Government Issues Procedures on Tax Deductions for Donations to NGOs

Expanding on a circular issued in 2008, the central government in July issued "working guidelines" for social organizations (shehui tuanti) seeking eligibility to receive tax-deductible donations. According to a report from United States International Grantmaking, social organizations are "one of the three primary forms" of NGOs in China. The other two primary types of NGOs in China are foundations (jijinhui) and private non-enterprise organizations (minban fei qiye danwei). The Working Guidelines issued in July further clarify the standards for determining the eligibility of social organizations for tax-deductible donations. At the same time, they continue to limit the number of eligible social organizations. The working guidelines also do not alter existing regulations requiring all NGOs to register with the government.

Since 2007, central government departments have issued increasingly detailed measures for NGOs seeking eligibility to receive tax-deductible donations. In January 2007, two national-level ministries, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT), issued a circular on new procedures for "public welfare" foundations and social organizations (gongyixing shehui tuanti he jijinhui) seeking eligibility to receive tax-deductible donations. In December 2008, MOF and SAT issued a second circular, specifying the application procedures and eligibility requirements in greater detail. Following the December 2008 Circular, the Ministry of Civil Affairs (MOCA) issued implementation plans for "public welfare" foundations and working guidelines for "public welfare" social organizations in March and July 2009, respectively. The July 2009 Working Guidelines concerning social organizations clarify some provisions from the December 2008 Circular, and further specify what social organizations should include in their application for eligibility to receive tax-deductible donations.

Since 2008, it appears that the number of NGOs deemed eligible by the government to receive tax-deductible donations has risen. In August 2009, MOF, SAT, and MOCA published a circular with the names of 69 "public welfare" social organizations (gongyixing shehui tuanti) that the central government deemed eligible in 2008 and part of 2009. Provincial and municipal governments in 2009 have also published similar circulars. For example, Guangdong province in May 2009 issued a circular listing the names of 81 "public welfare" social organizations deemed eligible to receive tax-deductible donations. Before 2007, MOF and SAT determined the eligibility of NGOs for tax-deductible donations on a case-by-case basis, and the number of NGOs that gained eligibility was small. Between 2000 and 2007, MOF and SAT granted eligibility to fewer than 70 "national-level NGOs" (guojia ji de fei yinglixing de shehui zuzhi) , according to a China Philanthropy Times article (via jizhe.cc) published on June 17, 2009.

As noted in the Commission's 2009 Annual Report, there are thousands of NGOs that either are not registered with the government or registered as for-profit companies. Based on provisions listed in the July 2009 Working Guidelines and the December 2008 Circular, these NGOs will not be able to apply for eligibility to receive tax-deductible donations, as explained below.

The December 2008 Circular contains provisions limiting the number of NGOs from applying for eligibility to receive tax-deductible donations (see Article 4). The December 2008 Circular defines organizations eligible to receive tax-deductible donations as "public welfare social organizations" that are "in accordance with the stipulations issued by the State Council in the 'Regulations on the Management of Foundations' and the 'Regulations on the Registration and Management of Social Organizations.'" The December 2008 Circular does not refer to private non-enterprise organizations (minban fei qiye danwei) and appears to exclude them from applying for eligibility. Private non-enterprise organizations comprise 182,400 of the 413,967 NGOs in mainland China that are registered with the government, according to a September 2009 Xinhua article.

Both the July 2009 Working Guidelines and the December 2008 Circular stipulate additional requirements for "public welfare" social organizations seeking eligibility to receive tax-deductible donations. For example, Article 1 of the July 2009 Working Guidelines lists the requirements for social organizations (shehui tuanti) applying for eligibility. Among other requirements, Article 1 states that "in the three years before applying, each year's expenses on public welfare activities should be no less than 50 percent of last year's total expenditures and 70 percent of that year's general income." Article 1 of the July 2009 Working Guidelines also states that social organizations should be registered with the government for at least three years,and should not have received administrative punishment in the last three years. Social organizations passing annual inspections in the most recent year and receiving a score of 3A or higher on a government appraisal will also be eligible to apply, according to Article 1. The government appraisal listed in the July 2009 Working Guidelines is detailed in a Guiding Opinion issued in August 2007 by the Ministry of Civil Affairs. The August 2007 Guiding Opinion calls for civil affairs bureaus at the provincial level and below to assign NGOs that are registered with the government a numerical ranking from 1A to 5AAAA. The assigned ranking is based on a range of criteria, including compliance with relevant laws and regulations and the status of the Communist Party branch within the organization.

The government continues to exert control over NGOs in China. As noted in the Commission's 2009 Annual Report, national regulations issued in 1998 require that all NGOs register with the government. In order to register, all NGOs must have a government-approved sponsor organization. These requirements contravene Article 22 of the International Covenant on Civil and Political Rights, which provides that, "No restrictions may be placed on the exercise of [the right to freedom of association] other than those which are prescribed by law and which are necessary in a democratic society in the interests of national security or public safety..."

For more information on non-profits in China, see Section III―Civil Society (pp. 50-57) in the CECC 2009 Annual Report.