEO as capital recipients and those of capital contributors including economic organizations and other FIEO. Therefore, Article 3.22 of the LOL 2024 needs to be amended to align with Article 28.1(dd) and Article 42 of the LOL 2024, ensuring the consistency among legal provisions and protecting lawful rights and interests of relevant parties.

2. Capital contribution timeline and completion

2.1 Capital contribution timeline

The timeline for LUR contribution to establish an enterprise is 90 days from the date of issuance of the enterprise registration certificate,  or a shorter period as provided in the company charter or the share subscription agreement in the case of a joint-stock company.  Please note that this timeline does not cover the period of time to complete administrative procedures for transferring LUR to the capital recipient. The timeline for injecting additional capital to an existing enterprise will be determined by a member council (in a multi-member limited liability company) or a general meeting of shareholders (in a joint-stock company).

2.2 Completion of capital contribution

This capital contribution is considered complete, and the contributing party becomes a member or shareholder of a company only after (i) the land modification registration procedures is completed by the capital contributor or the capital recipient, recording such a LUR contribution and the modification of the land user from the capital contributor to  the capital recipient;  and (ii) the capital contributor ’s information is entered into the members/shareholders registry book of the capital recipient.  According to Article 133.3 of the LOL 2024, the land modification registration must be carried out within 30 days from the date of change. However, neither the LOL 2024 nor its guiding legal instruments specify what the “date of change” is or when a change is deemed to have occurred. Due to the lack of guidance, there may be multiple interpretations of the “date of change”, which could be a day both parties agree on the LUR capital contribution, or a day the capital contribution contract is notarized under Article 27.3 of the LOL 2024, or another day as agreed by the parties.

In light of the above, it is evident that rights of FIEO have been expanded. These entities can now receive capital contributions in the form of LUR from economic organizations and another FIEO. When LUR is contributed to FIEO, the parties must ensure the compliance with the conditions applicable to LUR under land regulations; adhere to the valuation principles as stipulated in the LOE 2020; and complete the procedures for transferring LUR tittle from the capital contributor to the capital recipient. However, to safeguard the lawful rights and interests of the parties (both the contributing and receiving parties), the definition of capital contribution in the form of LUR under Article 3.22 of the LOL 2024 needs to be revised to align with Article 4.18 of the LOE 2020, Article 28.1(dd), and Article 42 of the LOL 2024.