Currently, Vietnamese Law allows investors to contribute capital for investment and business using land use rights. However, investors need to clearly understand capital contribution mechanisms and relevant legal regulations to ensure their property rights during the business capital contribution process.
Concept of capital contribution
According to the concept stipulated in the Enterprises Law (2020), capital contribution is the contribution of assets to form the company’s charter capital, including capital contribution to establish a company or additional charter capital contribution of an already established company. Assets used to make capital contributions can be made in: Vietnamese currency, freely convertible foreign currencies; and other legal assets such as gold, the value of land use rights, the value of intellectual property rights, etc.
Conditions for capital contribution using land use rights
Pursuant to the Land Law (2013), land users are entitled to exercise the right to contribute capital with land use rights when the following conditions are met:
- Have a Certificate of Land Use Rights, Certificate of House Ownership and Residential Land Use Rights issued before 10th December 2009; Certificate of land use rights, ownership of housing and other assets attached to the land or one of the documents specified in Article 100 of the Land Law (2013);
- The land is not disputed;
- Land use rights are not distrained to ensure judicial enforcement;
- During the land use term.
After confirming that you have met all the conditions to exercise the right to contribute capital, the second step is to negotiate and sign a contract to contribute capital with land use rights according to the provisions of Section 7, Chapter XVI of the Civil Code, (Articles 500-503) . When negotiating a contract, individuals/organizations should pay attention to the content, rights, obligations of the parties as well as the capital contribution period, if any.
After successfully signing the capital contribution contract with land use rights, the third and final step is to register capital contribution with land use rights to the competent state agency.
Currently, the State has a policy to encourage capital contributions in the form of land use rights from economic organizations, households, and individuals to carry out production and business projects and works.
Conditions for receiving capital contribution using land use rights
In the case of real estate contributed as agricultural land, Land Law (2013) stipulates that economic organizations can receive capital contributions in agricultural land use rights to implement investment projects in non-agricultural production and business when the following conditions are met:
- There is written approval from a competent state agency for the economic organization to receive capital contribution agricultural land use rights to implement the project;
- The purpose of use for the land area received capital contribution land use rights must be consistent with land use planning and plans approved by competent state agencies;
- For land specialized in wet rice cultivation, the person who is allocated or leased land by the State for non-agricultural purposes from land specialized in wet rice cultivation must pay a sum of money so that the State can supplement the lost area of rice-growing land or increase the efficiency of rice-growing land use according to Government regulations.
Procedures for capital contributions using land use rights
Procedures for capital contribution using land use rights are prescribed in Decree 43/2014/ND-CP, Decree 01/2021/ND-CP, Decree 31/2021/ND-CP and other related documents.
Terminate capital contributions using land use rights
Capital contribution using land use rights terminates in the following cases:
- Expiration of capital contribution using land use rights;
- One party or parties make a request as agreed in the capital contribution contract;
- Land will be recovered according to the provisions of the Land Law;
- The party contributing capital with land use rights in a business cooperation contract or joint venture enterprise is declared bankrupt or dissolved;
- Individuals participating in capital contribution contracts die; were declared dead; lost or limited civil act capacity; prohibited from operating in the field of business cooperation where the capital contribution contract must be performed by that individual;
- The legal entity participating in the capital contribution contract terminates its operations and the capital contribution contract must be performed by that legal entity.
In an increasingly complex and evolving real estate and investment market, a clear understanding of how to use land use rights as an alternative asset to cash in business and investment transactions can help to create new opportunities and solve financial difficulties. However, it should be noted that contributing capital with land use rights is not always suitable for everyone and all projects. Therefore, individuals and organizations contributing capital need to keep up with changes over time in laws and regulations related to land use rights to ensure compliance with regulations and avoid legal risks.