VIETNAM – STRUCTURING REAL ESTATE INVESTMENT TRUSTS (REITS) IN VIETNAM: LEGAL FRAMEWORK AND BEST PRACTICES
Dr. Oliver Massmann (the architect of market access)
I. Introduction
Vietnam’s real estate sector has experienced sustained growth driven by urbanization, industrial expansion, and increasing foreign direct investment. Parallel to this development, policymakers have introduced a legal framework permitting the establishment of real estate investment funds—functionally equivalent to Real Estate Investment Trusts (REITs).
Despite the existence of this framework, Vietnam’s REIT market remains nascent. The limited number of operational REITs suggests that structural, tax, and regulatory considerations continue to inhibit broader adoption. This article examines the governing legal regime and outlines best practice structuring considerations for establishing a compliant and institutionally viable REIT platform in Vietnam.
II.Legal Basis and Regulatory Architecture
Vietnamese REITs are governed primarily by:
- The Law on Securities No. 54/2019/QH14 (“Law on Securities 2019”)
- Decree No. 155/2020/ND-CP guiding implementation of the Law on Securities
- Circular No. 98/2020/TT-BTC regulating securities investment funds and fund management companies
Under Article 4 and related provisions of the Law on Securities 2019, a real estate investment fund is classified as a public securities investment fund. Accordingly, it must be established as a closed-end fund and managed by a licensed fund management company under the supervision of a custodian bank.
Unlike certain jurisdictions (e.g., Singapore or the United States), Vietnam does not provide full tax transparency at the fund level, which materially affects structuring decisions.
The State Securities Commission (SSC) serves as the primary regulatory authority.
III. Legal Nature of Vietnamese REITs
Under Vietnamese law, a REIT is not a trust in the common law sense. Rather, it is a contractual investment fund formed between investors and a licensed fund management company.
Key structural characteristics include:
- The fund does not possess independent legal personality in the same manner as a corporation.
- Assets are segregated and held by a supervisory (custodian) bank.
- The fund management company acts on behalf of investors.
This civil-law based structure differs fundamentally from Anglo-American trust-based REITs and must be carefully considered when engaging foreign institutional investors accustomed to different governance models.
III.Asset Composition and Investment Restrictions
Pursuant to Decree 155/2020/ND-CP and Circular 98/2020/TT-BTC:
- A substantial proportion of fund assets must be invested in real estate.
- Investment in land banking without development or income generation is restricted.
- Certain leverage and asset concentration limits apply.
From a legal risk perspective, best practice favors acquisition of stabilized, income-generating assets with:
- Clear land use right certificates (LURCs)
- Proper construction permits
- Completed fire safety and environmental compliance documentation
- No pending land disputes
Vietnam’s land regime—where land is owned by the State and land use rights are granted to users—requires heightened diligence compared to freehold jurisdictions.
IV.SPV-Based Holding Structures
Although not strictly mandated, best practice strongly favors holding each property through a single-purpose vehicle (SPV) rather than directly transferring land use rights into the fund.
The SPV model provides:
- Liability isolation
- Simplified asset-level financing
- Reduced transactional tax leakage upon exit
- Greater flexibility in managing foreign ownership ratios
- Clearer compliance with the Law on Land and Law on Real Estate Business
Share transfers in SPVs are generally more efficient than direct asset transfers, particularly given Vietnam’s real estate transfer taxation regime.
- Foreign Ownership Considerations
Vietnam imposes foreign ownership restrictions in certain sectors and in public companies. Additionally:
- Real estate business activities may constitute conditional business lines for foreign investors.
- Industrial park, logistics, and retail assets may trigger sector-specific limitations.
- Public fund certificates may be subject to foreign ownership caps depending on listing structure.
Early regulatory mapping is essential where foreign institutional capital participation is anticipated.
In practice, layered holding structures or joint venture mechanisms are often employed to maintain compliance while preserving commercial flexibility.
VII. Taxation Considerations
Vietnam’s REIT framework does not currently provide a full pass-through regime comparable to mature REIT jurisdictions.
Key tax issues include:
- Corporate Income Tax (CIT) at the SPV level (standard rate: 20%)
- Potential fund-level taxation exposure
- Withholding tax on dividend distributions
- Capital gains taxation upon share disposal
- Double taxation treaty planning for foreign investors
Tax leakage modeling should be conducted at the outset. In many cases, share-based exits at the SPV level are more tax-efficient than direct asset disposals.
VIII. Governance and Institutional Standards
Given the contractual nature of Vietnamese funds, governance architecture is critical to investor confidence.
Institutional best practice includes:
- Independent fund representative board members
- Big-4 audited financial statements
- Compliance with international valuation standards (e.g., IVSC or RICS)
- Conservative leverage policies
- Transparent related-party transaction controls
Institutional investors will scrutinize sponsor conflicts of interest, asset transfer pricing, and distribution policies.
IX.Leverage and Financing
Vietnamese REITs may incur leverage within prescribed limits. Structuring considerations include:
- Placement of debt at SPV rather than fund level
- Alignment of financing covenants with fund distribution obligations
- Compliance with bond issuance regulations where applicable
Vietnam’s banking system can support real estate financing, but prudential compliance remains essential.
X.Offshore Structuring Alternatives
Given tax and regulatory limitations in the domestic REIT regime, many sponsors adopt hybrid structures involving:
- Singapore REIT or Variable Capital Company (VCC) platforms
- Offshore holding entities controlling Vietnamese SPVs
Such structures may provide:
- Greater tax efficiency
- Enhanced investor familiarity
- Stronger governance perception
- Improved cross-border capital mobility
However, these arrangements require careful compliance with Vietnam’s outbound investment and foreign exchange regulations.
XI.Conclusion
Vietnam has established a legally viable REIT framework under the Law on Securities 2019 and implementing regulations. However, successful implementation requires careful navigation of land law, securities regulation, taxation, and foreign ownership constraints.
Best practice structuring emphasizes:
- SPV-based asset holding
- Stabilized income-generating assets
- Conservative leverage
- Robust governance
- Early tax modeling
- Exit optionality
As Vietnam’s capital markets deepen and institutional capital participation increases, properly structured REIT platforms may play a significant role in unlocking value and enhancing transparency in the real estate sector.
For sponsors and investors alike, legal structuring remains the decisive factor between regulatory feasibility and institutional investability.
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Please do not hesitate to contact Dr. Oliver Massmann under [email protected] if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.