Paying land rent upfront for the entire lease term versus paying annually differs not only in cash flow — it leads to entirely different corporate income tax (CIT) treatment. The key point many businesses miss: lump-sum land rent cannot be deducted in full in the year of payment; it must be allocated gradually over the lease years. This article analyzes the tax angle in detail — deductible expenses, allocation, VAT — for the two land-rent payment forms, helping businesses calculate correctly and avoid disallowed expenses at tax finalization.
1. Two land-rent payment forms under the Land Law 2024
Article 120 of the Land Law No. 31/2024/QH15 (effective 1 August 2024) provides two forms of land-rent payment:
- One-time payment for the entire lease term;
- Annual payment (year by year during the lease term).
For annual payment, the land rent is stabilized in 5-year cycles (Article 153 of the Land Law 31/2024 and Article 32 of Decree No. 103/2024/ND-CP); adjustments at cycle changes are capped at the total consumer price index (CPI) of the 5 years in the stabilization cycle. This mechanism protects lessees from sudden price fluctuations.
2. The CIT angle: lump-sum payment must be allocated; annual payment is deducted as actually paid
This is the most important part of this article. Land rent is a deductible expense in determining taxable CIT income (Item i3, Point i, Clause 2, Article 9 of Decree No. 320/2025/ND-CP), but the two forms are deducted completely differently:
| Criterion | One-time payment | Annual payment |
|---|---|---|
| Deduction method | Mandatory gradual allocation over the lease years; no lump-sum deduction of the full amount in the year of payment | Full actual amount paid each period (each year) is deductible |
| Basis | Decree 320/2025/ND-CP — prepaid-expense allocation principle; amounts exceeding the allocation are not deductible | Actual-incurred-expense principle per period |
| Tax cash-flow effect | Tax benefit spread over many years, no immediate reduction in year one | Tax reduction immediately each year matching amounts paid |
Illustrative example: a business leases land for 20 years and pays VND 20 billion upfront. This amount cannot be deducted as VND 20 billion in the first year; it must be allocated — VND 1 billion deductible each year (20 billion ÷ 20 years). Any amount booked above the allocation will be disallowed by the tax authority at finalization.
Note on legal basis: the allocation principle for prepaid land rent currently follows Decree No. 320/2025/ND-CP (the latest instrument). Do not cite Circular 78/2014/TT-BTC or Circular 45/2013/TT-BTC as the current basis for this principle — those instruments have been replaced.
3. The trade-off: land-use rights attached to each form
The tax difference comes with a difference in the lessee’s rights:
- One-time payment: the land user enjoys full rights of transfer, sublease, mortgage and capital contribution with land-use rights (Clause 1, Article 33 of the Land Law 31/2024). The land-use right becomes nearly a tradable asset — suitable for businesses needing to mortgage for bank loans or planning transfers;
- Annual payment: these rights are more restricted, but the business gains cash-flow flexibility — no large upfront outlay, with tax deductions realized each year.
The choice is therefore a combined calculation: cash flow + tax benefit over time + need to transact land-use rights.
4. VAT: land rent paid to the state budget is excluded from the VAT taxable price
A lesser-known tax point: when determining the VAT taxable price for subleasing land or transfers attached to land, land rent paid to the state budget is excluded from the VAT taxable price (Point h, Clause 1, Article 7 of the Law on VAT No. 48/2024/QH15). This prevents VAT from being charged twice on land rent already paid to the State.
5. Practical recommendations
- Calculate the present value of tax cash flows: one-time payment “locks in” the rent and grants full transaction rights, but the tax benefit is spread out — compare present values of tax savings between the two options before deciding;
- Book correctly under the allocation principle: for one-time payment, prepare an allocation schedule over the exact lease years from the start; amounts above the allocation will be disallowed at CIT finalization;
- Consider capital needs: if the business plans to mortgage land-use rights for bank borrowing, one-time payment is nearly mandatory;
- Monitor the 5-year price stabilization cycle (for annual payment): proactively estimate the maximum adjustment under the 5-year total CPI for financial planning;
- Do not rely on expired instruments when arguing deductible expenses: the current basis is Decree 320/2025/ND-CP, not the old circulars.
Frequently asked questions
Can lump-sum land rent be fully deducted in the year of payment?
No. Lump-sum land rent must be allocated gradually over the lease years (Decree 320/2025/ND-CP); amounts exceeding the allocation are not deductible for CIT purposes.
What is the tax advantage of annual land-rent payment?
The full amount actually paid each year is deductible as a CIT expense in that year, with cash-flow flexibility.
Is annually-paid land rent price-stable?
Yes. Prices are stabilized in 5-year cycles (Article 153 of the Land Law 31/2024, Article 32 of Decree 103/2024/ND-CP); adjustments at new cycles may not exceed the total CPI of the 5 years.
What extra rights does one-time payment give over annual payment?
A one-time payer may transfer, sublease, mortgage and contribute capital with land-use rights (Clause 1, Article 33 of the Land Law 31/2024); annual payers face restrictions on these rights.
Legal sources
- Land Law 31/2024/QH15 — Article 120 (land-rent payment forms), Article 153 (5-year price stabilization), Article 33 (land-user rights); effective 1 August 2024; in force.
- Decree 103/2024/ND-CP — Article 32 (price stabilization cycles); in force.
- Decree 320/2025/ND-CP — Article 9 (deductible expenses, including land rent; allocation principle); in force.
- Law on VAT 48/2024/QH15 — Point h, Clause 1, Article 7 (state-budget land rent excluded from VAT taxable price); in force.
Related articles
- Leasing Land in Industrial Parks: Procedures, Rental and Negotiation
- Building a Factory on Leased Land: Permits and Completion
- Case Study: Chinese Investor Leases 20ha in an Industrial Park
Contact us
Is your business weighing land-lease options and needs to calculate tax impacts, deductible expenses, or review land-use rights? Contact FLAT Law Firm for detailed advice.
Disclaimer: This article provides general legal information for reference only and does not substitute legal advice for your specific case. Laws may be amended or supplemented; please check the instruments in force at the time of application or consult a lawyer.
Transparency note: This content was quality-checked (QA) by FLAT’s AI Legal Council under internal procedures and reviewed before publication; it has not been reviewed by a human lawyer.
