Escrow for assurance of project execution in Vietnam

In accordance with Article 330 the Civil Code 2015, escrow means “an act whereby an obligor places a sum of money, precious metals, gems or valuable papers into an escrow account at a credit institution to assure the performance of an obligation”. Escrow play its role in assuring that the obligor shall properly perform an obligation; otherwise, the oblige is entitled to require the credit institution which holds the escrow account of the obligor to make payment, compensate for damage (if any) as the obligor fails to perform or improperly perform an obligation.

Escrow appears in several legal fields, one of which is investment. According to Article 42 the Law on Investment 2014, if investors execute an investment project using land allocated or leased out or permitted to change land purpose by the State, investors shall deposit into an escrow account for assurance of project execution. That means not all projects need escrow expect projects related to real-estate, infrastructure construction… However, not all projects using land allocated or leased out or permitted to change land purpose by the State need escrow.

Cases in which no escrow is required:

• Any investor who wins the land use right to execute the project and receives charged land allocated by the State or makes payment for the entire lease term for the land leased out by the State;
• Any investor who is the winner in a bidding for project execution as stipulated in the laws on bidding;
• Any investor who receives the land allocated or leased out by the State on the basis of transferring an investment project which has paid the escrow or has completed contributing capital or raising capital according to the schedule specified in the Investment Registration Certificate or decision on investment policies;
• Any investor who receives the land allocated or leased by the State to execute the project on the basis of land use right transfer, property on land transfer of other land users;
• Any investor who is a revenue-earning public service agency, a high-tech zone development company established under decisions of competent agencies to execute the investment project and receives land allocated or leased out by the State for the purpose of infrastructure development of industrial zones, export-processing zones, high-tech zones, functional areas in economics zones.

Escrow agreement shall be in written documents between investors and the Department of Planning and Investment.

Time:

• If the project is subjected to decisions on investment policies: After the project is granted decisions on investment policies but before the time of land allocation, land lease or changing purpose.
• If the project is not subjected to decisions on investment policies: At the time of land allocation, land lease or changing purpose.

Level of escrow: is calculated based on the investment capital of the project specified in the decisions on investment policies or the Investment Registration Certificate following the progressive principles:

• For the capital amount up to 300 billion VND: 3%;
• For the capital amount exceeding 300 billion VND to 1000 billion VND: 2%;
• For the capital amount exceeding 1000 billion VND: 1%.

Notices:

• The capital amount of the project used for escrow calculation excludes payment for land use and land lease and the cost of public construction belong to the investment project;
• If the investment project uses land allocated or leased by the State in separated stages, the level of escrow shall be calculated separately based on investment capital in each stage;
• The investor pay in advanced the payment for land clearance and relocation may delay the escrow obligation equal to the sum of money paid for land clearance and relocation;
• Escrow account of the Department of Planning and Investment shall be opened at a commercial bank in Vietnam which is selected by investors. All investors shall take responsibilities for any incurred charges and fees related to open and maintenance of the escrow account and perform other transactions related to the escrow account.

Cases of escrow reduction:

Escrow return:

• Return 50% of the escrow when investor completes the procedures for land allocation, land lease, changing land purpose and is granted consents, licenses for construction activities (if any) no later than the schedule specified in the Investment Registration Certificate or decisions on investment policies;
• Return the rest of the escrow and interest arising from the escrow (if any) at the time the investor completes the construction acceptance and installation of machines and devices in order to execute the project no later than the schedule specified in the Investment Registration Certificate or decisions on investment policies;
• In case of investment capital deduction, investors shall get the escrow returned equal to the decreased capital amount specified in the adjusted Investment Registration Certificate or decisions on investment policies;
• In case the project cannot be executed because of a force majeure event or mistake of competent agencies during the administrative performance, investors may get their escrow returned under an agreement with the Department of Planning and Investment.

Investment and enterprises consulting services at Viet An Law Firm:

• Consult about regulations and procedures related to investment and enterprises in Vietnam;
• Consult about regulations and procedures for foreign investors in Vietnam;
• Consult about documents, application for Investment Registration Certificate, Business Registration Certificate, sublicenses…;
• Consult about conditional business sectors for foreign investors;
• Consult about legal issues incurred during business and project execution in Vietnam;
• Draft, submit the application and work with state-authorized agencies when Clients grant authorization;
• Consult about tax, intellectual property, contract, social insurance, Vietnamese labor and foreign labor.

If you are looking for advice about investment and enterprises in Vietnam, please feel free to contact Viet An Law Firm for more information!