On 28 May 2022, the Government issued Decree 35 on management of industrial zones (IZ) and economic zones (Decree 35/2022) to replace Decree 82/2018 on the same matters (Decree 82/2018). Decree 35/2022 will be in effect from 15 July 2022.
Decree 35 introduces several significant changes as compared with Decree 82/2018 which are expected to create a more simplified legal framework for investors making investment in IZ projects.
1. New models of IZ
Decree 35/2022 introduces two new models of IZ, including:
(a) specialized IZ (khu công nghiệp chuyên ngành) which is defined as an IZ specializing in the production and provision of services for the manufacture of products of a particular business line. A specialized IZ must have at least 60% of its industrial land used to attract investment projects on such particular business line; and
(b) high-tech IZ (khu công nghiệp công nghệ cao) which means an IZ established to attract (a) high-tech investment project, information technology investment projects under list of business sectors eligible for special investment incentives specified in the investment law; (b) project requiring technology transfer under list of technology encouraged for transfer specified in the law on technology transfer; (c) hi-tech nursery, hi-tech enterprise nursery, or technology nursery in accordance with law on high-technology and law on science and technology; (d) start-up investment projects, innovation projects, projects on research and development, and projects on education and training. A high-tech IZ must have at least 30% of its industrial land used to attract the foregoing investment project.
2. Change to legal framework governing IZ development planning
Under Decree 82/2018, there is a separate planning framework for national IZ development. In this regard, an IZ must be approved by the Prime Minister to be incorporated into the national IZ development master plan. Decree 35/2022 now no longer maintains such separate framework. Instead, an IZ now must be integrated into an IZ system development plan (phương án phát triển hệ thống khu công nghiệp), which, in turn, is a part of provincial master plan issued in accordance with the law on planning. This suggests that the IZ development planning now will be subject to general regulations on planning.
Under the construction law, approval of issuance and amendment of provincial master plan is under authority of the Prime Minister so, technically, the planning of IZ development under Decree 35/2022 will still be subject to the Prime Minister’s approval.
3. Classification of construction master plans applicable to IZs
Decree 35/2022 appears to replicate the regulations of the construction law to provide the types of master plan applicable to an IZ. In particular, it classifies IZ construction master plans into the following types:
(a) IZ general construction master plan (quy hoạch chung xây dựng khu công nghiệp) (general master plan);
(b) IZ subzone construction master plan (quy hoạch phân khu xây dựng khu công nghiệp) (subzone master plan); and
(c) IZ detailed construction master plan (quy hoạch chi tiết xây dựng khu công nghiệp) (if necessary) (detailed master plan).
In terms of detailed master plan, Decree 35/2022 seems to suggest that the establishment of a detailed master plan is optional for the investor being selected as developer of an IZ (IZ Developer). In such case, then it is not clear whether the investor who use the land subleased from the IZ Developer (End-User) would be required to establish an own detailed construction master plan for its leased land area in the IZ. This issue remains unclear under current construction regulations. In practice, we are aware some cases where the IZ Developers do not have a detailed master plan established and approved for the entire IZ, the End-User will establish a detailed construction master plan for its leased land and obtain approval for the same from the government.
4. New legal ground for IZ Developer to establish subzone construction master plan
Under Decree 35/2022, the general master plan and subzone master plan approved by the provincial People’s Committee (Provincial PC) will serve as basis for issuance of the in-principle approval for IZ investment project.
Decree 35/2022 allows the Provincial PC to delegate the task of establishing subzone master plan to the IZ Developer when necessary. It appears that this arrangement should only be workable for IZs having general master plan (i.e., IZs having scale of 500 ha or more). This is because
(a) under the investment law, the investor may only be selected as IZ Developer upon the in-principle approval for IZ project has been granted by the Prime Minister; and
(b) as discussed above, the approved general master plan is the basis for issuance of the in-principle approval for IZ project.
5. Simplifying planning procedures
Decree 35/2022 provides some exceptional circumstances where the tasks of construction planning (nhiệm vụ quy hoạch) is exempted. In particular,
(a) Task for subzone master plan is exempted when establishing subzone master plan for (a) an IZ having approved general master plan or (b) an economic zone having approved general master plan;
(b) Task for detailed master plan is exempted when establishing detailed master plan for an IZ having approved subzone master plan; and
(c) Task for subzone master plan is exempted when establishing subzone master plan for IZs or industrial – urban – service zone located in area having approved urban or economic zone general master plan.
6. New conditions for investment in IZ infrastructure project
In addition to the conditions similar to those under Decree 82/2018, Decree 35/2022 provides for several new conditions for investment in IZ infrastructure. In particular,
(a) To be developed in specific phases if so required under laws;
(b) To reserve at least 5 ha of industrial land or 3% of the total industrial land area of the IZ for lease and sublease to small and medium enterprises, supporting industry enterprises, innovative enterprises, enterprises subject to investment incentives, priority and support in location for production and business;
(c) To have the ability to fulfil the conditions on conversion of land use purpose;
(d) To have planning for construction of residential housing area and service works, public utilities for employees working in the IZ; and
(e) With respect to the expansion of an existing IZ project developed by the same investor, the following conditions must be satisfied:
(i) the expanded IZ must be able to connect and use the infrastructure of the established IZ; and
(ii) residential housing area and service works, public utilities for employees working in the established IZ have been built and put into use.
7. Conditions applicable to IZ Developer
Decree 35/2022 lists out some general conditions applicable to IZ Developer:
(a) Conditions on real estate business under the laws on real estate; and
(b) Conditions in order to lease, sublease land, and convert land use purpose to implement the IZ project under the land law and other relevant laws. This condition also applies to investor being an economic organization established by foreign investors.
8. Removal of IZ establishment procedure
Decree 35/2022 now no longer requires the IZ Developer to obtain an IZ establishment decision from the Provincial PC as previously stipulated under Decree 82/2018. Instead, an IZ will be deemed as having been established since the date the competent authorities issue:
(a) an in-principle approval of IZ project which requires public investment capital in accordance with law on public investment; or
(b) in-principle approval of both IZ project and IZ investor, approval of IZ investor, or investment registration certificate.
9. Temporary residence and stay in the IZ
Under Decree 82/2018, only foreign managers, managing directors and experts are allowed to temporarily reside in the IZ to serve the production and business activities of their enterprises. Decree 35/2022 now expands the subjects to cover all experts and employees (regardless if they are foreigners or locals). In force majeure events, experts and employees may even stay within the enterprise area.
Accordingly, Decree 35/2022 clearly allows the construction of accommodation facilities within the service land area of the IZ.
10. New legal ground for collection of “land rental” for entire lease term of land subleased on an annual basis
For the first time, Decree 35/2022 introduces a new legal definition of “infrastructure use fee” (phí sử dụng hạ tầng). In particular, infrastructure use fee is defined as the service fee for the paid use of technical infrastructure works, service works, including: road system, electricity supply, water supply, drainage, communication, wastewater treatment systems and other service works and public utilities.
Currently, an IZ Developer normally collects the premium which is charged over land rental applicable for entire lease term of the land via a lump-sum payment made by the End-User. The IZ Developer afterward will pass through the annual land rental payable to the State to the End-User. Although this practice is quite common, the legal ground for such arrangement is not certain. The new concept of infrastructure use fee provides a legal basis for the IZ Developer to structure such premium in form of fee for use of infrastructures like road system, green area.
11. New regulations on management of export processing enterprises
Under Decree 82/2018, any enterprises operating in export processing zones (EPZs) are considered as export processing enterprises (EPEs), regardless of whether they have export processing activities or not. Now, Decree 35/2022, only enterprise spectializing on process and export will be regarded as EPE.
Decree 35/2022 also provides for some flexibilities for EPEs. For instance:
(a) export processing enterprises may carry out other business activities apart from export processing activities. Previously, Decree 82/2018 which restricts EPEs to carry out goods trading activities and other activities directly relating to goods trading only; and
(b) subject to certain conditions, EPEs can lease warehouses outside EPZs, IZ and economic zone to store goods, if they do not have sufficient warehouse space for their goods within such zones.
EPZs now is not limited to include EPEs only. Decree 35/2022 expressly allows enterprises specializing in manufacturing and providing services for industrial production to be established in the EPZs.
This post is written by Nguyen Hoang Duong, Nguyen Thuc Anh, and Hoang Thi Thanh Thuy
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