China Issues New Rules Regarding Tax
Deductions and Charitable Donations
In
November 2009, the People’s Republic of China issued a formal clarification of law
regarding the scope of tax deductions for donations by
China’s residents to nonprofit organizations in China.
The document, called
Circular
122, states that income which nonprofit organizations
receive through donations, government subsidies, and other formats
determined by the Ministry of Finance and State Administration of
Taxation is deductible from the donor’s income tax obligations.
Circular 122 will be
retroactive to January 1, 2008, when
China’s new Enterprise Income Tax
Law was first enacted.
At the moment, China is also in the process of
drafting a new Charity Law with more extensive regulations governing
the public benefit portion of civil society.
In the last ten years, China has undergone major revisions
in its laws governing nonprofit organizations. There has been
growing national and international interest in Chinese nonprofits in
the last couple of years, especially after the Summer Olympic Games
held in Beijing in August 2009 and
the devastating earthquake in
Sichuan
province in May 2009.
Traditionally under the Communist state structure, no nonprofit
sector existed because the government was expected to provide all
needed charitable services for its citizens.
The changes in
China’s nonprofit laws in the past decade show
that a nonprofit sector is developing to accommodate the changing
needs and expectations of China’s citizens.
The changes also reflect the government’s efforts to
modernize and downsize itself.
However, many inefficient layers of nonprofit oversight and
management still exist at both the local and national levels.
These administrative inefficiencies were apparent in the
aftermath of the 2009
Sichuan
earthquake, when volunteers and donations were unable to mobilize to
help victims quickly and effectively.
It still remains to be seen what direction the new Charity
Law will take China’s
nonprofit sector, as Chinese citizens become increasingly interested
in participating in philanthropic activities.
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