Ijara Lease in Vietnam: Islamic Equipment Finance Guide

An Ijara lease is the Islamic finance answer to the equipment loan, and Gulf and Malaysian investors increasingly ask whether it can fund Vietnamese factories, vessels, solar plants and logistics assets. The commercial appetite exists, but Vietnam has no dedicated Islamic finance law. Islamic finance Vietnam is, legally, unregulated territory. Every Ijara lease touching Vietnam must therefore be built on ordinary Vietnamese civil, tax, credit and foreign-exchange rules, while still satisfying Shariah scholars abroad. This article covers mechanics, compliance, tax friction and SPV options.

What Is an Ijara Lease?

“Ijara” is the Arabic word for hire or lease. In Islamic commercial law it is a contract under which the owner of an asset transfers the right to use that asset for an agreed period in exchange for agreed rent. The lessor keeps ownership throughout. That single feature is what separates an Ijara lease from a loan: the financier earns rent because it owns a real asset and bears the risks that come with ownership, not because it lends money and charges interest (riba).

Core mechanics of an Ijara lease

A typical Ijara lease for equipment runs in four steps. First, the customer identifies the asset, for example a container crane or a set of production machines, and gives the financier a promise to lease it. Second, the financier, usually through a special purpose vehicle, buys the asset from the supplier at its own risk.

Third, the financier leases the asset to the customer for a fixed term with rent that may be fixed or benchmarked to a floating reference rate, provided the rent formula is known at the start of each rental period. Fourth, at the end of the term the asset returns to the lessor or, in the variant below, passes to the customer.

The lease must start only once the asset is actually delivered and usable, and rent does not accrue before then. The lessor also cannot contract out of every ownership obligation: structural and major maintenance, and insurance on a Shariah-acceptable takaful basis, remain with the lessor, even if the lessor appoints the customer as its agent to carry them out.

Ijara wa Iqtina: a lease that ends in ownership

Ijara wa Iqtina (also called Ijara Muntahia Bittamleek) is the version most project sponsors want, because the customer ends up owning the asset. Shariah scholars do not allow a single contract that is both a lease and a binding sale.

Ijara wa Iqtina therefore uses two separate instruments: the lease itself, and a distinct undertaking by the lessor to transfer ownership at the end, by gift, by sale at a nominal or market price, or by gradual sale of units. The transfer is executed by a new contract at the relevant time, which is where the Vietnamese tax and registration questions discussed below arise.

Shariah Compliance and AAOIFI Standards

An Ijara lease is only “Islamic” if a Shariah board says so. Boards in the Gulf and Malaysia rely on different but converging sources. The Accounting and Auditing Organization for Islamic Financial Institutions publishes Shariah standards, including a dedicated leasing standard, and financial accounting standards for lessors and lessees.

Many Gulf institutions follow the AAOIFI standards directly, while Malaysian institutions work under Bank Negara Malaysia’s Shariah governance framework and the Securities Commission’s resolutions, with significant overlap. Investors that fund through multilateral channels may also look to Islamic Development Bank practice.

Ownership risk stays with the lessor

The AAOIFI standards require that the lessor genuinely owns the leased asset and bears its ownership risks. In practice this means the lessor bears the loss if the asset is destroyed without the lessee’s fault, pays for major maintenance and insurance, and cannot make the lessee guarantee the asset’s value in a way that converts the lease into a loan. If drafting removes the lessor’s obligations, a Shariah board will refuse certification.

Rent, default and late-payment rules

Rent must be specified, and floating rent must be determinable at each period. Late-payment charges cannot be kept by the lessor as income; scholars generally require that amounts collected for delay go to charity. A conventional default interest clause is therefore not acceptable, and the borrowing group must be comfortable with a charity-based remedy plus the lessor’s right to terminate and repossess. Vietnamese counterparties expect default interest, so this difference needs careful documentation.

Ijara Lease versus Conventional Finance Lease

An Ijara lease and a conventional finance lease can look similar on a term sheet. The table highlights where the differences are legally and economically real.

Feature	Ijara lease (Shariah-compliant)	Conventional finance lease
Basis of return	Rent for use of an owned asset	Lease payments embedding financing cost
Ownership risk	Major maintenance, insurance and total-loss risk stay with the lessor	Usually shifted largely to the lessee
Late payment	No income to lessor; charity-based remedy	Default interest and penalties
Transfer at end	Separate promise, gift or sale contract (Ijara wa Iqtina)	Often a purchase option within the lease
Asset and business screens	Asset and lessee activity must be halal-compliant	No religious screening
Approval	Shariah board certification required	Credit committee only
Vietnamese legal treatment	No dedicated rules; recharacterised under civil and credit law	Recognised under credit institution and civil law

How Gulf and Malaysian Investors Could Fund Vietnamese Assets

Gulf sovereign funds, family offices and Islamic banks hold large pools of Shariah-compliant financing capacity that must be deployed into real assets rather than interest-bearing instruments. Malaysia, a global Islamic finance centre and fellow ASEAN member, has banks and fund managers with the same need. Vietnam offers what those investors seek: manufacturing growth, export logistics, energy demand and a sizeable pipeline of infrastructure needs.

Equipment and machinery financing

The simplest use of an Ijara lease is for movable equipment: production lines, medical equipment, agricultural machinery, vessels, rolling stock, data-centre hardware. Such assets are identifiable and insurable, which suits Shariah-compliant financing. A foreign Islamic financier, through an offshore SPV, buys the equipment from the supplier and leases it to the Vietnamese operator under an Ijara lease. That lease is the building block of most deals. The challenge is making cross-border flows and taxes work.

Infrastructure and renewable energy

For power, ports and logistics assets, a project company may need a longer tenor and a layered structure. A lessor could fund a defined asset within the project, such as turbines, a port crane or transmission equipment, while the land, licences and offtake remain with the project company under Vietnamese law. Sukuk issued offshore and backed by a lease portfolio are a common Gulf and Malaysian technique, but any Vietnamese leg must be reconciled with licensing, security and foreign-exchange rules, as explained next.

Vietnam’s Legal Gap: No Islamic Finance Framework

Vietnam does not have a law, decree or State Bank of Vietnam regulation that defines or licenses Islamic banking, takaful or sukuk issuance, and it has no Shariah governance requirements for financial institutions. Islamic finance in Vietnam is therefore not a recognised category of regulated business.

A Vietnamese court or regulator will look at the transaction and ask which Vietnamese contract type it matches, usually a lease, a sale or a loan, and apply the rules for that type. Shariah features, such as a lessor charity remedy or a split between a promise and a sale, receive no special protection and could be challenged if they conflict with mandatory provisions.

This does not make the structure impossible, only harder. Vietnamese law generally allows parties to agree terms freely within the Civil Code 2015 and the laws on commerce, so long as the terms do not breach prohibitions or public order. The gap simply means that all risk of characterisation, enforcement, registration and tax lies with the parties. Any transaction built on the assumption of a ready Islamic finance regime will fail.

Wrapping an Ijara Lease in Vietnamese Conventional Law

The practical approach is to design each Ijara lease so that it satisfies Shariah, and also fits within an existing Vietnamese legal category without relying on any special treatment. Three issues dominate.

Double transfer and tax neutrality

Many structures involve more than one transfer of title: from supplier to financier, and later from financier to customer (Ijara wa Iqtina). A sale-and-leaseback adds a further transfer.

Under conventional Vietnamese tax and registration rules each transfer can be treated as a taxable supply, can attract registration fees where the asset is registrable, and can be scrutinised for transfer pricing between related parties.

Islamic finance regimes in other jurisdictions, such as the United Kingdom, Malaysia and Singapore, have enacted specific tax neutrality rules so that Islamic structures are taxed like their conventional equivalents. Vietnam has not. Without such a rule, a structure that is neutral elsewhere can bear extra cost in Vietnam, and the pricing must reflect that.

VAT on asset transfers

Value added tax is the most visible friction. A transfer of goods in Vietnam is generally a VAT-able supply under the Law on Value Added Tax, and the end-of-lease transfer to the lessee in an Ijara wa Iqtina is, on its face, such a supply, even if the price is nominal or the transfer is a gift.

The initial purchase of the equipment by the lessor, and any import of equipment, also generates import VAT and possibly import duty, whose recovery depends on the lessor’s status. A foreign SPV without a Vietnamese tax presence generally cannot recover input VAT in the same way as a registered Vietnamese entity.

The Law on Value Added Tax 2024 and its guidance must be checked for leasing treatment, and a tax authority ruling should be sought rather than assumed.

Licensing, foreign exchange and withholding

Financial leasing as a regular business in Vietnam is a regulated credit activity under the Law on Credit Institutions 2024 and its implementing rules, which means that an offshore SPV leasing equipment to Vietnamese customers as a business may be treated as carrying on unlicensed activity.

Cross-border lease payments can also be examined under foreign exchange rules, with a risk that the State Bank of Vietnam treats the arrangement as foreign borrowing requiring registration and compliance with repayment limits. Rent paid abroad may be subject to foreign contractor tax, and the applicable tax treaty, for example the one between Vietnam and Malaysia, may reduce the burden if the lessor qualifies.

SPV Structures for an Ijara Lease into Vietnam

Three SPV models appear in practice, each with a different balance of Shariah comfort and Vietnamese-law risk.

• Offshore lessor SPV. A Cayman, Labuan, Dubai International Financial Centre or Abu Dhabi Global Market vehicle buys the asset and leases it to the Vietnamese customer. It is closest to market practice and keeps sukuk and Shariah board arrangements outside Vietnam, but it carries the heaviest licensing, foreign exchange and withholding questions.
• Vietnamese intermediary. The Islamic financier funds a licensed Vietnamese financial leasing company or bank that remains the lessor of record under Vietnamese law. The funding leg is arranged offshore on a Shariah-compliant basis, such as an investment agency arrangement. Vietnamese law sees a conventional lease, which reduces legal risk, but the Shariah board must be satisfied that the investor still has the required link to the asset and its risks.
• Vietnamese project SPV with offshore funding. The Vietnamese company owns the asset and the Islamic investor funds it through equity-like or asset-backed instruments. This approach avoids a lease characterisation but moves further away from Ijara and may need other structuring tools.

Whichever model is used, the documents typically combine English or other foreign-law finance agreements with Vietnamese-law security and asset registration documents, plus a Shariah pronouncement from the investor’s board. Governing law and arbitral seat must allow recognition in Vietnam, for example under the New York Convention. Our banking and finance practice and our investment finance practice work together on this kind of cross-border structuring.

Vietnam’s Halal Economy and Islamic Finance Ambitions

Vietnam has been positioning itself in the halal economy, driven by food exports, tourism and a government wish to engage Muslim-majority markets. A national halal certification body has been set up under the Ministry of Industry and Trade, and trade agreements with Gulf countries and Malaysia have given the halal economy Vietnam is pursuing a stronger commercial base.

An international financial centre in Ho Chi Minh City and Da Nang has been authorised by the National Assembly in 2025, and Islamic finance has been mentioned as a possible niche.

It is important to read these developments correctly. Policy interest in Islamic finance Vietnam and certification schemes for food products are not the same as a legal framework for Islamic finance in Vietnam, and no dedicated Islamic banking or sukuk regime has been enacted as far as we are aware. Investors should monitor new decrees, any financial centre regulations and State Bank of Vietnam guidance, because a future framework could change the best structure.

Until then, the strategy is to work within existing law and to build flexibility into the documents so that a transaction can migrate to a formal regime later.

Practical Roadmap and Key Risks

A sensible sequence begins with the asset and the borrower rather than the Shariah label. Establish whether the asset and the borrower’s business pass the investor’s Shariah screens on alcohol, gambling, pork and conventional financial services. Next, choose the SPV model, then ask for tax and foreign exchange advice on VAT, import duty, foreign contractor tax and State Bank of Vietnam treatment.

Draft the lease, the promise or transfer undertaking, the insurance and maintenance allocation, and the default regime so that Vietnamese law sees a recognised contract and the Shariah board sees a genuine lease.

The main risks are characterisation (the lease is treated as a disguised loan), tax leakage on transfers, licensing questions, enforcement of charity-based default remedies, and cost, because a Shariah-compliant financing structure with two legal systems is more expensive than a conventional loan. These risks are manageable when identified early and priced honestly.

Frequently Asked Questions

Is an Ijara lease legal in Vietnam?

Vietnam has no Islamic finance law, but parties may agree lease terms under the Civil Code. It is therefore possible as an ordinary lease, subject to tax, licensing and foreign exchange rules, with no special Shariah protection.

What is the difference between Ijara and Ijara wa Iqtina?

Ijara is a pure lease where the asset returns to the lessor. Ijara wa Iqtina adds a separate undertaking to transfer ownership to the lessee at the end, by gift or sale.

Does Vietnam recognise AAOIFI standards?

No. AAOIFI standards are voluntary international benchmarks that Islamic investors and Shariah boards apply. Vietnamese law does not adopt them, so they operate only through the parties’ contracts.

Is VAT payable when the lessor transfers the asset to the lessee?

Generally the transfer of goods is a VAT-able supply, so an end-of-lease transfer may attract VAT even at a nominal price. Confirm the treatment for the specific structure with the tax authority.

Which SPV is best for funding Vietnamese equipment?

There is no single best model. An offshore lessor SPV is closest to market practice, while a licensed Vietnamese intermediary lowers legal risk. The choice depends on asset, tax and licensing analysis.

Your next step is simple: send us a short outline of the asset, the borrower and the investor’s Shariah screens, and we will tell you which SPV model and tax questions deserve attention first.

Disclaimer: This article provides general information only and does not constitute legal, tax, financial or religious (Shariah) advice. Laws and regulations may change, and you should obtain advice on your specific circumstances, including from a qualified Shariah scholar, before acting.