After two drafts of the law regarding the management of overseas NGOs in Mainland China, the final draft of the law was passed earlier this month. Prior to the final draft, we already saw how the anticipation of the new law was affecting foreign NGOs in China and those who were preparing to come to China.
Below is a brief summary of the 12 sections of the law:
- General Principles – This section defines why this law is in existence, which organizations and programs fall under this law, and the overarching guidelines for these ‘charitable causes.’
- Charitable Organizations – Charitable organizations are defined as regulation abiding not-for-profit entities, which are focused on executing charitable activities that support the society. These organizations must register with the civil affairs department at the county level or above and will receive a written response to the application within 30 days of submission. Regulations regarding the infrastructure of these organizations including the governing and financial structures are addressed as well as circumstances in which a ‘charitable organization’ can be stripped of its legal status.
- Charitable Fundraising – Charitable organizations that have obtained legal registration for two years may apply to receive a certificate to publically fundraise. The civil affairs department will respond no later than 20-days after the application has been submitted. Reasons for denial will be written and sent to the organization. The parameters within which organizations with the proper certificate can publically fundraise are listed including those who are doing so in response to an emergency such as natural disasters or public health epidemics.
- Charitable Donations – The requirements of donors and recipients are listed including donors’ need to provide quality inspection certificates for all items given. An agreement must be signed if donors are giving a service or organizing a funds-generating activity. If requested by donors, the receiving charitable organizations must also sign a written donations agreement. Donors will also required to fulfill the terms of any contract signed.
- Charitable Trusts – This law defines a charitable trust as a public interest trust where a principal with the charitable intentions enlists a trustee to manage and distribute the property in accordance to the principal’s wishes. Broad strokes of the structure and liabilities involving these trusts are listed.
- Charitable Assets – Charitable assets are defined as founding capital either donated or funded by the founder(s), legal assets or assets from fundraising. Assets must be used in accordance to the organization’s charter, which has already been reviewed by the civil affairs organizations for the organization to gain legal status. All donations and investments must be thoroughly documented and the use of these assets and commission of design work must be done with due diligence as to ensure all laws are upheld and that resources are efficiently and effectively used. Annual expenditures for charity activities by foundations registered to publically fundraise are required to be no less than 70% of the total revenue of the last year or 70% of its average revenue from the previous three years. The annual management fee should not exceed 10% of the annual expenditures. See the law for more details on the percentages of how assets can be used.
- Charitable Services – Charitable services are categorized as uncompensated volunteer work and other not-for-profit services provided out of a charitable spirit regardless of the entity type. Those services with specialized skills such as medical or educational services must adhere to state or industry standards. Relevant training and conditions should be provided to volunteers and all charitable services should be done with respect and in accordance to the proper privacy and legal rights.
- Disclosure of Information – Records shall be made available for the public in a timely yet currently unspecified manner. This includes public interest donations, annual reports, tax rates, pre-tax deductions, purchasing services, evaluation and inspection reports, commendations, penalties, and any other information required by other laws and regulations. A broad outline has been listed in this section but no specific time frames have been listed.
- Promotional Measures – These measures are vaguely listed. For example, there will be tax benefits for charitable organizations and donations can qualify for a tax benefit but the specific amounts are not specified. Government entities will also promote and support these charitable organizations and encourage corporations, public institutions and other entities to do so but detailed ways in which this will be done are not listed.
- Supervision and Management – This section states the civil affairs departments of the people’s governments at the county level or higher will oversee these charitable activities and the specific activities in which this will be done.
- Legal Responsibility – Ways in which charitable organizations may violate this law are listed here. Please refer to the link below for the specific violations.
- Supplementary Provisions – Non-charitable organizations can execute the work of charitable organizations. This law will go into effect September 1, 2016.
There were many differences between the previous drafts and the final law including some of the following larger key points:
- Registration – While there will be a more intensive registration process, the overseeing government entity will be required to respond to applicants within a specific time period after submission. Previous drafts stated that the representative offices in China would not be permitted to hire local staff but the final law states these offices will be allowed to hire one local chief representative and up to three local staff members. Representative offices will now be able to stay in China for an unlimited time unlike the previously proposed limit of five years.
- Protection – The overseeing local government agency will provide more protection for the legally registered foreign NGOs especially in regards to the protection against fraud.
- Relationships with local NGOs – Foreign NGOs no longer need to partner with local NGOs, which allows for more flexibility.
- Finances – All financial records, fundraising, and expenditures will be closely monitored by the overseeing government entity.
- Accountability – The public security authorities will oversee all foreign NGOs. Previous drafts stated that government officials have the right to enter a foreign NGOs office and check any files and computers at will. The final law is much milder and states officers have the right to question staff members outside of the office and maintain the right to ban the entity from China.
- Research and public entities – Overseas schools, hospitals, scientific and engineering technology research institutions, and academic organizations are exempt from this law.
The specifications of how this law will be implemented and upheld have not been solidified and there is currently much debate within the sector regarding how this new law will affect the landscape of the nonprofit industry in China. As published currently, this law will have a negative impact on local NPOs previously accepting foreign donations and will stunt the growth of China’s nonprofit sector.