Currently, there is no legislation regulating social enterprises activities, as well as

there is not a specific type or a legal status for social enterprises. The legal forms
of current social enterprises are divided into two main groups: (1) Enterprises
operating under the Enterprise Law, and (2) social organizations (NGO) operating
following some legal documents concerning voluntary organization, societies,
charities, social funds, the science and technology organization.
The choice to follow a specific legal framework as enterprises or NGO entity for
the hybrid social enterprises cause many obstacles in the process of establishment,
operation and development of the social enterprises, particularly:
Challenges in establishing a social enterprise: First, the legal framework for a
social model in Vietnam is not completed yet, there are many overlapping
regulations causing difficulties for individuals, groups to establish a social
organization in Vietnam. There are many kinds of different social organizations
with different names, to be appraised and approved by different organizations.
Registration of a social organization is very complex processes, with regulations
on founding board, management board, number of members, the capacity
requirements of the founder, geographical areas activities ... that not easy for any
new organization can meet, especially for social initiatives which should be
'incubated flexibly, simple but effective.
Registration under an enterprise is simpler but as a result requires social enterprise
to unify and meet the interests of various investors with diversified objetives. In
fact, there are many social enterprirses, have got in the situation that the
shareholders are inconsistent on reinvesting profit for social objectives and
organizational development.At the start-up stage, due to lack of capital, social
enterprises often taking loans from family, friends and they can be social investors,
but most of them do not clearly understand about the social enterprises model, so it
is difficult to be associated with social mission in the long term. In other words, in
principle, they are still the traditional investors, not social investors, so the risk
here is very high in deflecting social enterprises in the wrong track at this stage.
Some social enterprises may choose hybrid model, combining NGOs and
businesses with a desire to optimize the advantages and benefits of each model.

However, without clear regulation on ownership and operation between the two
models, social enterprises are not allowed to register as a hybrid organization.
Currently, the state does not have specific regulations on whether an NGO can own
a profit making unit or not?
Instead, they generally have to register two parallel organizations: one is to
perform business operations and the other is an NGO which are working on the
social activities, subject to two different legal systems. Even in some cases, only
the businesse has formal legal status, all other social activities are carried out
informally. Establishing a hybrid organisation are particularly difficult for the
young social enterprises lacking resources and reputation. A issue is that the
business strand of social enterprise still need to pay enterprise tax as normal
business, even when their revenue is fully reinvested back to the social enterprise
branch in the same social organization. Should we develop tax incentives for
business activities in this case? Obviously this is a controversial issue, and it is an
urgent issue to Social Enterprises is to solve this issue transparently and
comprehensively.
Difficulty in operating and developing social enterprises: Social enterprises
themselves are very confused and facing many problems in operating a combined
model of social objectives and business activities in an incomplete legal
environment in Vietnam. This is clearly seen in financial related issues; regulations
on receiving aids, sponsorship, funding, policies and regulations on taxation and
financial management, access to incentives and state regulations concerning
special people in the society. Currently the State does not have any restriction for
businesses to receive grants, aids but the State's regulations only allow businesses
to be exempted from tax when using the grants to carry out charitable and
humanitarian activities in the areas of education, health, scientific research, arts in
some humanitarian agencies, school ....approved by the State .This limits the
flexibility and pro activeness of the enterprise when using this aid to partner with
non-state organizations, or using the grants to develop communitys activities. If
the grants is recorded as a regular revenues, the enterprise may have to pay tax, but
this tax is unreasonable because the grants is not a source of income from business

activities, but by nature, it is a social investment, non-profit.

Financial management Mechanisms is a complex problem caused many
difficulties. Currently, there is no clear and consistent legal framework for different
types of social organizations. The State only has financial management rules
separately for the two models: social funds, charity funds (Decision 10/2008/QDBTC dated 12/02/2008 of the Ministry of Finance) and the social protection
Agencies (Decree 68/2008/ND-CP and Circular 07/2009/BLDTBXH).
There is no separate regulation for other types of organizations. The social
organizations, NGOs are still allowed to carry out activities which generated
income and these incomes are taxable under the provisions of the state. However,
the guidance on taxation for this organization is unclear, and the management
bodies of state on tax also dont provide specific guidance. Social enterprises that
are NGOs, are also facing difficulties in understanding the mechanism of internal
financial management and reporting. There are many organizations are sanctioned
administratively by lack of tax payment without knowing in advance, misunderstood guidelines, and in-consistent advice from the relevant authorities.
The issue of financial management for NGOs even more complex in case these
organizations receive grants, non-government aid from international donors. Apart
from the issues of mechanisms for receiving grant as mentioned above, the social
enterprises are also facing difficulties in compliance with both the donors and
Governments financial systems. The two regulation systems may present many
different perspective, or overlapping leading to the large investment of resources
on accounting administration errors still exist.
For social enterprises operating under the Enterprise Law or the Law on
Cooperatives, due to the nature of social enterprises - combining social and
business activities to generate revenue so the enterprise incur lots of business
expenses which are not eligible for reduction when calculating corporate income
tax. Back to the case of Tohe company as mentioned above, Tohe is a trading and
manufacturing enterprise to produce household products, using creative drawings

of children with disabilities and disadvantaged children. A large proportion of

Tohe profit is used to organize creative activities for children such as painting
classes, club activities for children at Centre of social protection, children in
remote areas, but these expenses can not be recorded as legible expenses of the
business. They are not raw material costs, labor cost... or the cost of production and
other distribution ..Therefore, they are not counted as legible expenses that would
be deducted from taxable revenue of the company.
At present, the State offer incentive policies to agencies whose following the
policy of socialization according to the Decree 69/2008/ND-CP on policies to
encourage the socialization in the sectors of education, vocational training, health,
culture, sports and environment. Accordingly, organizations provide public
services for community benefits are entitled to incentive on infrastructure, land
policy and land rental, tax incentives, preferential credit.
Enterprise operating in investment incentivized sector, employ people with
disabilities, women, ethnic minorities, workers in difficult circumstances will be
offered some tax incentives according to the state regulation. In terms of their
mission, operating sectors and targeted audience, social enterprises are suitable to
receive the above incentives. However, there is still a gap between administrative
regulations and real implementation. Regulations on assessment criteria, approving
mechanisms and procedures to be offered the above incentives is very complex, so
it become so costly and time consuming for social enterprises. The implementation
is also dependent on local authorities awareness about social enterprises, local
flexibility and transparent supporting mechanism. At present, understanding about
social enterprises in local authorities level is quite limited. Social enterprises have
not been officially recognized by the government and state so even legal/justice
organizations do not understand and being confused in guiding the enterprises in
applying for these incentives.
Lack of a criteria system and flexible standards for social enterprises: In recent
years, we witness the development of systems of policies, regulatory framework
aim at standardizing social sector, education, health and culture. However, clearly,
the special objects, such as people with disabilities, children with special
circumstances have not received adequate attention. A social enterprise share that
they would like to register their organization as vocational training centers in order
to issue official certificates for students but they cannot meet the standard

requirements of local authorities; because the centre founder is a person with

server disability. He had to stop going to school so how should he obtain the
formal qualifications, limited cavity also prevent the centre to expand to have
sufficient facilities , space, equipment as specified in the state regulations, though
700 disabilities students have received free training this organization.
Consequently, he continues to open similar kinds of training classes following
"spontaneous" and "informal" approach. And because the organization has no
official certification, graduated students have had difficulty in finding job.