About NPO Law

How the NPO Law came about and why it was important

 

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 law and previous ones was that it emerged from extensive back-and-forth discussions. Ordinary people, transcending various factions, engaged in dialogue with Diet members, holding study sessions and gatherings across the country throughout the process. Their aim was to affirm and legislate for “public interest activities carried out by citizens.”

Before the NPO Law was enacted, the prevailing view was that the government was responsible for serving the public, while ordinary citizens were expected to engage only in for-profit activities that served their own interests. The concept of “public interest activities carried out by citizens” was not recognized, at least institutionally.

Under Japan’s public service corporation system, established by the Civil Code in the late 19th century, organizations that were not involved in specific government-designated activities or did not meet government approval standards could not acquire legal personality. Their activities were also subject to control by competent authorities (the state and prefectures). This created numerous problems for unincorporated organizations. They suffered from a lack of social credibility, could not manage their assets as an organization, and those involved in overseas efforts were unable to officially participate in international conferences. Some groups even had to register as for-profit corporations despite their non-profit endeavors.

It was during the 1980s that civil society groups began seriously discussing and deliberating the need for a system that would make incorporating easier. The Great Hanshin Earthquake*, which struck directly beneath an urban area in January 1995, gave the matter a final push. Many people who had never participated in volunteer activities before joined the relief efforts, and awareness of the importance of volunteering grew quickly among both government officials and ordinary citizens.

Following the disaster, a group of government authorities interested in volunteerism sought to enact an incorporation system to support such activities. However, societal demands went further, calling for a legal framework that would promote civil society activities on a broader scale. A number of civil society organizations advocated for the enactment of a new system for nonprofit organizations, which led to the establishment of a liaison committee in April 1995.

Both the ruling and opposition parties submitted draft bills to the Diet aimed at encouraging civil society activities. The liaison committee, collaborating with the Democratic Party of Japan, adopted a strategy of pushing for revisions to the ruling party’s draft. After extensive dialogue between the government and the public, the Law to Promote Specified Nonprofit Activities (aka NPO Law) was passed in 1998 and enforced in December of the same year.

* A major earthquake (magnitude 7.3) struck Japan on January 17, 1995. Occurring off the northern part of Awaji Island in the Akashi Straits, it become the biggest disaster since World War II. Volunteers from all over the country immediately rushed to the affected areas to help. In the year directly following the earthquake, 1.38 million people participated in relief efforts, with as many as 10,000 volunteers working simultaneously during peak times.

 

Aim and content of the NPO Law Article 1

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.

Section in parenthesis added during April 2012 revision

 

NPO areas of activity

The NPO Law holds a unique legal position as a special law under Article 34 of the Civil Code, which typically governs the establishment of public interest corporations. While Public Interest Corporations operate under a system of direct governmental oversight by “competent authorities,” NPO Corporations differ. They acquire their nonprofit corporate status through a certification system under “concerned authorities,” which is more akin to a standards-based approach. However, because it remains a special law under the Civil Code, NPO activities are restricted to 20 specific areas.

 

Requirements for becoming an NPO Corporation

To become an NPO Corporation in Japan, an organization must primarily engage in nonprofit activities within one of the 20 specific areas mentioned previously, and also satisfy the following conditions:

  • Its purpose must not be to generate profits. Even if profits are made, they cannot be distributed to constituent members, and upon dissolution, any remaining assets must be donated to the government or similar public entities.
  • Its rules regarding the acquisition and loss of membership qualifications (for individuals with voting rights at the general assembly) must be reasonable.
  • It must have at least ten members.
  • It must have three or more directors and at least one auditor.
  • Its main purpose must not be to conduct religious or political activities.
  • It must not aim to recommend, support, or oppose a candidate (including a prospective candidate) for public office, a person holding public office, or a political party.
  • It must not be a violent criminal organization, nor be under the control of one.
  • The number of officers receiving remuneration must not exceed one-third of the total number of officers.

 

Tax issues

Corporation Tax

Upon incorporation as an NPO Corporation, the duty to pay certain taxes arises. Generally, NPOs are exempt from corporation tax (a national tax). However, any income they earn from profit-making activities, as stipulated under the Corporation Tax Law, is subject to the same tax rate as a regular company. Therefore, NPOs must file the necessary corporation tax paperwork with the tax office.

Tax system for donations

In Japan, there are generally no specific tax benefits if an individual or corporation makes a donation to an ordinary NPO. However, the following tax breaks are provided for donations made to a Certified NPO Corporation:

  • For Individuals: Donors can receive either a tax credit or an income deduction corresponding to the donated amount, subject to certain restrictions.
  • For Corporations: Donations can be included as expenses corresponding to the donated amount, also with certain restrictions.
  • Inheritance Tax Exemption: If an individual donates an inheritance to a Certified NPO, the donation is exempt from inheritance tax.
  • For Certified NPOs Themselves: If a Certified NPO Corporation uses income generated from a profit-making activity for a non-profit making activity (which is deemed a donation), this amount is calculated as a loss corresponding to the donated sum, again with certain restrictions.

 


References

  • Yuka Haruta, “NPO-ho no seiritsu to nihon NPO senta no torikumi (The establishment of the NPO Law and the activities of JNPOC),” in Gyosei, Shimin Shakai Souzou no Junen (The Ten Years of Creating Civil Society) (2007)
  • Kenji Yoshida, “Ima ichido, tokutei hieiri katsudo sokushin-ho no shushi wo kangaeru (Let’s stop and think about the significance of the NPO Law),” in Shiten Ronten (Viewpoints and Issues) (online series of articles)
  • Fire and Disaster Management Agency, “The Impact of the Great Hanshin-Awaji Earthquake”, May 19, 2006
  • Kobe Shinbun NEXT, Great Hanshin-Awaji Earthquake Statistics