Private Philanthropy

Country Reports: Asia Pacific

The International Journal
of Not-for-Profit Law

Volume 1, Issue 3, March 1999


A review of the book Philanthropy and Law in Asia, edited by Thomas Silk, can be found in the book reviews section.


The Australian Tax Office (ATO) has issued a draft statement on the income tax treatment of income derived from cultural activities in Australia organised by foreign non-profit organisations. The draft ruling indicates that the profits from such activities are exempt from Australian income tax only if:

  • there is a specific provision in a tax treaty concluded by Australia exempting the income (e.g. in the case of a cultural exchange program or a visit substantially financed by the public funds of the entertainer’s home state); or
  • the organisation is exempt from income tax in the state where it is resident, and Parliament decides to grant an exemption by regulation under sections 50-45 and 50-70 of the Income Tax Assesssment Act 1997.

In other cases, the profits of the foreign organisation may be liable to Australian income tax, even if the organisation does not have a permanent establishment in Australia. (ATO Draft Taxation Determination TD 98/D16, 21 October 1998)


1. Legal Framework

On Octeober 25, 1998, the State Council promulgated three sets of regulations affecting NGOs. Two of these have been translated into English – the Regulation of the Registration and Management of Associations (Social Organizations) and the Interim Regulations on the Registration and Administration of Private Non-Enterprise Units (PNUs). The third, on other not-for-profit institutions, will be reported on as soon as it is available in English. Other expected regulations, including regulations on foreign organizations have not yet been issued.

Taken together the new regulations represent an attempt by the State Council to provide a legal environment within which both old (associations, sometimes known as social organizations) and new (PNUs) forms of domestic NGOs can operate in China. Nonetheless, the regulations themselves are disappointing in their approach. It appears that the State Council responded to what it considers to be difficult political circumstances by promulgating regulations that are quite strict by international standards. There is little question that the regulations will make more difficult for China’s nascent civil society to grow quickly. On the other hand, many NGOs are pleased that the regulations have been issued, as they do define the legal structure more clearly than the previous rules had done.

Major problems with the regulations for associations have to do with the difficult procedures and requirements for their establishment; the failure to provide an appeal procedure if the proposed association is denied approval of preparation for the establishment of an association; and the stiff penalties provided for a variety of activities, including making preparations for the establishment of an association without permission. Although these regulations make it clear that individuals may found an association (something that was not clear in the 1989 regulations), the number required – 50 – is so high as to make highly unlikely the creation of a body designed to serve public interests that are not completely mainstream. In addition, the cumbersome registration procedure – which requires a preparation process prior to the actual registration process – will serve to dissuade all but the most determined individuals from trying to set up an independent entity.

The regulations on PNUs (defined as “social organizations which are established by enterprises, institutions, associations or other social forces as well as individual citizens using non-state assets and conducting non-profit-making social service activities”) share with the regulations on associations a reliance on what is called a “competent business unit” for much of the regulatory responsibility. The CBU is a line ministry or other organ of the state with relevant jurisdiction over the activities to be carried out by the association or the PNU. The CBU is required to approve the application for permission to establish an association or to register a PNU. In addition, the CBU exercises various forms of control over the organizations once they are established, including conducting annual review of the activities, etc. Although the permission to found PNUs represents a more liberal approach to organizational form than existed previously, the failure to allow greater freedom of activity for either associations of PNUs is disappointing.

It is apparent that greater freedom for civil society will become available only when the National Peoples’ Congress begins to develop its own legislative approach to the regulation of NGOs. Perhaps the legislation being considered for donations (see below) will provide an opportunity for the NPC to become involved in creating a more enabling legal environment for China’s NGOs.

Copies of the official translation of the two regulations can be obtained from the Ministry of Civil Affairs in Beijing or from ICNL.

2. Taxation

The State Administration of Taxation has confirmed that the notice on the tax treatment of donations by banks and insurance companies for relief from disasters remains in force. The notice provides that donations made by banks and insurance companies are deductible if the donations do not exceed 1.5% of their taxable income in a given tax year; the excess is not deductible. This is in contrast to donations by other companies, for which the limit is 3% of their taxable income. (Guo Shui Han [1998] No. 618, 19 October 1998)

3. Fiscal legislation

During a recent visit to the United States (sponsored by the Asia Foundation), Wang Shihu, Director of the State Organs Law and Administrative Law Department of the Legislative Affairs Commission of the Standing Committee of the National People’s Congress and his colleagues described the proposed new legislation that will regulate donations to NGOs in China. The proposed legislation has been under consideration for some time, and its scope has been expanded as the number of NGOs active in China has increased and as the level of activity of Chinese NGOs has expanded. In addition, although the original focus of the legislation was on donations from overseas Chinese, the growth of private enterprise in China has increased awareness of the need for tax incentives for various other donors and potential donors to appropriate social service activities. Nevertheless, the legislation will have only a limited impact on the donations of ordinary Chinese citizens because most Chinese do not file tax returns and thus cannot avail themselves of a deduction for donations.

Mr. Wang outlined various issues that the NPC has been looking into as it develops the legislation:

The scope of the activities to be encompassed by the law.

It is thought that the scope should be fairly broad, including not only traditional charitable, cultural, educational, etc., activities, but also social and economic development activities.

The need to clarify the relationships between the donor, the organization that receives the donation, and the beneficiaries.

Several issues have arisen when it comes to defining these relationships. One concerns whether the donor can control what happens to his/her gift or whether the organization has control; another concerns the means for determining the benefit to society; a third deals with the issue of a contractual relationship between donor and donee and whether the contract is enforceable. An understanding of the common law “trust” is being developed, and its use in Japan is being studied.

The methods for administering the assets given by donors to organizations/foundations.

Mr. Wang identified three different types of oversight over the assets – donor oversight, government oversight, and self-regulation. Later in the discussion he stressed how the oversight over NGOs in China is spread among many organs of government. Although the three regulations discussed above grant powers to the Ministry of Civil Affairs and the line ministries, the new law on gifts will vest powers in the People’s Bank of China, the National Tax Bureau, and the Audit Agency, The new law is expected to replace regulations on foundations promulgated by the State Council in 1988 and to refine and clarify some of the oversight issues raised by them. Reliance on self-regulation is not yet well-developed, as the organizations have not had much experience with self-regulation.

The tax benefits to be accorded to donors.

The new law will seek to make permanent the existing allowance of a deduction of up to 3% of profits for donations made by corporations. It would also permit donations by individuals to be deducted within a limit of 30% of profits. While these limits are not overly broad, they do compare favorably with the practice in other countries. Nonetheless, the fact that most Chinese do not file tax returns makes the access to the tax deduction for individuals quite limited. The delegation reported that in the past year, during the severe flooding, individuals who had made gifts to organizations aiding the victims have sought tax relief. In response, the tax authorities have been trying to determine how to implement a tax relief system.

The administrative structures for oversight of the various aspects of the donation system.

Mr. Wang and the delegation reported that they think the government needs to develop better oversight capacity to ensure that donations are properly used by organizations and to ensure that foundations properly carry out their purposes. He emphasized the need for further study to ascertain what systems work in these areas. The complex regulatory structure, with many different bodies exercising jurisdiction over these matters might need to be simplified.

Another member of the delegation, Mr. Xu Anbiao, stressed that Chinese administrative law gives priority to later-enacted legislation. That means that the new legislation can clarify some gaps in older legislation and existing regulations. It may help to resolve discrepancies that currently exist.

For further information about the discussions of the proposed legislation, please contact Karla Simon at ICNL.

New Zealand

1. In December 1998 a report on tax compliance by New Zealand taxpayers was issued. The report includes a series of recommendations concerning charities and other tax exempt entities:

  • the law and practice concerning the exemption from income tax of amateur sports bodies should be reviewed;
  • the income threshold (currently NZD 1,000), below which non-profit organisations do not have to file a tax return, should be reviewed;
  • the exemption from income tax of certain income derived by charities from commercial activities should be restricted to activities related to their exempt purpose;
  • the exemption from fringe benefits tax of benefits provided by charities to their employees should be repealed;
  • superannuation schemes for the benefit of employees of a charity should not be eligible for charitable status.

The final recommendation derives from the decision in Presbyterian Church of New Zealand Beneficiary Fund v CIR (1994) 16 NZTC 11,185 that the superannuation scheme furthered the charitable purpose of the employer. (Report to the Treasurer and Minister of Revenue on Tax Compliance, December 1998)

2. The Government has announced a review of the taxation of Maori authorities, which covers almost every person administering or controlling property or income in trust for the benefit of Maori people. The review will consider, inter alia, the public purpose test for charitable purposes and how this should be applied to iwi and hapü trusts (where the beneficiaries are frequuewntly connected with the trust through a personal relationship). (Executive Government Media Release 15 March 1999)

Papua New Guinea

VAT will be introduced in Papua New Guinea (PNG) with effect from 1 July 1999. The tax is based on the Goods and Services Tax in New Zealand, and will be levied on all goods and services supplied in, or imported into, PNG after 30 June 1999. The standard rate of tax is 10% but there are a limited number of exemptions and zero-rated supplies. The exemptions include supplies of health and education, newspapers, and public road transport. Zero-rated supplies include medical equipment and supplies to prescribed foreign aid providers. There is also a specific relief for the education sector in the form of a refund of VAT on the purchase of textbooks and other educational materials that are provided to students of the educational institution. (Value Added Tax Act 1998)

the Philippines

The Philippine Council for NGO Certification (PCNC) recently presented the following Power Point presentation at a conference.


The government has introduced a bill to amend estate duty, which includes proposals to exempt from estate duty gifts and bequests to any institution of a public character, and to repeal the existing list of institutions in respect of which gifts have been granted specific exemption. (Estate Duty (Amendment) Bill 1998, gazetted 13 November 1998)


On 20 October 1998 the government issued a new law on the recruitment of Vietnamese staff by foreign organisations in Vietnam, including project and representative offices of foreign NGOs. With effect from 1 January 1999, foreign NGOs wishing to employ Vietnamese staff must file a request with the labour bureau of the Ministry of Foreign Affairs, which will authorise approved Vietnamese staff to sign employment contracts with the foreign employer, and will carry out the relevant administrative and personnel formalities. Once engaged, Vietnamese staff can be sent abroad for training courses if written notice is given to the relevant labor bureau. (Vietnam Investment Review, 23-29 November 1998)