New Regulations On The Levy On Land Use And Land Lease In The Economic Zones

On  3rd April 2017, the Government promulgated Decree 35/2017/ND-CP regarding the economic rent of land, land use,  and surface water  in Economic Zones and High-Technology Zones (“Decree 35”).

Methods used to assess land rentals value in the Economic Zones

Land sites leased by the State in the form of (i) yearly collecting of land rent and (ii) not to go through any form of auction under provision of law. The mathematical relationship is then:

Annual land rental value= capitalization rate (%) * land value

At which,

  1. Capitalization rates (%): range in 0.5 – 3% and is defined by People’s Committee of local general public corresponding to boundaries zoning of land lease that are authorized by the competent state;
  2. Land value: for determining land rental value is defined accordingly to the provision on land coefficient of variation by the Government. The land rental value is stable in 05 years dated from the land lease decision is granted. Five (05) years later, Department of Economic Zones will adjust the land rental value upon the land value at the time of the adjustment.

Land sites leased by the State in the form of (i) lump sum advanced payment for the entire lease term and (ii) not to go through any form of auction; the lump sum land rental value   is equal to land market value  in the respect of the land leasing term and is equivalent to those methods corresponding to the value of  economic rent of land sites in the Economic Zones, as in detailed:

  1. Lower than 30 billion dongs: the rental value of nonexempt land sites are determined on  land  coefficient of variation;
  2. Exceed 30 billion dongs: particular land value is determined on direct comparison, subtraction, income or surplus.

In the form of land lease containing surface water in Economic Zones, rental value of surface water in particular must not exceed 50% the land rental value of non surface water area.

Levy exemption from land use, land lease in Economic Zones

Levy exemption from land use for those projects assigned the land by the State that are suitable to either (i) land collected use levy in Economic Zones; nor (ii) land meant to build social housings in accordance with the zoning approved by competent authorities,

Projects that are assigned land sites by the State subject to land collected use levy in Economic Zones in order to build commercial housings either for sale or combine sale and rent, will not be exempted from the incentive of land use levy.

Levy of land and surface water is exempted for entire lease term in the followings:

  1. Investment projects in sectors entitled as special investment incentives;
  2. Investment projects of residential housing for workers in Economic Zones, or, lands which are leased from those investors to build and conduct business in infrastructure in the economic zones to conform to the zoning plans approved by the competent authorities;
  3. Land for institutional buildings designed for local general public within Economic Zones;
  4. Land for maintenance and repair service centers, car lots (including ticket counters, administrative & operational departments, and public areas) in order to serve public transportation in Economic Zones;
  5. Land for water supply projects in the territory of Economic Zones comprising: water service installation, sewage treatment, pipelines systems, water main laying and water main diversion projects, and water support and management departments (administrative buildings, operation departments, workshops, warehouse or storage of materials and equipment).

Levy of land and surface water is exempted from fixed lease term in the following cases:

  1. Projects in the List of sectors entitled to investment incentives:
    • 15 years for the investments designated in the district level   which is not included in the List of geographical areas entitled to investment incentives;
    • 17 years for the investments designated in the district level geographically in difficult socio-economic conditions;
    • 19 years for the investments designated in the district level geographically in difficult extreme socio-economic conditions.
  2. Projects not included in the List of sectors entitled to investment incentives:
    • 11 years for the investments designated in the district level which are not included in the List of geographical areas entitled to investment incentives;
    • 13 years for the investments designated in the district level geographically in difficult socio-economic conditions;
    • 15 years for the investments designated in the district level geographically in difficult extreme socio-economic conditions.

Decree 35 shall take effect from 20th June 2017.