Advance payment for site clearance compensation, is it possible to deduct land rent?

Mr. H always wondered how the advance compensation and site clearance money would be deducted from the project land rent.

As the investor in the construction of technical infrastructure for the Industrial Cluster Project in Hoai Duc District ( Hanoi ), Company X is exempted from land rent. However, Mr. H - the company representative - said that the unit voluntarily paid in advance for compensation and site clearance (GPMB).

Mr. H shared that the cluster was established in 2020, the investor strictly complied with and fully implemented investment and construction procedures according to regulations: Voluntarily paid in advance for compensation for site clearance according to the plan approved by the competent state agency to implement the project.

According to Mr. H, up to now, the project has completed the work of establishing and approving the investment project according to regulations; land allocation and leasing for project implementation; application for construction permits, construction implementation... Currently, the project is about to be completed and put into use.

According to the Land Lease Regulations and Land Lease Contract: The project has an area of about 8 hectares, of which: the common infrastructure area is 3 hectares; the business land area is 5 hectares; the land use term is until 2070.

Land use form: The State leases land and pays annual land rent. Land lease term: From 2022 to 2070.

"The investor has been issued a Decision by the tax authority to exempt land rent for the basic construction period for an area of 8 hectares - until 3.2023 and exempt land rent according to the law on investment (11 years) for the business land area of 5 hectares - until 3.2034, at the same time, a decision to exempt land rent for the construction of infrastructure for common use in the industrial park (for the entire land lease term) for the land area of 3 hectares - until 2070.

Thus, after being exempted from land rent according to regulations, the investor only has to pay land rent for the business land area (with an area of 5 hectares) for the remaining period from 2034 to 2070 (36 years) with an amount of about 104 billion VND (converted according to the unit price at the time of land allocation)" - Mr. H said.

However, Mr. H argued that according to regulations, the investor is allowed to deduct the compensation and site clearance amount advanced according to the plan approved by the competent state agency from the land rent payable.

"We have received a document from the Hanoi Department of Finance stating that the compensation for land acquisition and clearance is eligible for deduction from the project's land rent. Therefore, in light of the above issue, I wonder how the deduction of the compensation and land acquisition amount advanced in my case will be specifically calculated?"

Regarding this issue, the Hanoi Tax Department said: In the case of Mr. H's company, the State leased 8 hectares of land to build technical infrastructure for the Industrial Cluster project; form of land use: The State leases land and pays annual land rent; land lease term: from 2022 to 2070.

Accordingly, the company voluntarily advances compensation and site clearance money according to the plan approved by the competent state agency and the Department of Finance has issued a written confirmation that the compensation and site clearance support costs are eligible for deduction from the project's land rent.

The Company has been exempted from land rent for the 5-hectare business land area until March 2034 (including exemption from land rent during the basic construction period and exemption from land rent according to the provisions of the law on investment) and exempted from land rent for the 3-hectare land area for construction of common infrastructure in the industrial park for the entire land lease period until 2070.

Based on the above contents, the Hanoi Tax Department said that in case the company voluntarily advances compensation and site clearance money according to the plan approved by the competent state agency (the amount of which has been confirmed by the Department of Finance to be eligible for deduction from the land rent), after deducting the exempted land rent amount according to the decision of the tax authority, the company will continue to deduct the compensation and site clearance money from the land rent payable (converted into the number of years and months of fulfilling the financial obligation to pay land rent). The remaining compensation and site clearance money that has not been deducted from the land rent payable (if any) will be included in the project's investment capital.

The Tax Department requests Mr. H to base on the provisions of Decree No. 46/2014/ND-CP dated May 15, 2014 of the Government , compare with specific records to review and implement according to regulations. In case of any problems, please contact the Tax Department where the land is located for instructions and answers according to regulations.

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