Exploring CHANGE’s Tax Evasion Charges – Part 7: How Charitable Donations from Individuals are Taxed in Vietnam

Thuy Tung wrote this article in Vietnamese, which was published in Luat Khoa Magazine on October 4, 2023. Lee Nguyen translated the article into English.

Your Personal Income Tax is Levied on Contributions to Charitable and Humanitarian Causes

According to the regulations, charitable, humanitarian, and educational promotion contributions shall be deducted from the taxable income of businesses, salaries, and wages before calculating your personal income tax incurred by a resident taxpayer in Vietnam. [1] [2] These contributions include:

• Donations to organizations and facilities that care for and bring up children with special needs, the disabled, and older individuals without proper support. These organizations and facilities must be established and operate under current laws. [3] [4]
• Contributions to charitable foundations, humanitarian funds, and educational encouragement funds that are established and operate under current laws. [5] [6] Among these, a social fund is organized. It operates on a not-for-profit basis for the principal purpose of supporting and promoting the development of culture, education, healthcare, physical training, sports, science, and agricultural and rural development; a charity fund is a fund that is organized and operates on a not-for-profit basis for the principal purpose of easing the difficulties caused by natural disasters, fires, epidemics, or severe incidents and supporting critically ill patients and other disadvantaged persons in need of social assistance.

The documentation proving charitable, humanitarian, and educational promotion donations are receipts issued by central or provincial-level organizations and funds.

The personal income tax deduction rate for these contributions ranges from 0 to 35%, depending on the annual income of each donor to the mentioned funds.

Recent examples of donations for charitable funds include the calls to support the Fund For the Poor or the COVID-19 Vaccine Fund. [7] [8] Recently, there was an appeal to support the victims of a fire in a mini apartment building, which was implemented by the agency system of the Hanoi Municipal Vietnam Fatherland Front Committee. [9]

Annually, the heads of sub-quarters or village chiefs, on behalf of the commune-level Vietnam Fatherland Front Committee, must visit each household to collect donations for disaster relief funds, study promotion funds, poverty reduction funds, etc.

All these humanitarian contributions are subject to personal income tax.

The issue is that the law does not allow anyone to deduct these donations from their taxable income if there is a lack of receipts. Without proper proof of these contributions, these funds will not be deductible when calculating personal income tax.

Citizens often question the transparency when using the above-mentioned humanitarian funds. However, they often overlook the need for receipts for their charitable and humanitarian contributions to these funds to qualify for personal income tax deductions.

During donation campaigns, there is also a lack of information from the Vietnam Fatherland Front Committee or relevant authorities about providing receipts donors can use for personal income tax deductions.

A good example of this would be the case when the Hanoi Municipal Vietnam Fatherland Front Committee for the Fund For the Poor started a call for public donations in 2023. [10] Apart from information about the bank account numbers for the government to receive money, there is no mention of the personal income tax exemption procedures for these contributions and no receipts for the donors. This call is captured in the screenshots right below.

Translation:

For support information, please contact  the Hanoi Municipal Vietnam Fatherland Front Committee

Account name: the Hanoi Municipal Vietnam Fatherland Front Committee - the Fund “For the Poor”; Account number: 3761.0.9057259.91046 at Hanoi State Treasury. Or bank account number 1500201116868 at The Vietnam Bank for Agriculture and Rural Development - Hanoi Branch.

Receive cash at the Finance Department, the Hanoi Municipal Vietnam Fatherland Front Committee, address  No. 29 Ly Thuong Kiet Street, Hoan Kiem District, Hanoi City. Phone number: 098.347.7770, 024.3939.3380

If the donations are not deducted, the citizen donors may have to pay anywhere from 0 to 35% personal income tax on every donation they contribute to these funds. That's right, Vietnamese citizens have to pay personal income tax on their donations!

The tax rate may be higher or lower depending on the annual income of each individual, along with various deductions and progressive tax brackets from 1 to 7. Bracket 1 has a tax rate of 0%, followed by 5%, 10%, 15%, 20%, 25%, 30%, and the highest at 35% in bracket 7.

Taxes Imposed on Individual Donations to Scientific and Technological Organizations

The establishment decisions and operating permits of scientific and technological organizations allow the NPOs to receive financial support from individuals within and outside the country to carry out community activities.

CHANGE is one such organization. The investigation against Hoang Thi Minh Hong also confirmed this fact. [11] [12]

Since Vietnamese law narrows the scope of charitable and humanitarian activities, scientific and technological organizations are not among the mentioned funds or organizations.

In this context, individuals are considered purchasers of services or goods from scientific and technological organizations when donating to the organizations' community activities. Therefore, they cannot use receipts from these organizations for personal income tax deductions.

In this situation, sponsors must also pay value-added tax, potentially even corporate income tax, and personal income tax, on each donation.

First, the state will impose a 5% or 10% output VAT on scientific and technological organizations, depending on whether they register for tax directly or use the deduction method, as mentioned in previous articles.

If registered using the deduction method, individual sponsorship amounts will be deducted from the input VAT of goods and services purchased by the organizations for their activities. If profits arise from these sponsorships, the Vietnamese state will impose a 20% CIT.

In CHANGE's case, as it did not register for tax using either method, the state imposed a 5% VAT and a 5% CIT, totaling 10%, on individual sponsorship amounts for CHANGE.

If scientific and technological organizations do not issue output VAT invoices, donations are treated as income of the organizations. Consequently, the Vietnamese state will impose a 20% CIT on each sponsorship amount. [13]

From this, it is evident that each donation made for the community activities of scientific and technological organizations will be subject to taxes ranging from a minimum of 5% to a maximum of 55% according to the above tax calculation formulas. These include personal income tax, VAT, and/or CIT.