When execution of investment projects that are allocated land by the State, is it required to pay a deposit in Vietnam?

When execution of investment projects that are allocated land by the State, is it required to pay a deposit in Vietnam?

Pursuant to Article 43 of the Investment Law 2020, there are provisions on guarantee for execution of investment projects as follows:

1. The investor shall pay a deposit or have a bank guarantee for investment project execution if the project uses land allocated or leased out by the State or is permitted by the State to repurpose land, except for the following cases:

a) The investor is the successful bidder for the right to use a land area that is allocated by the State for land levy or leased out by the State for a lump-sum rent;

b) The investor wins bidding for execution of an investment project using land;

c) The State allocates or leases out land to the investor on the basis of receipt of an investment project for which a deposit has already been paid or for which the capital has been fully contributed or raised following the schedule specified in the written approval for investment guidelines or the investment registration certificate;

d) The State allocates or leases out land to the investor for execution of an investment project on the basis of receipt of the land use right and assets on land from another land user.

2. Based on the scale, nature and execution schedule of each investment project, the deposit for assurance of project execution is 01% - 03% of the investment capital of the project. If a project comprises multiple investment phases, the amount of deposit shall be paid and returned in each phase of execution of the investment project, except for the case in which the deposit is not returned.

3. The Government shall elaborate this Article.

Thus, according to the above provisions in Vietnam, your company will have to deposit or have a bank guarantee on the deposit obligation to secure the execution of an investment project that is requested by the State to allocate land, except for some cases as set forth above.

What are procedures for guaranteeing of execution of investment projects by investors in Vietnam?

In Article 26 of Decree 31/2021/ND-CP, procedures for guaranteeing of execution of investment projects by investors are as follows:

1. The obligation to guarantee investment project execution specified in Clause 1 Article 25 hereof shall be fulfilled on the basis of a written agreement between the investment registration authority and the investor.  The project execution guarantee agreement shall contain at least:

a) The investment project’s name, objectives, location, scale, investment capital, progress and duration specified in the decision on approval for investment guidelines, decision on approval for both investment guidelines and investor or investment registration certificate;

b) Measures for guaranteeing investment project execution (deposit payment or guarantee for deposit payment obligation specified in Clause 1 Article 25 hereof);

c) The amount of guarantee for project execution (hereinafter referred to as “the guarantee amount”) determined as specified in Clauses 2, 3 and 4 of this Article;

d) Time and duration of guaranteeing project execution specified in Clauses 5, 6 and 7 of this Article;

dd) Conditions for refund and adjustment of guarantee amounts, and termination of obligation to guarantee project execution specified in Clause 9 of this Article;

e) Handling measures in the case specified in Clause 10 of this Article;

g) Rights, obligations and other responsibilities of parties related to the contents mentioned in Points a, b, c, d, dd and e of this Clause;

h) Other contents which are agreed upon by the parties but not contrary to the regulations laid down in the Law on Investment, this Decree and relevant regulations of law.

2. The guarantee rate is expressed as a percentage of the investment capital of the investment project on the progressive principle. To be specific:

a) For a capital portion of up to VND 300 billion, the guarantee rate is 3%;

b) For a capital portion of over VND 300 billion to VND 1,000 billion, the guarantee rate is 2%;

c) For a capital portion of over VND 1,000 billion, the guarantee rate is 1%.

3. The project’s investment capital determined as the basis for calculation of the guarantee rate prescribed in Clause 2 of this Article does not include land levy or land rent payable to the State and costs of construction of the investment project’s works (if any) which the investor is obliged to transfer to the State for management after completion.  If the costs of construction of works to be transferred to the State have yet to be accurately determined at the time of signing the project execution guarantee agreement, the investment registration authority shall determine the guarantee amount according to the cost estimate specified in the project proposal prepared by the investor.

4. Except for the projects not eligible for investment incentives as prescribed in Clause 5 Article 15 of the Law on Investment, the investor is entitled to a reduction of the guarantee amount in the following cases:

a) a 25% reduction of the guarantee amount for investment projects in business lines eligible for investment incentives specified in the Appendix II hereof; investment projects in disadvantaged areas specified in the Appendix III hereof;

b) a 50% reduction of the guarantee amount for investment projects in business lines eligible for special investment incentives specified in the Appendix II hereof; investment projects in extremely disadvantaged areas specified in the Appendix III hereof; investment projects in business lines eligible for investment incentives executed in disadvantaged areas.

5. Time and duration of guaranteeing project execution:

a) The investor shall pay the deposit or submit the credit institution’s guarantee certificate after being issued with the decision on approval for both investment guidelines and investor or decision on investor approval or decision on approval for bidding result and prior to implementing the compensation, assistance and relocation plan approved by a competent authority (if the investor does not advance the payment for compensation, assistance or relocation) or by the time of issuing the decision on land allocation or land lease or land repurposing (if the investor does not advance compensation, assistance or relocation payments or the investor is selected to execute the project through a land use right auction and is leased out land by the State and pays land rents on an annual basis);

b) The duration of guaranteeing project execution begins from the time of fulfilling the obligation as specified in Point a of this Clause to the time when the deposit is refunded to the investor or paid to the state budget or to the time of invalidating the guarantee.

6. If a project comprises multiple investment phases, the payment and refund of the deposit amount or payment and adjustment of the guarantee amount or termination of the guarantee obligation shall be carried out in each phase of execution of the investment project under the project execution guarantee agreement. The investor may transfer the remaining deposit amount or remaining guarantee amount of the previous period to guarantee project execution for the next period without having to refund the remaining deposit amount or invalidate the guarantee of the previous period, and make any additional payment of the deposit amount or guarantee amount for the next period and the deposit amount or guarantee amount of the previous period (if any).

7. If the investor advances the compensation, assistance or relocation payments to a competent authority to implement the approved compensation, assistance and relocation plan, follow the instructions below:

a) If the advanced amount is equal to or greater than the guarantee rate prescribed in Clause 2 of this Article, the investor is not required to immediately pay the deposit amount or submit the credit institution’s guarantee certificate at the time specified in Point a Clause 5 of this Article;

b) If the advanced amount is less than the guarantee rate as prescribed in Clause 2 of this Article, the investor must pay a deposit amount or submit the credit institution’s guarantee certificate which equals to the difference between the advanced amount and the guarantee rate specified in Clause 2 of this Article at the time specified in Point a Clause 5 of this Article;

c) The investor with the deposit amount paid or credit institution's guarantee certificate submitted in the cases mentioned in Points a and b of this Clause must pay a deposit to the investment registration authority in accordance with this Article when the project is behind schedule according to the decision on approval for investment guidelines, decision on approval for both investment guidelines and investor or investment registration certificate.

8. The guarantee amount shall be paid to the investment registration authority's account opened at the commercial bank established under Vietnam’s law and selected by the investor; the investor shall pay all costs incurred in connection with the opening and maintenance of the account for project execution guarantee and conduct of transactions relating to the account. In case of execution of multiple projects, it is required to sign a project execution guarantee agreement with the same investment registration authority. The investor may negotiate with the investment registration authority about use of the same account for receiving guarantee amounts with respect to the projects executed in the areas under its management.

9. The refund and adjustment of a guarantee amount, and termination of the guarantee obligation shall be carried out as follows:

a) 50% of the deposit shall be refunded or 50% of the guarantee rate at the time when the investor is issued by a competent authority with the decision on land allocation, land lease or land repurposing and issued by a competent authority with other licenses or approvals to commence the construction (if any);

b) The remaining deposit and interest (if any) arising from the deposit shall be refunded or the guarantee for deposit payment obligation shall be invalidated at the time when the investor accepts the construction works;

c) Where the project's investment capital is decreased, the investor shall receive a refund of an amount of deposit corresponding to the decreased investment capital according to the adjusted decision on approval for adjustment of the investment guidelines or the adjusted investment registration certificate;

d) Where the project's investment capital is increased, the investor shall pay an additional amount of deposit or credit institution’s deposit payment guarantee corresponding to the increased investment capital according to the adjusted decision on approval for adjustment of the investment guidelines or the adjusted investment registration certificate. If 50% of the paid deposit has been refunded prior to the adjustment, the investor shall only investor shall only pay a half of the required additional deposit;

dd) Where the execution of an investment project cannot be continued due to a force majeure event or on account of a competent authority while following administrative procedures or due to the project adjustment made at the request of a competent authority in case of change of the planning, the investor may claim the refund of the guarantee amount or terminate the guarantee obligation.

e) Regarding a domestic investor that has their investment guidelines approved and is not required to obtain the investment registration certificate, when the project not subject to adjustment of its investment guidelines is adjusted as prescribed in this Decree and the adjustments change any content of the project execution guarantee agreement, the investor shall send a written notification to the investment registration authority prior to the adjustment. The investment registration authority and investor shall adjust the project execution guarantee agreement in conformity with the adjustments to the investment project.

10. The guarantee amount that is yet to be refunded shall be paid to the state budget as prescribed by law in the following cases:

a) The project is not put into operation on the schedule specified in the decision on approval for investment guidelines or investment registration certificate without the competent authority’s permission for adjusting the schedule as prescribed in the Law on Investment and this Decree;

b) The project is terminated as prescribed in Clause 2 Article 48 of the Law on Investment, except for the case mentioned in Point a Clause 2 Article 47 of the Law on Investment.

11. Where the deposit payment obligation is guaranteed by a credit institution, upon the expiry of the guarantee, if the investor fails to extend its validity and investment registration authority’s comments on invalidation of the guarantee are not available, the credit institution must transfer the guarantee amount to the investment registration authority’s account to continue to pay deposits for guaranteeing project execution.

According to this Article, the guaranteeing of execution of investment projects by investors in Vietnam will be carried out according to the procedures specified above.

Best Regards!