Buyers Guide to Purchasing Property in Vietnam's Housing Market

Introduction

Vietnam is a socialist constitutional country. The political system in Vietnam is a single party system.

The government is moving from a state-controlled economy to a market economy, the country and its legal regime is experiencing challenges. The joining of WTO in 2007 has given foreign businesses more equal treatment in Vietnam compares to that of the Vietnamese businesses. However, as a developing country, Vietnam has been granted some exception, among others, market access in services. In terms of the real estate sector, laws and regulations are consequently being reviewed and/or amended.

All land belongs to the People and administered by the State. The State shall either grant or lease back the land to individuals and organisations.

Foreigners are allowed to invest in real estate in Vietnam in various forms as regulated in the Investment Law. According to Vietnam's Law on Trading in Real Estate, foreigners may participate in a number of activities, including housing construction for sale, lease, and investment in infrastructure for leasing the land.¹

The tax regime in Vietnam is complex and pre-mature. If tax implications affects foreign investors' decision on property investment, consult the local tax expert is necessary.

Legal Guide

LAW

In short, Vietnam is constructing a state of laws, with division of powers among legislative, executive and judicial. The state is constructed under a principle of "concentrated democracy" under the leadership of the Communist Party. The National Assembly adopts laws and some sub-laws documents such as Resolutions of the Standing Committee of the National Assembly.

The judiciary consist of independent judges who are selected by the President. There are three levels of ordinary courts in Vietnam (the "People's courts"), they are district People's courts, provincial or city People's courts and the People's Supreme Court. Apart from ordinary courts, there are also special tribunals such as administrative courts economic courts and labour courts which form parts of the provincial People's court; and military tribunals. The ministry of justice is responsible for managing the local courts. The Enforcement Department of the Ministry Justice enforces the final and binding court decision made by the courts.

The rights of immovable property are determined in a number of laws, including:

The Constitution
Land Law
Law on Trading in Real Estate
Investment Law
Housing Law
Construction Law

OWNERSHIP & RIGHTS

All land belongs to the People and administered by the State. The State shall either grant or lease back the land to individuals and organizations (i.e. land users). The Land User that holds title from the State shall receive from the State a Land Use Rights Certificate (LURC). The rights of the Land User may vary depending on the status of the Land User and the purpose of the land use.

There is no principle of "superfices solo cedit" in Vietnam. Meaning, the owner of the dwelling/houses may or may not be the owner or user of the land.

Foreigners are not permitted to own land. The land use right of foreigners are not defined until they are granted with the LURC. Foreigners may own houses but for lease purpose only. The time of ownership is limited by the time of Investment Certificate.²

Decree 84 of the Government dated 25 May 2007 states that the 70 year lease may be acquired by foreign investors and such lease may be extended without additional land rental.³

BUYING PROCEDURE

The buying procedure for an off-plan property is in general as follows:

1. Reserve the property
Once you have chosen your ideal property, a reservation agreement is to be signed with the seller and a reservation deposit needs to be paid (will form part of the purchase price).

2. Due Diligence
Before signing the preliminary purchase contract (off-plan property) or property sale and purchase contract, it is important that to carry out a due diligence check on the seller as well as the subject property. The due diligence checklist may include:

the company registration certificate (if the seller is an entity) or proof of seller's identity (if the seller is a private individual)
proof of a personal who is duly authorised to sign all legal documents (if the seller is an entity or an attorney of the seller)
the title certificate for the land
the planning permission/consent (off-plan property)
the building licence (off-plan property)
all other relevant permissions for the commencement of the project (off-plan property)
any lien, debt, development finance, or encumbrances against the land and/or the project
at least one of bank guarantee, insurance and/or assurance ensure the completion of the project or an escrow system to provide security for the buyer's property payments (off-plan property)
an independent quantity surveying (QS) system during the construction period (off-plan property)

The above due diligence check is more appropriate to be done through a law firm or lawyer who is specialised in property conveyancing in the particular country where the property is located.

4. Exchange Contract
Once the due diligence has proven to be of the buyer and his conveyancing lawyer's satisfaction, the contract can be exchanged. Often the first payment is to be made by the buyer to the developer at this stage.

5. Singing the Title Deed
Vietnam use the term of land use rights registration instead of land registration. Once the property is completed, the buyer will receive the Land Use Rights Certificate (LURC), guaranteeing the rights over the land as well as the description of the property attached to the land.

Taxation (for non-residents foreigners*)

TAXATION when PURCHASING/acquiring property

category	tax/fee rate	scope/remark
Valued Added Tax (VAT)	10%	On taxable price for the “trading in property”, meaning, selling price minus the fee for the land use right set by the government
VAT on transfer of land use right	N/A
Land use right registration fee	1% (maximum cap at VND5 million)	Calculated on the basis of the actual transfer value, but shall not be lower than the price lists stipulated by the People’s Committee, that is 1%.

TAXATION when OWNing/holding property

category	tax/fee rate	scope/remark
Income Tax	25%	This is a flat tax rate, taking into consideration of any relevant double taxation agreement.⁴
Property Taxes/ Land Rental	depending upon the location, infrastructure and the type of property	This is the rental of land use rights by foreign investors.
VAT	10%	on gross rental income and can be collected from the tenant
Withholding Tax	10%	in general with no exemption

TAXATION when Selling/disposing property

category	tax/fee rate	Scope/remark
Capital Gains Tax (CGT) (known as income tax in Vietnam)	25%	This is a flat tax rate, taking into consideration of any relevant double taxation agreement.
Tax on transfer of land use right	4%	on the transfer of residential land by households an individuals
Withholding Tax	10%	in general with no exemption

* non-resident foreigners means foreigners who spend, in aggregate, less than 183 days in a consecutive 12-month period following the first date of arrival, or in subsequent calendar years.

NB: Vietnam currently has double taxation agreements in force with 47 countries, which include Australia, France, Germany, Japan, Korea, Malaysia, the Netherlands, Singapore, Thailand, and the United Kingdom, etc. Please be aware that no double taxation agreement has been signed with the United States of America.

1. PWC

2. Communist Party of Vietnam Online Newspaper [Online] Available at: http://www.cpv.org.vn/english/news/details.asp?topic=12&subtopic=105&leader_topic=175&id=BT1240850700 (accessed 4 June 2008)

3. Allens Arthur Robinson, 2008, Vietnam Legal Update August 2007 [Online] Available at: http://www.vietnamlaws.com/vlu/aug_2007.pdf (accessed 4 June 2008)

4. STT Audit & Advisory, Singapore Government, 200? Vietnam An Overview of Expatriate Personal Income Tax [online] available at: http://www.iadvisory.gov.sg/upload/STT-VietnamExpatTaxOverview-LQP.pdf (accessed on 28 July 2008)

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