From Decision to Execution: Guiding Advice for Investors Renting Land in Industrial Parks in Vietnam

In recent years, the government has consistently extended preferential policies to incentivize investments in the industrial zones, establishing them as an optimal launchpad for both domestic and foreign investors eager to expand their ventures in Vietnam. However, selecting the most suitable industrial zone for investment remains a multifaceted endeavor. Investors must not only weigh the cost of factory rentals but also carefully consider various pivotal factors that will profoundly impact the future growth and prosperity of their businesses.

Overview: Vietnam’s Industrial Land for Lease 

According to the Report of the Vietnam Association of Realtors (VARS) in 2022, nationwide, there are about 563 industrial parks (IZs) in 61/63 provinces, 397 IZs have been established, 292 IPs have been put into operation with a total natural land area of more than 87,100 hectares, industrial land area of more than 58,700 hectares. These include industrial parks situated outside economic zones,  industrial parks nestled within coastal economic zones, and industrial parks located in border-gate economic zones.  The occupancy rate of industrial zones across the country tends to increase, reaching over 80%.

Industrial zones and economic zones have attracted more than 10,000 domestic projects and nearly 11,000 projects with foreign direct investment capital effective with the total registered investment capital corresponding to more than 340 billion USD

From a legal standpoint, it is imperative for foreign investors to approach the decision of investing in Vietnam's industrial parks with utmost caution and careful deliberation. The complexity surrounding this choice necessitates a comprehensive understanding of various factors before making any commitments. To assist prospective investors in navigating these intricacies, we present 3 key considerations that demand attention prior to jumping on this transformative journey of renting land within Vietnam's industrial parks.

Key Considerations for Prospective Investors

Determining Optimal Land Use for the Business

Many foreign businesses and investors find themselves at a crossroads, contemplating the decision of whether to opt for a one-time payment or an annual payment when it comes to leasing industrial land. The question remains: Which option holds greater profitability? 

As stipulated in the Land Law (2013), when leasing land with a one-time payment, an infrastructure business enterprise has the liberty to sublease land, along with the associated infrastructure, to other enterprises. This sub-leasing can take the form of either yearly rental payments or a one-off land rental for the entire lease period. However, in the case of annual rental payments, infrastructure businesses are limited to subleasing on an annual land rent basis.

The implications extend to the rights and privileges associated with the subleased land. In the scenario of subleasing land with a one-time payment of land rental, the lessee enjoys the ability to transfer land use rights, mortgage the land use rights, or even contribute capital to another company with the land use rights. Meanwhile, when leasing land with annual payment, the lessee encounters limitations on certain rights, such as the inability to transfer land use rights, and rights confined solely to the assets attached to the land.

It can be seen that e choice between one-time payment or annual payment for land use holds profound implications for their specific needs, business scope, and future plans. It is paramount for investors to meticulously evaluate their requirements and align them with the most suitable type of land use. By doing so, they can ensure they make an informed decision that aligns with their long-term objectives and maximizes their profitability within the dynamic landscape of Vietnam's industrial park sector.

Enhancing Lessee Rights through Infrastructure Business Cooperation

Another crucial aspect to consider when it comes to land lease agreements within Vietnam's industrial parks is the collaborative role of infrastructure businesses in enabling lessees to exercise certain rights tied to the leased land.

As per current legislation, lessees have the opportunity to exercise rights such as transferring or subleasing land use rights and associated properties, contingent upon the specific terms of the land lease. However, it is important to note that land lease contracts often stipulate the requirement for lessees to obtain the approval and support of the infrastructure business in order to execute these transactions. Moreover, in certain instances, lessees may also be subject to paying specific fees in accordance with the regulations set by each infrastructure business.

Hence, before signing land lease contracts, investors must pay close attention to the clauses that necessitate the support or cooperation of the infrastructure business when exercising their rights tied to the land. Additionally, in order to establish a factory that aligns with their specific requirements when renting industrial land, investors should conduct thorough research and engage in pre-agreement discussions with the infrastructure business regarding technical conditions. These conditions encompass vital aspects such as construction planning, construction density, and foundation height prior to commencement.

By doing so, they can proactively mitigate potential challenges that may arise in the future, ensuring a smooth and harmonious business environment.

Gaining an In-Depth Understanding of the Application Process for Investment Approval 

For foreign investors seeking to embark on the construction of industrial parks, a crucial step lies in understanding the process and procedures involved in securing investment policy approval. To qualify, foreign investors must furnish comprehensive documentation that substantiates their capacity, experience, and financial prowess.

However, traversing these procedures can prove arduous for investors unfamiliar with Vietnam's legal regulations, cultural nuances, and working environment. Compounding the challenge are issues linked to the state management of industrial zones, including policy formulation, construction planning, and establishing a robust legal framework for industrial park development. The lack of seamless coordination among ministries, branches, and local authorities further complicates matters, impeding foreign investors in their quest to obtain land leases and embark on industrial park construction.

Given these complexities, it is highly advisable for foreign investors to contemplate collaboration with local investment consulting companies. This strategic partnership ensures meticulous adherence to legal regulations governing industrial park land leases. By enlisting the expertise of investment consultants, foreign investors can navigate the intricacies of the process, effectively sidestepping potential obstacles and streamlining their journey toward successful industrial park development.

Understand the policies and incentives for leasing land to invest in Industrial Parks

The Government has just issued a Decree on Industrial Real Estate (Decree No. 35/ND2022/ND-CP dated May 28, 2022), requiring simpler procedures, investor capacity must be clear. More clearly, there is a housing ecosystem. This is a driving force that creates positive conditions in the development of industrial real estate

Conclusion

Navigating the process of renting land in industrial parks in Vietnam requires careful consideration and strategic decision-making. From understanding the legal regulations and cultural nuances to addressing the challenges associated with infrastructure businesses, investors need reliable guidance to ensure a smooth and successful journey. At Viettonkin, we offer comprehensive legal consulting services tailored specifically to investors seeking to rent land in industrial parks in Vietnam. Our team of experts is well-versed in the intricacies of Vietnam's industrial park landscape and will provide you with strategic advice and practical solutions to help you navigate the complexities of industrial park land rental, ensuring compliance with regulations and maximizing your investment potential. 

Take the next step towards your investment goals by utilizing Viettonkin's legal consulting services. Contact us today to learn more about how we can support your journey and help you achieve success in Vietnam’s dynamic market.