Land lease payments made annually are essentially periodic land use fees, not investments that create assets for long-term ownership by the enterprise. Therefore, the enterprise is not allowed to increase the original cost of fixed assets for the portion of land leased with annual payments.
According to Circular 45/2013/TT-BTC and its amendments such as Circular 147/2016/TT-BTC and Circular 28/2017/TT-BTC, land use rights can only be recognized as intangible fixed assets when the enterprise has stable, long-term land use rights or when they are legally transferred.
Distinguish between different forms of land use and how to record them in accounting.
To accurately determine whether land leased with annual payments is recognized as a fixed asset, businesses need to compare this form of land use with other methods of land use as stipulated by current laws. Each form (land allocation, transfer, lump-sum lease, annual lease, etc.) will have completely different accounting methods and expense treatment.
The table below helps businesses clearly distinguish between different forms of land use and their corresponding accounting methods, thereby avoiding errors in recording the original cost of fixed assets and determining deductible expenses when settling taxes.
| Land use patterns | Recorded as intangible assets. | Accounting |
| The State allocates land with payment for land use rights. | Have | Increase the original cost of intangible fixed assets. |
| Receive legal transfer of land use rights. | Have | Increase the original cost of intangible fixed assets. |
| Land lease with annual payments. | Are not | Accounting for expenses during the period |
| Land leased with a one-time payment (not eligible for recognition as a fixed asset) | Are not | Gradually allocate to costs. |
In the case of land leases with annual payments, businesses are only paying rent for each period of use, not establishing long-term ownership. Therefore, this expense does not meet the criteria for recognition as an intangible fixed asset.
If the data is recorded incorrectly, the business may:
- Incorrect depreciation calculation
- Misrepresenting deductible expenses during tax settlement.
- Taxable income was adjusted upwards during an audit.
Accounting for annual land lease payments during the investment phase.
A common mistake made by businesses that are in the process of implementing or constructing a project is to include land lease costs in the following:
- Account 242 – Prepaid Expenses
- Account 154 – Work-in-progress production costs
However, according to point d, clause 2, Article 4 of Circular 45/2013/TT-BTC, annual land lease payments must be immediately recorded as production and business expenses in the period in which they arise.
According to the instructions in Official Letter 85722/CT-TTHT, it is clearly stated:
"In cases where land is leased with annual payments, the amount payable is included in the corresponding business expenses for each year."
This means:
- It is not permitted to capitalize on the value of construction works on the land.
- It cannot be left pending for allocation over multiple years.
- Not to be added to the original cost of factory or office buildings.
Even if the project has not yet generated revenue, the land lease fee must still be recognized as an expense for that period.
Adherence to this principle helps businesses:
- Accurately reflecting the nature of cash flow.
- Avoid making retrospective adjustments during audits.
- Minimize the risk of expenses being disallowed during tax settlement.
Principles of fixed asset management in enterprises
Although land leased on an annual payment basis is not recognized as a fixed asset, businesses are still required to manage the asset in accordance with general regulations.
To ensure that asset accounting is carried out consistently, transparently, and in accordance with legal regulations, businesses need to fully comply with the principles of asset management and monitoring as stipulated in Article 5 of Circular 45/2013/TT-BTC. These principles not only help to tightly control asset records, values, and usage status, but also serve as an important basis for conducting inventories, tax settlements, or working with auditors. The specific details are summarized in the table below:
| Content | Request to be performed |
| Legal documents | We have all the necessary contracts, invoices, and handover documents. |
| Track value | Record the original cost, accumulated depreciation, and remaining value. |
| Assets awaiting liquidation | Depreciation still needs to be managed and accounted for. |
| The asset has been fully depreciated. | If still in use, it must be monitored. |
Businesses should:
- Create a separate file for each property.
- Numbering and clear classification
- Conduct periodic inventory
- Track price fluctuations year by year.
Classification of fixed assets by purpose of use.
According to Clause 1, Article 6 of Circular 45/2013/TT-BTC, fixed assets in enterprises are divided into two main groups (excluding land leased with annual payments):
Tangible fixed assets
Tangible fixed assets are assets with a specific physical form that businesses can see, inventory, and directly participate in production and business activities. Correctly classifying these assets helps accountants accurately determine the original cost, depreciation period, and appropriate management methods. Specifically, the group of tangible fixed assets includes the following types:
- Houses, buildings
- Machinery, production lines
- Transportation
- Management device
- Perennial trees, working livestock.
Intangible fixed assets
Intangible fixed assets are assets that do not have a specific physical form but provide long-term economic benefits to the business and fully meet the recognition criteria as stipulated in Circular 45/2013/TT-BTC. Unlike land leased with annual payments (which is only recognized as an expense in the current period), this group of assets usually arises from legal ownership or exploitation rights with stable, long-term value. Specifically, intangible fixed assets in businesses typically include the following types:
- Land use rights are eligible for recognition.
- Publishing rights, copyright
- Patents, trademarks
- Trade secrets.
Proper classification from the outset will help businesses avoid errors in depreciation calculation and determine eligible expenses.
Conclude
Land leased on an annual payment basis is not an intangible fixed asset but rather a recurring expense. Businesses are required to directly account for this expense in their annual production and business costs; it cannot be deferred, capitalized, or added to the asset's original cost.
Accurately identifying the nature of this expense not only helps financial statements reflect the true financial situation but also protects the business from risks during tax audits and inspections.
To ensure that the accounting system always operates in accordance with regulations and is up-to-date with the latest legal changes in 2026, businesses should proactively review their accounting processes or seek solutions from others. professional accounting servicesA system that records correctly from the outset will significantly save on adjustment costs and minimize tax risks later on.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
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- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
