The NPO Law allows civil society organizations to easily acquire nonprofit corporation status. It was established on March 19, 1998, and came into force on December 1 of that same year. A major difference between this and previous laws was that it came about as a result of many ideas being passed back and forth. Ordinary people transcended factions to engage in dialog with Diet members, holding study sessions and gatherings throughout the country during the process. Their aim was to affirm the “public interest activities of citizens” and legislate accordingly.
Until the NPO Law was enacted, the government served the public, and ordinary people were to engage only in for-profit activities that served their own interests. There was no recognition (at least institutionally) of the idea of “public interest activities of citizens.” According to the public service corporation system under the Japanese civil code, which was enacted at the end of the 19th century, organizations not engaged in certain government-designated areas of activity or not meeting government approval standards were unable to acquire a legal personality, and their activities were placed under the control of the competent authorities (the state and prefectures). This caused many problems for unincorporated organizations, such as a resulting lack of social credibility, inability to manage their assets as an organization, and in the case of those engaged in overseas efforts, inability to officially participate in international conferences. Some even had to acquire for-profit corporation status despite being engaged in non-profit activities.
It was during this period – the 1980s – when civil society groups began seriously discussing and deliberating the need for a system that would make incorporating easier. The Great Hanshin Earthquake*1, which hit right beneath an urban area in January 1995, gave the matter a final push. Many people who had never participated in volunteer activities before joined in the relief efforts, and an awareness of the importance of volunteering grew quickly among both government officials and ordinary people.
Following the disaster, a group of government authorities interested in the issue of volunteerism sought to enact an incorporation system to support volunteer activities. Social demands went beyond this, however, and called for a legal system that would promote civil society activities at a wider level. A number of civil society organizations called for the enactment of a new system for nonprofit organizations, resulting in a liaison committee being set up in April 1995.
Both the ruling and opposition parties submitted draft bills to the Diet on the issue of encouraging the activities of civil society. Together with the Democratic Party of Japan, the above-mentioned liaison committee took the strategy of calling for revisions to the ruling party’s draft. After much dialog between the government and the people, the Law to Promote Specified Nonprofit Activities was passed in 1998 and enforced in December of the following year.
*1 A major earthquake (magnitude 7.3) that took place on January 17, 1995, off the northern part of Awaji Island in the Akashi Straits of Japan. It was a shallow inland earthquake that affected an aging society, and was the biggest disaster to have taken place since the war. Volunteers from all over the country rushed to the disaster-hit areas to help. In the year directly after the earthquake, 1.38 million people had engaged in relief work, with 10,000 volunteers working there all at once during peak times.
The purpose of this law is to promote the sound development of specified nonprofit activities in the form of volunteer and other activities freely performed by citizens to benefit society, through such measures as the provision of corporate status to organizations that undertake specified nonprofit activities, (as well as establish a system to recognize specified nonprofit organizations that are contributing to the advancement of the public welfare and whose management system and activities are reasonable) and thereby to contribute to advancement of the public welfare.
The legal status of the NPO Law is as a special law under Article 34 of the Civil Code, which prescribes the establishment of public interest corporations. Although public interest corporations are part of a system under the competent authorities, NPOs are different in that they acquire their nonprofit corporation status through a system of certification under the concerned authorities (similar to a standards-based approach). As it is a special law under the Civil Code, however, nonprofit activities are restricted to 20 specific areas.
To become an NPO, the organization must have the chief purpose of engaging in nonprofit activities in one of 20 specific areas as mentioned above, as well as meet the following conditions below.
The duty to pay certain taxes arises upon incorporation as an NPO. NPOs are generally exempt from the corporation tax (a national tax), but any income they have from profit-making activities as stipulated under the Corporation Tax Law is subject to the same tax rate as a company. NPOs must file the required corporation tax paperwork at the tax office.
No particular tax benefits are available if an individual or a corporation makes a donation to an NPO. The following tax breaks are provided in the case of donations made to a certified NPO.