Reference situation:

Long Phung company would like to implement an investment project in the real estate sector in Bac Ninh province with the estimated total capital of VND 800 billion. The company knows that it must provide an escrow deposit to a competent authority. Therefore, the company would like to consult lawyers about the rate of escrow deposit, relevant legal procedures and the cases where the escrow deposit is returned in order to consider its financial situation and project progress.

Our legal advice:

1. Providing escrow deposit

Under Article 42 of Law on Investment 2014 and clause 1 Article 27 of Decree No. 118/2015/ND-CP, the company must provide with escrow deposit to implement its potential investment project, except for the following cases where the company:

– Wins an auction of a land use right in order to implement an investment project for which the State allocates land with collection of land use fees or leases land with collection of one-off (lump sum) payment of rent for the whole term of the lease;

– Wins tendering for implementation of an investment project using land

– Receives assignment of an investment project for which an escrow deposit has already been provided or for which the capital contribution or raising of capital has been completed in accordance with the schedule

– Receives assignment of the land use right and assets attached to the land from another

2. Rate of escrow deposit

Except for the cases, as shown above, the company must pay escrow deposit equivalent to 2% of the total investment capital which does not include land use fees or land rent and cost of construction of public works:

The company can reduce or postpone its escrow deposit payment as follows:

– A 25% reduction for investment projects in preferential investment industries and trades; investment projects in areas with difficult social-economic conditions; and projects to be implemented in industrial zones or export processing zones, including investment projects for construction and commercial operation of infrastructure in industrial zones and export processing zones;

– A 50% reduction for investment projects in preferential investment industries and trades; investment projects in areas with difficult social-economic conditions; and projects to be implemented in industrial zones or export processing zones, including investment projects for construction and commercial operation of infrastructure in industrial zones and export processing zones;

– Postponement of escrow deposit corresponding to the amount of the advance payment made for site clearance and resettlement.

3. Time for providing escrow deposit

Under Article 32 of Law on Investment 2014, if the State leases or allocates land to the company to implement the investment project without auction, tendering, assignment, or change of land use purpose, the company must obtain the Decision on investment policy by Bac Ninh province People’s Committee.

Therefore, the escrow deposit will be stipulated in an agreement between the company and Bac Ninh Department of Planning and Investment after the date of the decision on investment policy but before the date of land allocation, land lease and approval for land use purpose change.

4. Time for refunding escrow deposit

– 50% of the escrow deposit is refunded at the time when the company completes the procedures for land allocation, land lease or permission to convert the land use purpose  and is issued with licenses or other approvals (if any) prescribed by the law in order to carry out construction activities no later than the schedule prescribed in the investment registration certificate or the written investment policy decision

– The remaining balance of the escrow deposit and interest (if any) arising from the escrow deposit is refunded at the time when the company completes check and acceptance of the construction works and installation of machinery and equipment for the investment project to operate no later than the schedule prescribed in the IRC or the written investment policy decision

– Where the investment capital of the project is reduced, the investor is entitled to a refund of an amount of escrow deposit corresponding to the reduced investment capital as prescribed in the (amended) Investment Registration Certificate or the written decision amending the investment policy;

– An investor which is unable to continue the implementation of a project due to force majeure or fault of the competent State agency during resolution of administrative procedures shall be considered for refund of the escrow deposit pursuant to an agreement reached with the Bac Ninh Department of Planning and Investment

This is the preliminary legal advice of Bizlawyer & Partners. Please do not hesitate to contact us through the following address should you have the demand to use our service. Bizlawyer & Partners looks forward to our cooperation. 

Bizlawyer & Partners Law Firm

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