Since Decree 31/2021/ND-CP was issued on March 26, 3,[1] Specific regulations on how to contribute capital using land use rights (LUR) to establish a business, this form is becoming more and more popular and is chosen by many parties for the purpose of M&A of real estate projects.

Capital contribution by land use rights is regulated by the Investment Law 2020, Land Law 2024, Enterprise Law 2020, and implementing documents. Specifically, the Investment Law 2020[2] allowing investors to have the right to use land use rights and assets on land belonging to investment projects to contribute capital to establish enterprises and economic organizations in accordance with the provisions of land law, enterprise law and related laws. Enterprise Law 2020[3] The regulation stipulates that land use rights are a type of asset used to contribute capital to establish a company. According to the 2013 Land Law (and the 2024 Land Law, effective from August 1, 8), land users have the right to contribute capital and economic organizations have the right to receive land use rights through the form of capital contribution using land use rights.[4] Note, land use rights allowed to be contributed as capital only include land allocated by the state for which land use fees have been paid or leased land for which land rent has been paid once for the entire lease term.[5] At the time of capital contribution, the capital contributing enterprise must have a Land Use Rights Certificate available.[6]

The Investor (Investor) can contribute capital by using land use rights of the component project that it wants to transfer (Project) to establish an enterprise (Project Company) and then transfer the Project to the Project Company through the following main steps:[7]

• Step 1: The Investor establishes a Project Company and registers capital contribution using land use rights at the business registration agency according to the Enterprise Law 2020. After the Project Company is established, the Investor signs a capital contribution contract with the Project Company. The capital contribution contract must be notarized or certified according to the law.[8] and is the basis for the parties to carry out the Project adjustment procedures and the change registration procedures.

Capital contribution is only considered completed when the Land Use Rights Certificate is registered to change to the name of the Project Company according to legal regulations.[9]

• Step 2: The Investor submits the application for registration of changes in land use rights at the land registration agency in accordance with Circular 24/2014/TT-BTNMT.^[10] After receiving the application, the land registration agency will confirm the change in the Land Use Rights Certificate or issue a new Land Use Rights Certificate to the Project Company.^[11]

Note that the land use right appraisal certificate, although not a mandatory document in the registration dossier, is often required in practice.

• Step 3: The Investor shall make adjustments to the investment policy and/or investment registration certificate (IRC) at the same time as applying for an IRC for the Project Company to record the Project Company as the investor of the Project.[12]
• Step 4: For the purpose of conducting M&A transactions of real estate projects, after completing the registration of changes in land use rights and transferring the Project to the Project Company, the Investor can transfer its capital contribution/shares in the Project Company to investors in accordance with the Enterprise Law 2020 and the Investment Law 2020.

The implementation process at this stage is carried out according to normal corporate M&A transactions. Note that when conducting corporate M&A transactions, foreign investors will need to carry out procedures to register to buy shares and buy capital contributions of the Project Company according to the provisions of the Investment Law 2020.[13]

Although the form of capital contribution by land use rights to enterprises has many advantages: simple and clear procedures, fast implementation time, the capital contributor does not have to pay registration fees.[14], this form still has some disadvantages. Currently, there are no specific legal regulations on whether the Project Company is allowed to inherit the project documents from the Investor after receiving capital contribution in the form of land use rights, similar to the case of transferring all or part of a real estate project under the Law on Real Estate Business 2023.[15] Therefore, in practice, the Project Company may have to seek advice from competent authorities for guidance on the permission to inherit legal documents related to the Project that have been granted under the name of the Investor. The last point, but not all, is that capital contribution using land use rights under the project can only be applied to enterprises that are allocated land by the State with land use fees collected, and leased land with one-time land rental fees collected for the entire lease term.

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[1] Decree 31/2021/ND-CP of the Government issued on March 26, 3 detailing and guiding the implementation of a number of articles of the Investment Law (“Decree 2021/31”).

[2] Article 41.1 of the Investment Law 2020; and Article 52 of Decree 31/2021.

[3] Articles 4.18 and 34.1 of the Law on Enterprises 2020.

[4] Articles 27.1 and 28.1(d) of the 2024 Land Law.

[5] Article 36.1 Land Law 2024.

[6] Article 45.1 Land Law 2024.

[7] Article 52.3 Decree 31/2021.

[8] Article 27.3 Land Law 2024.

[9] Articles 35.1 and 35.3 of the Law on Enterprises 2020.

[10] Article 133.1 of the 2024 Land Law; and Article 9.2 of Circular 24/2014/TT-BTNMT of the Ministry of Natural Resources and Environment issued on May 19, 5 regulating cadastral records (amended).

[11] Article 79 of Decree 43/2014/ND-CP of the Government issued on May 15, 5 detailing the implementation of a number of articles of the Land Law; and Article 2014 of Circular 17.1/23/TT-BTNMT of the Ministry of Natural Resources and Environment issued on May 2014, 19 regulating certificates of land use rights, house ownership rights and other assets attached to land (amended).

[12] Articles 37 and 41.3 of the Investment Law 2020; and Articles 36 and 52 of Decree 31/2021.

[13] Article 26 of the Investment Law 2020.

[14] Article 10.17 of Decree 10/2022/ND-CP of the Government issued on January 15, 01 stipulates registration fees.

[15] Article 39.3 of the Law on Real Estate Business 2023.