Value added tax (VAT) in transactions involving the transfer of factory building in dustrial zones

The legal regulations relating to Value Added Tax (VAT) have undergone many important changes since 1 July 2025, when the 2024 Law on Value Added Tax officially took effect. Alongside the Law, the Government and the Ministry of Finance also issued important implementing instruments, including Decree No. 181/2025/ND-CP and Circular No. 69/2025/TT-BTC. These two instruments took effect at the same time as the 2024 VAT Law and play a key role in clarifying how the new regulations are applied in practice.

In the context of Viet Nam’s ongoing efforts to improve its legal system in order to keep pace with socio-economic development and meet long-term growth objectives, the amendment and issuance of legal documents at high frequency and with broad scope is inevitable. However, this reality also creates many challenges for parties involved in transactions, especially in accurately identifying the applicable regulations and properly understanding and applying the new rules.

For transactions involving the transfer of land use rights and factory buildings in industrial zones, this difficulty becomes even more apparent. From our practical experience in advising investors, particularly foreign investors involved in transactions to acquire factory buildings in industrial zones, we have observed that the parties still face considerable uncertainty in applying the law, especially when determining the VAT obligation arising from real estate transfer transactions.

Based on this practical context, this article focuses on analyzing the current legal regulations and sharing some important notes regarding how VAT is determined in transactions involving the transfer of factory buildings in industrial zones, with the aim of providing readers with an additional reference point during transaction implementation.

1. Basis for VAT calculation under the 2024 VAT Law

Under Article 6 of the 2024 VAT Law, the basis for calculating VAT consists of two fundamental elements:

Taxable price;
Tax rate.

At the same time, Article 5 of the 2024 VAT Law continues to affirm that “land use rights” are not subject to VAT. This is a consistent principle and the starting point for correctly determining the scope of VAT applicability in real estate transactions.

However, in practice, understanding and applying this principle in real estate transfer transactions-especially factory buildings in industrial zones-is far from simple. In many cases, the parties do not clearly distinguish between items not subject to VAT and the method of determining the taxable price, leading to inaccurate tax liability assessments and potential risks during tax inspections or audits.

2. VAT taxable price for real estate business activities

Under Article 7 of the 2024 VAT Law, the VAT taxable price is determined according to each specific type of goods or services. For real estate business activities in particular, Point (h), Clause 1, Article 7 provides clearly:

“h) For real estate business activities, the taxable price is the selling price of the real estate excluding value added tax, less land use fees or land lease payments remitted to the state budget (deductible land value). The Government shall prescribe the determination of deductible land value under this point in accordance with land law;”

Thus, deductible land value is the decisive factor in determining the amount of VAT payable for a real estate transfer transaction.

In addition, Decree No. 181/2025/ND-CP specifies the method for determining the VAT taxable price for real estate business activities in Article 8, depending on each specific case. This regulation is particularly important for transactions involving the transfer of factory buildings in industrial zones.

Specifically, Article 8 of Decree 181 provides:

“Article 8. Taxable price for real estate business activities

For real estate business activities, the taxable price is the selling price of the real estate excluding value added tax, less land use fees or land lease payments remitted to the state budget (deductible land value). The deductible land value for VAT purposes is determined in certain cases as follows:

In cases where land is allocated by the State, land is leased with a one-time payment for the entire lease term (whether through auction or not), land use purpose is changed, land use rights are recognized, land allocation decisions are adjusted, land lease decisions are adjusted, detailed planning is adjusted, land use term is extended, land use duration is adjusted, or the method is changed from annual land lease payment to one-time payment for the entire lease term, the deductible land value for VAT calculation shall be the land use fee or one-time land lease payment for the entire lease term, calculated in accordance with the Government’s Decree on land use fees and land lease payments (excluding compensation, support, and site clearance costs for land that the land user has advanced payment for, if any).
Where a business establishment acquires real estate in the form of land use rights from organizations or individuals, the deductible land value for VAT purposes upon transfer shall be the land use fee or land lease payment remitted to the state budget for the transferred land parcel, excluding the value of infrastructure. The business establishment may deduct input VAT of the infrastructure (if any).
Where a business establishment receives capital contribution in the form of land use rights from organizations or individuals, the deductible land value for VAT purposes shall be the land use fee or land lease payment remitted to the state budget.
Where a business establishment performs a BT contract paid with land funds, the deductible land value for VAT purposes shall be the value of the land fund used for paymentin accordance with the law on investment under the public-private partnership model.
Where a business establishment constructs and commercializes infrastructure, builds houses for sale, transfer, or lease, the VAT taxable price shall be the amount received according to the project implementation schedule or payment schedule stated in the contract, less the deductible land value specified in Clauses 1, 2, 3, and 4 of this Article corresponding to the percentage of the amount received over the total contract value.
Where a business establishment constructs multi-storey, multi-unit housing or apartment buildings for sale, the deductible land value calculated for 01 m² of housing for sale shall be determined by dividing the deductible land value specified in Clauses 1, 2, 3, and 4 of this Article by the number of square meters of floor area, excluding common areas such as corridors, staircases, basements, and underground construction works.
Where a business establishment acquires real estate, or receives capital contribution in the form of land use rights from organizations or individuals as specified in Clauses 2 and 3 of this Article, and it is not possible to determine the land use fee or land lease payment remitted to the state budget, the VAT taxable price shall be the transfer price excluding VAT.”

A notable point in this regulation is the method of determining deductible land value and, accordingly, the documents that the parties involved in the transaction must provide in order for deductible land value to be identified for VAT purposes. Accordingly, if the Seller in particular, or the parties to the transaction in general, cannot provide or are unwilling to provide dossiers and documents relating to the determination of the land use fee or land lease payment remitted to the state budget, the tax authority may fully rely on Article 8 of Decree 181 to determine the taxable price for VAT purposes as the transfer price of the entire real estate, without deducting any land value.

3. VAT rate applicable to transactions involving the transfer of factory buildings in industrial zones

Regarding the tax rate, Clause 3, Article 9 of the 2024 VAT Law No. 48/2024/QH15 provides:

“3. A tax rate of 10% applies to goods and services not specified in Clauses 1 and 2 of this Article, including services provided by foreign suppliers without a permanent establishment in Viet Nam to organizations and individuals in Viet Nam via e-commerce channels and digital platforms.”

In addition, real estate does not belong to the group of goods and services eligible for a 2% VAT reduction under Resolution No. 204/2025/QH15. Therefore, the VAT rate currently applicable to transactions involving the transfer of factory buildings in industrial zones is 10%.

4. Incorrect interpretations to avoid whendeterminingVAT in this transaction

In practice, we have observed some incorrect interpretations when determining VAT for real estate transfer transactions. The most common view is that land use rights account for the largest portion of the transfer value, and therefore the market value of the land use rights should be determined to exclude that entire portion from the VAT taxable price.

This interpretation is not consistent with current legal regulations. Under the VAT Law and Decree 181, deductible land value is not the market price, but rather the land use fee or land lease payment that has been remitted to the state budget, and it may only be deducted when all legal conditions are satisfied. Applying this interpretation incorrectly may result in tax arrears and penalties when the tax authority conducts an inspection.

The new VAT regulations applicable to real estate transfer activities, especially factory buildings in industrial zones, represent fundamental changes compared with the previous rules. Enterprises and investors need to approach VAT not only from an accounting perspective, but also as a legal and financial risk that must be assessed and addressed from the transaction structuring stage.

Understanding and properly applying the regulations on taxable price, deductible land value, and tax rate will help the parties minimize legal risks, while also protecting the safety and efficiency of the transaction.

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Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to M&A Consulting and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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