Conditions for establishing a real estate company in Vietnam

In the general trend of the world real estate market, Vietnam’s real estate market is increasingly developing and is considered as a key economic sector for the development of the country. Therefore, Viet An Law provides regulations on conditions for establishing a real estate company through the following article.

Legal bases

• WTO commitments and international investment treaties to which Vietnam is a signatory or accedator.
• Enterprise Law 2020;
• Law on Real Estate Business 2014;
• Investment Law 2020;
• Decree 01/2021/ND-CP guiding business registration;
• Decree 02/2022/ND-CP guiding the Law on Real Estate Business.
• Decree 31/2021/ND-CP detailing and guiding the implementation of a number of articles of the investment law

Real estate business concept

Pursuant to Clause 1 Article 3 of the Law on Real Estate Business 2014, real estate business is the investment of capital to carry out activities of construction, purchase, receipt of transfer for sale or transfer; leasing, subleasing, leasing to purchase real estate; performing real estate brokerage services; real estate exchange services; real estate consulting or property management services for the purpose of profitability. Personnel and organizations when doing real estate business should follow the following principles:

• All real estate business activities are equal before the law; The parties are free to negotiate through the contract on the basis of respecting each other’s legitimate rights and interests and not contrary to the provisions of law.
• Real estate put into business must meet all conditions prescribed by the Law on Real Estate Business.
• Real estate business must be conducted openly, transparently and honestly.
• Individuals and organizations have the right to do real estate business outside the scope of national defense and security protection according to land use plans and plans approved by competent state agencies.

Type of real estate business

In our country, real estate business includes two types: real estate business activities and real estate service business. If real estate business is the fact that an investor spends capital to create real estate or buys, rents, leases and buys real estate for the purpose of making a profit, real estate service business is the provision of real estate services by organizations or individuals (including real estate consulting services,  real estate brokerage services, real estate management services, real estate transaction exchange services) for organizations and individuals in need for the purpose of profit.

Subjects permitted to provide real estate services

The issue is who, which specific subjects are allowed to provide real estate services and the limitation of the scope of business of this type should be specifically determined to avoid encroachment and overlap into the field of other types of service businesses.

Answering this question, the current Law on Real Estate Business stipulates:

• Scope of provision of real estate services of domestic organizations and individuals, overseas Vietnamese, foreign organizations and individuals;
• Domestic organizations and individuals, overseas Vietnamese, foreign organizations and individuals have the right to provide real estate brokerage services, real estate trading exchanges, real estate consultancy and real estate management in accordance with this Law.

Thus, in the field of real estate service business, foreign organizations and individuals have equal business rights with domestic organizations and individuals. If compared with the scope of real estate business, it shows that foreign organizations and individuals are more restricted in business rights than domestic organizations and individuals. For example, in case a foreign organization or individual builds houses on leased land, they are only entitled to lease houses (Clause 1, Article 161 of the current Law on Housing).

Market access conditions for foreign investors in Vietnam

According to the schedule of commitments when Vietnam joined the WTO, FTAs: real estate business services with CPC code 821, do not stipulate business conditions in the schedule of commitments.

As stipulated in Annex NCM I-VN-34  to the Trans-Pacific Partnership Agreement on the construction, lease, purchase  , lease, purchase, and transfer of real estate, the Law on Real Estate Business provides more limited rights for foreign entities than for Vietnamese entities.  Foreign-invested enterprises can only:

• Construction of residential real estate for sale, lease, or lease purchase on land allocated by the State;
• Construction of residential real estate for lease on land leased by the State;
• Buying, renting, buying or leasing commercial residential real estate in residential construction investment projects
• Renting residential property for sublease
• Receive transfer of residential real estate projects, in part or in whole for the construction of residential buildings for sale or lease.
• Construction of commercial buildings for sale, lease or lease purchase on leased land of the State;
• Build commercial buildings on land leased in industrial parks, industrial clusters, or economic zones for business purposes in accordance with land use purposes.
• Buy or lease commercial real estate to use in accordance with their function.
• Leasing commercial real estate for use or subleasing;
• Receive transfers of commercial real estate projects, in whole or in part, for the construction of commercial buildings for sale or lease.

Requirements to establish a real estate company in Vietnam

According to specialized laws in the Law on Real Estate Business 2014, foreign investors are allowed to establish companies in real estate business and real estate services.

Section B of Appendix I attached to Decree 31/2021/ND-CP stipulates that real estate business is one of the industries and trades with conditional market access for foreign investors. Accordingly, foreign investors who want to do business and establish a real estate company in Vietnam need to meet the requirements specified in Clause 3, Article 9 of the Law on Investment 2020, specifically:

• Conditions on the percentage of ownership of charter capital of foreign investors in economic organizations;
• Conditions on the form of investment;
• Conditions on the scope of investment activities;
• Conditions on the capacity of investors as well as partners participating in investment activities;
• In addition, it is necessary to meet other conditions as prescribed in Laws, Resolutions of the National Assembly, Ordinances, Resolutions of the Standing Committee of the National Assembly …

In addition, in addition to market access conditions as prescribed in the List, foreign investors when investing in Vietnam must meet the following conditions (if any) according to Clause 3 Article 15 of Decree 31/2021/ND-CP detailing and guiding the implementation of a number of articles of the investment law:

• Use of land and labor; natural and mineral resources;
• Producing and supplying public goods and services or state-monopolized goods and services;
• Owning and trading houses and real estate;
• Application of forms of State support and subsidies to a number of branches and domains or regional or territorial development;
• Participate in programs and plans on equitization of state-owned enterprises.

Subject conditions

Organizations and individuals doing real estate business must establish enterprises or cooperatives (hereinafter collectively referred to as enterprises) and must have at least 02 people with real estate brokerage practice certificates. Individuals have the right to provide independent real estate brokerage services but must have a real estate brokerage practice certificate and register to pay tax in accordance with the tax law. Organizations or individuals providing real estate services may not simultaneously act as both a broker and a party to perform a contract in a real estate business transaction.

Capital conditions

Previously, when establishing a real estate company, organizations and individuals had to have a legal capital of not less than VND 20 billion, except for cases where organizations, households and individuals copy, transfer, lease or lease to buy small-scale and irregular real estate are not required to establish enterprises but must declare and pay tax in accordance with law.

Currently, Point a, Clause 2, Article 75 of the 2020 Law on Investment stipulates: Organizations and individuals doing real estate business must establish enterprises or cooperatives (hereinafter collectively referred to as enterprises), except for the case specified in Clause 2 of this Article.

Accordingly, legal capital is no longer a condition that real estate business entities must meet. In summary, according to current regulations, the entity of real estate business must establish an enterprise or cooperative.

In addition, Decree 02/2022/ND-CP effective from March 1, 2022 has removed the condition on legal capital of enterprises, the abolition of this condition is to comply with the provisions of the Law on Real Estate Business amended in the Law on Investment 2020).

Conditions on real estate trading exchange

If the business service of the enterprise is a real estate transaction exchange service, the law requires at least 02 people to have a real estate brokerage practice certificate.

The manager operating the real estate transaction exchange must have a real estate brokerage practice certificate; The real estate transaction exchange must have stable operation regulations, name and transaction address for more than 12 months. If there are changes, they must notify the Department of Construction and the customer; The real estate trading exchange must have a minimum area of 50m2 and technical equipment to meet operational requirements.

Conditions on the type of real estate to be put into business

The provisions of Article 9 of the Law on Real Estate Business 2014 on the conditions for real estate to be put into business, accordingly, houses and construction works to be put into business must meet the following conditions:

• There is registration of ownership of houses and construction works attached to land in certificates of land use rights. For houses and construction works available in real estate investment and business projects, only a certificate of land use right is required in accordance with the law on land;
• There are no disputes over land use rights, house ownership, construction works attached to land;
• Not to be discharged to ensure execution.

Along with that, Article 9 of this Law also stipulates that land types permitted for trading in land use rights must fully meet the following conditions:

• Having a certificate of land use right in accordance with the law on land;
• There are no disputes over land use rights;
• Land use rights are not disclosed to ensure the execution of judgments;
• During the term of land use.

The above is necessary information related to the regulations on conditions for establishing a real estate company in Vietnam. If there are any difficulties in the process of establishing a real estate company, please contact Viet An Law Firm for detailed advice!