Sunday, January 7, 2007

Local Non-Government Organizations in Vietnam

Source: United States International Grantmaking (http://www.usig.org)

I. Summary

Vietnam is a socialist civil law country with two legally recognized forms of not-for-profit, non-governmental organizations (“NPOs”). Although called by slightly more complex names, these two forms are equivalent to the typical civil law forms of association and foundation. [1]

It is difficult to estimate with precision the number of NPOs in Vietnam. According to governmental reports and research, there are over 300 associations at the national level, 2,150 associations at the provincial level, 1,500 foundations and funds, and tens of thousands of NPOs at the grassroots levels.

The first laws on NPOs in Vietnam date back to the post-independence period: Decree-Law 52/SL (1946) and Decree-Law 102/SL (1957). The Civil Code (2005) and two Government decrees: Decree 177 (1999) and Decree 88 (2003) now constitute the primary legislative basis for NPOs in Vietnam. The Civil Code contains a number of provisions which provide “juridical person” status for NPOs and establish a very basic NPO legal framework. Decree 177 (1999) spells out details concerning the establishment, structure, and governance of social funds and charitable funds. Decree 88 (2003) deals with associations.

A. Types of Organizations

Freedom of association is referenced in the Constitution of the Socialist Republic of Vietnam (Article 69). The revised Civil Code (2005) provides for a clearer and more substantial legal framework for NPOs. It describes and defines several types of “juridical persons” that generally comport with the understanding of the term "not-for-profit organization." The names vary according to the organization’s functions. Article 104 references political organizations, socio-political organizations and professional socio-political organizations. Article 104 references social organizations and socio-professional organizations - which are essentially associations. Article 105 references “social funds or charitable funds” (Article 105) - which are essentially foundations.

Decree 177 (1999) provides additional guidance regarding social funds and charitable funds (Quỹ). The decree refers to property assigned to accomplish some social or charitable purpose during a particular period of time (slightly different from a ‘foundation.’) To come into existence, these NPOs may form pursuant to Decree 35 (1992) which governs scientific and technological activities. Alternatively, many organizations find themselves a host organization. Many of these foundations refer to themselves as ‘Vietnamese NGOs’ (VNGOs), which complicates NPOs concepts in Vietnam.

In the past year in Vietnam, awareness of a larger, more comprehensive and more dynamic NPO sector (so called Civil Society) has increased significantly. There is more or less a common understanding of the following types of civil society organizations:

"Associations"

  • Mass organizations [2] (there is a tendency to consider them NPOs);
  • Associations (both national and local); and
  • Community based organizations.

"Foundations"

  • The so-called VNGOs;
  • Funds (quy); and
  • International NPOs.

Several Vietnamese NPOs are outside the scope of this Note, including political parties, mass organizations, religious organizations, and foreign NPOs, as well as economic interest associations, and institutions.

B. Tax Laws

The laws/decrees on NPOs do not provide specifically that NPOs or their donors/ donations are subject to special tax preferences. However, in many cases, NPOs are afforded tax incentives and preferences detailed in provisions scattered in different tax documents. Still, some procedures should be carried out in order to attain tax exemption, deduction or tax credit.

II. Applicable Laws

III. Relevant Legal Forms

A. General Legal Forms

The 2005 Civil Code contemplates several legal forms: socio-political organizations, professional socio-political organizations, social organizations, and socio-professional organizations which are essentially associations; as well as social funds and charitable funds, which are essentially a type of foundation. Both associations and foundations must have official permission to be established, and the application process can be complicated and time-consuming. The establishment and operation of associations and foundations are closely regulated and monitored by the government.

B. Public Benefit Status

Associations: The term "Public Benefit Status" is a rather new concept for NPOs and relevant stakeholders in Vietnam. Associations are not required to be established for public benefit, though it appears that they can be established for public benefit (e.g., an association of doctors providing medical services in an impoverished community). Although the Civil Code does not clearly address the issue, Decree 88 states that associations can be established for the purpose of contributing to the country’s socio-economic development. (Article 2) Associations that engage in activities pursuant to such purposes may be linked to the Government’s tasks and supported by the State Budget according to the Prime Minister’s instructions. (Article 4 (2))

Because of the interest in securing financial support from the state, donors and the public, and the elaborate process required to establish an association, it is likely that many NPOs will in fact carry out public benefit purposes that are tied to the State’s development objectives. [3]

In general, other associations described in the Civil Code and the regulations (e.g., clubs, professional associations) tend not to be established for public benefit and thus tend not to attract gifts from U.S. donors. Socio-professional organizations, further, are closely linked to the State and political structures.

Foundations: Foundations must, pursuant to Article 105 of the Civil Code, “operate for the purpose of promoting the development of culture, science, charity and other social and humanitarian purposes, which are not for profit-making.” Decree 177 employs a slightly different formulation of permissible purposes, stating that foundations must “be set up and operate[d] for humanitarian and charity purposes to promote cultural, sport, scientific and social development” (Article 2) As a practical matter, however, both associations and foundations are encouraged to engage more actively in public service delivery. (Resolution 53 dated 25 May 2006)

Decree 177 further permits foundations to “provide financial support for activities which conform to the fund’s principles and purposes.” (Articles 8 and 14) Thus, Vietnam appears to allow both operating and grant-making foundations. Accordingly, U.S. donors may need to be alert to issues regarding the out-of-corpus rule for some grants.

As mentioned above, Decree 177 permits different types of foundations, but its wording is not especially clear. As with most of Vietnam’s current and sparse legislation governing nonprofit or charitable activity there is a need to revise this decree to make it properly cover different types of foundations.

IV. Specific Questions Regarding Local Law

A. Inurement

Regulations on both associations and foundations prohibit sharing of profit to members or individuals.

Associations: Decree 88 on associations does not specifically address the issue of inurement. Given that associations are subject to extensive public oversight, it is unlikely that such direct or indirect benefits to private persons would be permitted. A U.S. grantmaker conducting an equivalency determination, though, would be prudent to ensure that the association's governing documents specifically prohibit inurement.

Foundations: Decree 177 on social funds and charitable funds states that “Organizations and individuals are strictly prohibited to take advantage of the establishment and operation of the funds to gain profit….”(Article 4(4))

B. Proprietary Interest

Associations: The Civil Code (Article 104) and Association regulations generally do not appear to permit an association's members to have a proprietary interest in its assets. For a U.S. grantmaker conducting an equivalency determination, though, it would be prudent to ensure that the association's governing documents specifically prohibit members or donors from having a proprietary interest in any of the organization's assets.

Foundations: Article 105 of the Civil Code states that social and charitable funds and their organizers “may not divide up the property of the fund in the course of the fund’s operation.” Moreover, “the property of the social fund or charitable fund shall be managed, used and dispensed with in accordance with the provisions of law and in accordance with the purpose of the operation of the fund as stipulated by its charter.” (Article 105)

C. Dissolution

Associations: Decree 88 provides that “with regard to [the] assets, funds, and other property provided by domestic and foreign organizations and by the Government… the utilization [upon dissolution] shall be decided by the relevant Government Authority.” However, certain “self-generated funds and other property” may be distributed in accordance with the association's governing documents. (Article 30)

Foundations: Article 105 of the revised 2005 Civil Code states that “the property of [a foundation] shall not be divided up among its founding members but must be settled in accordance with the provisions of law.” Article 21 of Decree 177 requires that “all remaining properties and money of the fund [after payment of creditors] shall be remitted to the State budget of the [administrative] level that has permitted the fund establishment.”

D. Activities

1. General Activities

Under Decree 88 on the organization, operation and management of associations (2003) associations are required to perform only those activities authorized in the organization’s Charter (Articles 3, 23). Similar provisions in Decree 177 apply to social and charitable funds.

2. Public Benefit Activities

Associations: Under Decree 88, it appears that an association, other than mutual benefit, can be set up to conduct public benefit activities, as discussed in III-B, above.

Foundations: Social and charitable funds must, pursuant to Article 105 of the 2005 Civil Code, “operate for the purpose of promoting the development of cultural and/or scientific development, charity and other social and humanitarian purposes, which do not aim to gain profit.” Decree 177 employs a slightly different formulation of permissible purposes, stating that funds must “be set up and operate[d] for humanitarian and charity purposes to promote cultural, sport, scientific and social development.” (Article 2)

3. Economic Activities

Associations: Decree 88 states specifically that associations may generate revenue from “business activities and services.” (Article 22 (9)) However, such activities will be taxed.

Foundations: Decree 177 does not authorize funds to conduct business activities. (Article 4)

E. Political Activities

Decree 88 allows associations to “provide comments on normative legal documents” related to their operations and to make "recommendations/proposals” to their oversight agency. Article 69 of the Constitution, further, appears to state that associations (as well as citizens) may “hold demonstrations in accordance with the law.”

The laws and regulations governing foundations do not specifically address political activities.

F. Discrimination

Article 52 of the Constitution states that “all citizens are equal before the law,” but nothing in any law or regulations affecting NPOs deals further with discrimination.

G. Control of Organization

As discussed above, the government of Vietnam exercises considerable control over the establishment, operation, and dissolution of NPOs. At present, it does not appear that an NPO may be controlled by an American grantor charity. In fact, Decree 88 does not authorize a foreign individual or a legal person to be official member of an association. The recent practice has demonstrated specific cases where a foreigner has been precluded from becoming a member of a professional or economic association. This is one of a number of issues in the debates on the drafting of a new Law on Associations (Luat ve Hoi), now underway in Vietnam.

V. Tax Laws

A. Income or Profits Tax

In fact, almost all NPOs and their economic entities enjoy special income tax incentives (Article 19, Corporation Income Law of 2003) and shall not have to pay tax for the income from the State budget’s source and local or foreign sources. To encourage contributions from donors, the grant amount will be accounting in reasonable expenses subject to income tax reduction.

B. Value Added Tax

Imported goods as humanitarian aid, non-refundable aid, gift, presents that NPOs receive from foreign donors are exempted from VAT and other indirect taxes at the import stage. The same situation applies to monetary aid from foreign donors to buy goods for use as humanitarian activities, or goods and/or services not subject to VAT. (Article 4 of Decree 158/2003)

C. Double Tax Treaty

The United States and Vietnam have not entered into a double-tax treaty.

VI. Knowledgeable Contacts

Nguyen Thi Bich Diep: diepnguyen@vnah-hev.org
Mark Sidel: mark-sidel@uiowa.edu
Stephan Klingelhofer: sklingel@icnl.org
Karla W. Simon: simon@law.edu
Leon E. Irish: irish@law.edu

Footnotes

[1] The Government of Vietnam seeks to promote the growth of a development-oriented NPO sector in Vietnam that is cooperative with Party and government policy. The Tenth National Assembly resolved to “expand and diversify forms of assembling people to join unions, social organizations, professional, cultural and friendship associations, as well as those working in the charity and humanitarian fields.” (Resolution No. 51/2001/QH10 dated 25 December 2001 of the 10th session of the 10th Legislature of the National Assembly.) In addition, the Socio-Economic Development Plan 2006-2010, for the first time, encourages “all non-governmental organisations, social associations and unions to develop social security networks and provide effective assistance to the vulnerable” and “to engage in managing and monitoring some pubic fields.” (Social Economic Development Plan of Vietnam 2006-2010, pp. 91, 140.)

Yet the current legal framework is not sufficiently comprehensive or facilitating. Since 1992 a draft Law on Associations has been underway in Vietnam, most recently centered in a drafting committee convened by the Ministry of Home Affairs. The draft Law has been the subject of intense debate and was submitted to the National Assembly for discussion in May 2006. Significant differences between government agencies and associations, and within the government community, could not be overcome and the Law has been put off for further discussion and drafting. A Decree on collaborative groups (a type of associations at grassroot level) is in drafting process. Revision ofn Decree 177 is under consideration.

Among the issues that have divided drafters of the Law on Associations, government and Party agencies, and key national associations are procedures for the establishment of associations; permitted and prohibited activities; management of associational activities (“single” vs. “dual” ministerial management); foreign membership; the economic activities of nonprofits and other issues. There is a pressing need to strengthen capacity building for the rapidly growing Vietnamese NPO sector, strengthen dialogue between state and Party agencies and the nonprofit sector, and facilitated fundraising and other forms of resource mobilization.

[2] Mass organizations (which are party organizations) are established pursuant to their own legislation. They are deemed “part of the political system of the Socialist Republic of Vietnam” (Law of the Vietnam Fatherland Front of 1999), and, as such, are not taxed. Examples include the Vietnam Women’s Union and the Vietnam Farmers Association. Religious organizations are governed by separate regulations. See http://www.state.gov/g/drl/rls/irf/2002/13916.htm for a discussion of the restrictions on freedom of religion in Vietnam. Foreign NPOs, finally, are subject to different regulations from those applying to local NPOs.

[3] The current Five Year Plan includes, among other goals, “ to bring about immense changes in education and training, science and technology and promote the human factor; to create more jobs; to basically eradicate hunger and reduce the number of poor households, to eliminate social vices; to strengthen socio-economic infrastructure."

at 6:46 AM

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