Non-Profit Organization Requirements for Tax Exemption Explained

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Photo: Red Cross Society of China Dec. 9 – The Ministry of Finance (MOF) and the State Administration of Taxation (SAT) has released a circular explaining the requirements needed by non-profit organizations (NPOs) to qualify for tax exemption.

NPOs are eligible for tax exemption for five years. After that, NPOs must re-submit applications for the tax benefit within 3 months before expiry of the tax-exempt qualification. Failure to do so will make the organization’s tax qualification invalid.

According to the regulations, organizations must fulfill the following requirements:
1. They shall be institutions, non-governmental organizations, foundations, private non-enterprise units, and centers for religious activities which have been legally set up and registered within the country as well as other organizations recognized by MOF and SAT;

2. They shall engage in public welfare activities or non-profit activities, which take place within China;

3. The incomes received shall be fully used for public interests or for non-profit acts which have been approved in the registers or stipulated in the constitutions, in addition to reasonable expenses related to the organizations;

4. The assets and their yield shall not be distributed, except in the reasonable expenditure of wages;

5. According to the approvals from the registers or stipulations in the articles of association, the rest of the organizations’ assets are to be used for the public welfare or non-profit purposes or to be re-donated, upon their dissolution, to other institutions which have the same nature and objectives as them according to the administration of registers, and a public announcement has to be made;

6. The donors cannot reserve or be entitled to any property rights of the assets they put into the organizations. Donors in this article refers to the legal entity, citizens or other institutions, except the people’s governments at all levels and their departments;

7. The expenses for the worker’s salary and welfare shall be controlled within a stipulated scale, and the assets of the organizations shall not be distributed in secret. The average payroll of workers shall not be more than twice the wages within the location of the taxation registration office during the previous year, and the welfare of workers shall be in accordance with the relevant national regulations;

8. The previous year’s inspection results of institutions, non-governmental organizations, foundations and private non-enterprise units’ shall be qualified, unless the institutions, non-governmental organizations, foundations and private non-enterprise units have been set-up or registered during the current year;

9. The taxable incomes and their relevant costs, expenses, losses shall be checked separately from the tax-exempt incomes and their relevant costs, expenses and losses.

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