Exploring CHANGE’s Tax Evasion Charges - Part 5: Red Tape and Difficulties in Tax Exemption Procedures

Hurdles and setbacks in the tax exemption process of Vietnam.

Exploring CHANGE’s Tax Evasion Charges - Part 5: Red Tape and Difficulties in Tax Exemption Procedures

Thuy Tung wrote this article in Vietnamese, which was published in Luat Khoa Magazine on October 1, 2023. Lee Nguyen translated the article into English.

In earlier sections of this series, the nonprofit nature of scientific and technological organizations, such as CHANGE, and how the Vietnamese government levies a value-added tax (VAT) on foreign aid was explored. This section will discuss how an organization gets an exemption from corporate income tax (CIT) and why it is not a simple procedure.

First and foremost, corporate income tax is levied on profits generated from a business's activities. The basic formula for calculating CIT involves subtracting expenses from revenue to get the total taxable income, which is then multiplied by the tax rate to determine the amount of CIT to be paid.

Regarding nonprofit organizations (NPOs), a commonly asked question is, "How can NPOs generate profits that would subject them to CIT?" This issue is slightly more complex as the Vietnamese laws provide numerous CIT exemptions for nonprofit organizations.

According to the 2008 Law on Corporate Income Tax, nonprofit organizations are also subject to CIT. [1] However, this law specifies certain types of income exempt from taxation for these organizations. Among these are funds received for educational, scientific research, cultural, artistic, charitable, humanitarian, and other social activities in Vietnam. [2]

The difficulty for NPOs in qualifying for CIT tax exemption is that they have to go through numerous tedious, unnecessary, and time-consuming processes, making it difficult to escape the red tape of Vietnamese bureaucracy. 

The Long and Exhaustive Road to Approval 

Similar to the VAT refund procedures discussed in the previous article, nonprofit organizations must have operating licenses in related fields to be eligible for CIT exemptions for the mentioned sponsorships.

For instance, an organization established under the Law on Science and Technology or a business founded under the Enterprise Law must hold an operating license in the field of science and technology issued by the Ministry or Department of Science and Technology. In the case of scientific research contracts, they must be officially recognized by authorities as scientific research and technological development contracts.

If nonprofit organizations use sponsorships for purposes other than their designated objectives, they must pay CIT on the misused amount. Additionally, organizations receiving aid under this regulation must be established and operate under legal laws, complying with accounting and statistical requirements [3].

To qualify for CIT exemptions on foreign aid, nonprofit organizations must first choose one of three accounting standards for tax reporting: the administrative accounting scheme, the accounting regulations for social and charitable activities, or the business accounting method.

They must also register their tax calculation method with the relevant state agency, either the deduction method or the direct method. In addition, they must submit VAT invoices along with VAT reports every quarter and annual corporate income tax reports.

At first glance, the process for getting CIT tax exemption is not that complicated, as the steps mentioned above are just ordinary procedures that apply to any legal entity. The real challenge begins when NPOs need approval or permission from various Vietnamese ministries and state agencies.

NPOs must bear the administrative burden of project approval procedures [4] and aid confirmation [5] to be considered for CIT exemption and VAT refund.

Accordingly, the competent authority [6] will approve the project after receiving written consent from at least four ministries and relevant specialized agencies, including the Ministry of Public Security, Ministry of Foreign Affairs, Ministry of Planning and Investment, and Ministry of Finance. If the sponsor is a foreign non-governmental organization, it must also acquire an additional permit from the Vietnam Union of Friendship Organizations (VUFO).

The prime minister approves aid linked to national security, defense, and religion and directly assists in drafting legal normative documents.

Any project implemented in a particular locality also requires written consent from that area's provincial People's Committee. The procedures for obtaining written permission locally are similar to those at the national level.

The Ministry of Finance will carry out the aid confirmation procedures after NPOs, referred to as the "aid owners", submit applications for aid confirmation, including project implementation approval decisions. Since 2020, aid owners have been the governing associations of nonprofit organizations [7].

Upon the completion of each project, the aid owner must submit the project approval decision and aid confirmation along with a summary of all taxes, fees, and charges paid to the state. According to regulations, they must wait 30 days to be considered for CIT exemption and VAT refund [8].

Regardless of the scale, all sponsorship agreements must go through this process.

The most challenging hurdle faced by NPOs is the Vietnam Ministry of Finance.

Since 2016, the Ministry of Finance has not confirmed sponsorships as part of the state budget revenue. The reason is that there is no legal basis related to an appropriate accounting regime for the Ministry of Finance to confirm sponsorships that do not go through the state treasury.

Without the aid confirmation certificate from the Ministry of Finance, NPOs lack the necessary documentation to apply for CIT exemption and VAT refunds.

In effect, CHANGE became a victim of the Ministry of Finance’s inaction. 

CHANGE: A Victim of Bureaucracy 

According to the investigation, indictment, and verdict against Hoang Thi Minh Hong, CHANGE’s entire revenue of 68 billion dong is considered business income and is subject to a 5% CIT. State media also reported, “Ms. Hong admitted that this money was generated from CHANGE's services, not from aid funds received by foreign organizations or individuals.” [9]

However, the conclusion by the Ministry of Planning and Investment reveals at least two agreements with a total value of over $1.2 million from WildAid, which sponsored CHANGE. [10] This amount is equivalent to nearly 30 billion dong, which accounts for 44% of the total 68 billion dong.

The conclusion also shows that both agreements were approved by the governing body, VUSTA, through the procedures for receiving non-refundable aid in 2018 and 2021, falling under the science and technology field.

In theory, this sponsorship money should be tax-exempt, but authorities still imposed taxes and forced Hong to pay. Of course, to qualify for tax exemptions for these two sponsorships, CHANGE had to go through all the hurdles mentioned above but was ultimately stopped by the Ministry of Finance.

This is why nonprofit organizations often choose not to seek sponsorship approval for tax exemption but instead opt to enter into service contracts with sponsors and reluctantly accept tax payments.


  1. Point d, Clause 1, Article 2 of the 2008 Law on Corporate Income Tax (amended and supplemented in 2013).
  2. Clause 7, Article 4 of the 2008 Law on Corporate Income Tax (amended and supplemented in 2013).
  3. Clause 7, Article 8 of Circular No. 78/2014/TT-BTC of the Vietnam Ministry of Finance.
  4. Decree No. 80/2020/ND-CP dated July 8, 2020 of the Vietnamese government.
  5. Circular No. 109/2007/TT-BTC dated September 10, 2007, of the Vietnam Ministry of Finance (replaced by Circular No. 23/2022/TT-BTC dated April 6, 2022, of the Vietnam Ministry of Finance).
  6. Clause 3, Article 3 of Decree No. 80/2020/ND-CP.
  7. Clause 4, Article 3 of Decree No. 80/2020/ND-CP.
  8. Clause 2, Article 24 of Decree No. 80/2020/ND-CP.
  9. Hong Linh. (2023, September 28). Ba Hoang Thi Minh Hong linh 3 nam tu. Bao Dien Tu Dan Tri; Bao Dan Tri. https://dantri.com.vn/phap-luat/ba-hoang-thi-minh-hong-linh-3-nam-tu-20230928114035491.htm 
  10.  The Conclusion No. 722/KL-BKHDT dated Feb. 7, 2023, of the Ministry of Planning and Investment concluding the inspection of the management and utilization of foreign-funded resources and foreign donation-calling activities by the Vietnam Union of Science and Technology Associations (VUSTA) and its affiliated units from Jan. 1, 2018, to June 30, 2022.

Great! You’ve successfully signed up.

Welcome back! You've successfully signed in.

You've successfully subscribed to The Vietnamese Magazine.

Success! Check your email for magic link to sign-in.

Success! Your billing info has been updated.

Your billing was not updated.