Key takeaways from a 2025 Court Judgement on Land Use Right Transfer to a Company with Foreign Capital

We would like to bring to your attention a recent appellate court judgement that has important implications for transactions involving the transfer of land-use rights (LURs) to foreign invested enterprises (FIEs) in Vietnam. Although issued under the Law on Land 2013, the judgement remains relevant during the transition to the Law on Land 2024, particularly for transactions signed before the new law became effective.

1. Overview of the Court’s Decision

According to Judgement No. 36/2025/DS‑PT dated 31 July 2025 (Judgement No.  36), the Appellate Court of the Supreme People’s Court in Ho Chi Minh City (the Court) ruled that a Vietnamese joint stock company with 70% indirect foreign ownership was not legally permitted to receive LURs via a LUR transfer directly from individuals under the Law on Land 2013. As a result:

- A 2019 notarised LUR transfer contract between the Vietnamese individual transferors and a transferee being a Vietnam-incorporated company with indirect foreign ownership was declared void.

- The parties were ordered to restore their original status, including repayment by the transferor of approximately VND52.49 billion already received from the transferee.

Judgement No. 36 reflects the courts’ strict, formalistic and substance-over-form approach in assessing FIEs’ eligibility to acquire LURs. Accordingly, the ultimate ownership structure determines whether an entity is treated as an FIE for purposes of the Law on Land, meaning that a company incorporated in Vietnam would be regarded as company with foreign capital even when it is owned by a foreign investor indirectly via multiple layers of Holdco and Midco entities, as a result the company would not be permitted to take a transfer of LURs from Vietnamese individual land users. In this specific case, a 4-layered structure with 70% indirect foreign ownership of the transferee was examined.

In addition, even a fully notarised contract, substantial payments, and actual use of land by the transferee over time could not overcome the fundamental restriction that foreign‑invested entities were not permitted to directly acquire LURs from individuals under the previous law, so the transaction would be invalidated if the transferee did not have the legal right at the beginning to take transfer of the LURs from the individual transferees.

2. What changed under the Law on Land 2024? 

The Law on Land 2024 introduces a more flexible approach by aligning the definition of ‘economic organisations with foreign capital’ with the Law on Investment. 

The Law on Land 2024 (Article 3.46) introduces an important conceptual refinement in relation to the notion of “economic entities with foreign capital” as follows: ’an economic organisation with foreign capital is an economic organisation that is required to satisfy the conditions and carry out the investment procedures applicable to foreign investors under the Law on Investment in order to implement a project involving the use of land’. 

A common reasonable interpretation of the above provision is that only companies incorporated in Vietnam, which are required to carry out the investment procedures applicable to foreign investors under Article 23.1 of the Law on Investment 2020 (or, effective 1 March 2026, Article 20.1 of the new Law on Investment 2025), will be treated as ‘economic entities with foreign capital’ for the purpose of the Law on Land 2024. Accordingly, Vietnamese companies with more than 50% foreign ownership (or foreign control) will fall under the category of economic entities with foreign capital under the Law on Land 2024. Meanwhile, Vietnamese companies with 50% or less of foreign ownership or foreign control would not fall under such category and will be treated the same as 100% domestic companies (including their eligibility to acquire LURs in Vietnam via LUR transfers from domestic companies and individuals). 

However, a potential challenge to the above interpretation remains that there is lack of clarity (or an official guidance by the relevant authority) as to how the wording ‘an economic organisation that is required to satisfy the conditions and carry out the investment procedures applicable to foreign investors under the Law on Investment’ is construed, especially given the simple definition of ‘economic entities with foreign investment capital’ as ‘economic entities having foreign investor(s) as member(s) or shareholder(s)” under the Law on Investment 2020 (and the new Law on Investment 2025).

3. Key takeaways for investors and developers

- Based on Judgement No. 36, and even the new legal framework, foreign investors looking at acquiring LURs in Vietnam and considering a share acquisition structure would want to ensure that the proposed land‑access strategy with investment structure is assessed early. This should include enhanced due diligence on local entities involved in the structure and assessment of equity ownership structure (as well as historical land acquisition transactions) of those local entities.

- From the LUR transfer contract drafting perspective, it is important for the parties (especially the transferee) not to rely solely on notarisation or payment milestones to close the transaction (without carefully considering or addressing potential implications of applicable laws on the eligibility of a foreign invested party to acquire LURs) to avoid inability to register the LURs for such foreign invested party and related disputes between the parties from the transaction.

- The operation of the definition of ‘economic entities with foreign capital’ under the Law on Land 2024 (as discussed before) creates new opportunities for investment structuring but also raises practical questions regarding: 

(i) how to identify an “economic organisation that is required to satisfy the conditions and carry out the investment procedures applicable to foreign investors under the Law on Investment in order to implement a project involving the use of land”, which will fall under the category of “economic organisations with foreign capital” under the Law on Land; 

(ii) the analysis of indirect ownership chains, given how the courts will look at ownership structures, including how control will be assessed, based on Judgement No. 36; and 

(iii) consistency among authorities (including courts, land administration authorities and land registration offices) in interpretation and application of relevant laws and regulations. 

- It is important to monitor forthcoming implementing regulations, because practical application of the Law on Land 2024 and the new Law on Investment 2025 will depend on guidance from authorities.

ANNEX

Summary of Judgement No. 36

On 31 July 2025, the Court issued Judgement No. 36 concerning the transfer of LURs in respect of four (4) land plots located in Binh Duong Province (now Ho Chi Minh City) from two (2) Vietnamese individuals (the Transferors) to a joint stock company incorporated under Vietnamese law (the Transferee). Applying the provisions of the Law on Land 2013, the Court addressed the legality of a direct LUR transfer to a Vietnamese-incorporated company with foreign capital participation.

Although the Law on Land 2013 has been replaced by the Law on Land 2024, which grants broader land-related rights to economic entities with foreign capital, the Judgement remains instructive, especially for agreements signed before the Law on Land 2024 took effect. It provides important guidance on the Vietnamese courts’ approach to determining the land-use rights eligibility of companies that, while established under Vietnamese law, are regarded as foreign-invested economic organisations due to their ownership structure. In particular, the Judgement underscores the courts’ strict and formal application of land law restrictions on foreign-invested entities, reaffirming that legal status derived from capital ownership, rather than the place of incorporation alone, is decisive in assessing the permissibility of land-use right transfers in Vietnam.

Judgement Summary

1. The dispute arose from a LUR transfer agreement dated 2 December 2019 (the Contract), pursuant to which the Transferors transferred four (4) land plots located in Binh Duong Province (now Ho Chi Minh City) to the Transferee. The Contract was duly notarised. The total agreed transfer value was approximately VND80.76 billion. Of this amount, approximately VND52.49 billion was paid in cash, while the remaining amount (approximately VND24.23 billion) was treated as a set-off against shares issued by the Transferee to the Transferors as part of a capital increase.

2. Following the execution and notarisation of the Contract, the LURs were not successfully registered in the name of the Transferee. During the registration process, as per the Transferors’ submissions, the Transferors were informed that the Transferee, being a company with 70% foreign capital, was only entitled to obtain land-use rights through a lease from the State, and not through a direct transfer from individuals. Accordingly, more than three (3) years after the date of the Contract, the registration had still not been completed. 

3. The Transferors subsequently initiated court proceedings before the People’s Court of Binh Duong Province (the First Instance Court) seeking a declaration that the Contract was null and void. They argued that the Transferee qualified as a foreign-invested economic organisation due to its ownership structure, which ultimately traced to a foreign (Singapore) entity. On that basis, they contended that, under the Law on Land 2013, such an entity was not permitted to directly receive LURs transferred from individuals, and that the Contract therefore violated a statutory prohibition and should be declared void.

4. In response, the Transferee argued that the Contract was valid and legally enforceable. It contended that, as a joint stock company incorporated under Vietnamese law, it did not fall within the category of foreign-invested enterprises prohibited from directly receiving LURs from individuals under the Law on Land 2013. The Transferee has three (3) shareholders: one company incorporated in Vietnam (Company A1) (which holds 70% shares of the Transferee) and two (2) Vietnamese individuals (which hold the remaining 30%). Company A1 is, in turn, a Vietnamese-incorporated company wholly owned by another company (Company A2). Company A2 is also a Vietnamese-incorporated company wholly owned by a third company (Company A3). Company A3 is a Vietnamese-incorporated company wholly owned by a Singapore company.

5. On this basis, the Transferee argued that it was not a foreign-invested enterprise within the meaning of the Law on Land 2013 and therefore was not subject to the statutory restrictions relied upon by the Transferors. The Transferee further maintained that the Contract had been duly notarised and voluntarily entered into by parties with full legal capacity, and that it had substantially performed its payment obligations under the Contract, including payment of the cash consideration and the issuance of shares as part of the agreed transaction structure. Accordingly, it submitted that the Contract did not violate any statutory prohibition and should be recognised as valid.

6. The First Instance Court accepted the Transferors’ argument and held that the Transferee constituted a foreign-invested enterprise within the meaning of the Law on Land 2013 and the Law on Investment 2014. The First Instance Court determined that the Law on Land 2013 did not permit foreign-invested economic organisations to directly acquire land-use rights from households or individuals, except through specific statutory mechanisms (such as State lease, capital contribution, auction, or other permitted forms). As the transaction did not fall within any permitted category, the Contract was deemed null and void for violating a mandatory provision of law.

7. The Transferee appealed the First Instance Court’s judgement. On appeal, the Court upheld the first-instance judgement in its entirety. The Court reaffirmed that under the Law on Investment 2014, the Transferee company’s ownership structure was decisive in determining its status as a foreign-invested economic organisation. As the transfer constituted a direct acquisition of land-use rights from individuals, an act not permitted under the Law on Land 2013 for such entities, the Contract was invalid from the outset.

8. In terms of consequences, the Court ordered the parties to restore the status quo ante. The Transferors were required to return the cash amount actually received (approximately VND52.49 billion), while the Transferee was required to return the land-use rights. The Court rejected the Transferee’s claim for repayment of the share-related set-off amount, reasoning that the capital contribution arrangement could not stand independently once the underlying land transfer was declared void. The Transferee was permitted to adjust its charter capital and handle the issued shares in accordance with applicable company law.

9. The Judgement takes effect from the date of issuance and is not subject to further appeal. The litigants may request judicial review; however, unlike appellate proceedings, which are initiated by an appeal lodged by the litigants, the decision whether to initiate judicial review proceedings lies within the discretion of the competent authorities, such as the Chief Justice of the Supreme People’s Court and the Chief Prosecutor of the Supreme People’s Procuracy. In practice, it is hard to obtain such decision.

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