VIETNAM Law and Practice Contributed by: Tran Thai Binh and Duong Thi Minh Han, LNT & Partners
7.7 Requirements Before Use or Inhabitation Before any building or project commences, the devel - oper must obtain a certificate of occupancy issued by the competent authority.
additional forms of security such as a deposit, escrow or any form of guarantee, which may include parent or bank guarantees. The specific guarantee must be agreed in detail between the developer and the main contractors, and duly delivered to the developer before the construction contracts come into effect. The security to guarantee a performance is valued within a range of 2% to 10% of the contract value. Higher risks will come with higher rates, but the value is capped at 30% of the contract value and must be approved by the competent body (Article 16 of Decree 37/2015/ND-CP). 7.6 Liens or Encumbrances in the Event of Non-Payment The project developer or owner of the building may provide proof of the ability to make payment to the (main) contractors with whom they have the contrac - tual construction relationship as a preventative meas - ure against non-payment by the developer. Guarantees of payment capacity may be satisfied by laws involving the following measures: • approved plan on capital distribution; • letters of guarantee by banking or credit institu - tions; Payment guarantees must be available prior to the execution of the construction contract to ensure that the developer complies with the payment schedule agreed with the contractor in the construction agree - ment. Laws prohibit the developer from entering into a construction agreement without payment guarantees available as prescribed, unless the construction is for emergency purposes. Alternatively, while this is neither prescribed nor pro - hibited by law, the developer may agree with the con - tractor to hold a lien over the building in the event of non-payment by the developer (or the owner of the property). However, this is uncommon construction practice in Vietnam, as are other encumbrances, such as a pledge over the building. • letters of credit; or • loan agreements.
8. Tax 8.1 VAT and Sales Tax
Goods and services used for production, trading or consumption in Vietnam are subject to VAT. In respect of the transfer of real estate, VAT is incurred by the purchaser of the property at a rate of 10% of the trans - fer price of the real estate (excluding the land value announced by government authorities). 8.2 Mitigation of Tax Liability For a sale or transfer of real estate by corporate sell - er/transferor (asset deal), VAT (10%) and corporate income tax (CIT) are applied. CIT is 20% of the capital gain from the property. However, if structured in sell - ing shares of a JSC (share deal), then taxes may be 0.01% of the transferred shares (even when transfer - ring 100% of the shares of that entity). Therefore, the “share transfer deal” approach is commonly used in acquisition transactions of real estate development projects. 8.3 Municipal Taxes Business-licence tax (or licensing fee) is applied to every business based on its registered capital. The tax is a small amount (around USD135/year). However, in addition, the entity (as a property owner) has to pay land tax based on the land price and land area. 8.4 Income Tax Withholding for Foreign Investors Foreign investors as corporates are not permitted to directly obtain possession of real estate in Vietnam. Any investment in real estate must be made through an entity established under Vietnamese law. Foreign individuals are only permitted to purchase commercial residential houses from a real estate developer. Cor - porates bear the corporate income tax on the taxable income earned from the rent or sale of real estate at a rate of 22%. Individuals bear the PIT at a rate of 5% of taxable income from renting properties, and 2% of the sale or transfer price from the sale of real property.
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