Giving Thoughts

Proposed NGO Regulations in China and India

By Anita Whitehead, Managing Director, and Tim Stiles, Partner, KPMG LLP

International grants, domestic funding and impact investments are vital for the strengthening of civil society. Yet, an increasing number of countries are drafting legislation that imposes greater scrutiny on non-governmental organizations (NGOs). This update focuses on two of those countries, China, and India.

People’s Republic of China

The government of the People’s Republic of China (PRC) has released its second draft of a law that will regulate foreign NGOs operating within the PRC. The new law, referred to as the National Charity Law, can be seen as a preliminary step by the PRC regulators to standardize and guide all activities carried out by foreign NGOs. Some of the key points of the draft law as it relates to foreign NGOs with operations in the PRC are as follows:

• A representative office (RO) will need approval from the Ministry of Civil Affairs of the PRC and the Public Security Bureau for registration and will be under the administration of the Public Security Bureau.
• An RO’s duration shall not exceed five years. If the RO wishes to continue conducting activities upon expiration, it must reapply with the registration administration authority before the initial expiration date; otherwise, a compulsory deregistration by the registration administration authorities will be triggered.
• The RO must file its registration certificates, temporary activity permissions, and activity descriptions with the registration administrative authorities (i.e., the Public Security Bureau) on a timely basis.
• The RO must have one chief representative and up to three representatives. Moreover, the foreign staff members shall not exceed 50 percent of the RO’s total staff members.

The National Charity Law is expected to be approved in 2015. All organizations with operations or investments in the PRC should keep a close eye on the release of the National Charity Law as all foreign NGOs need to ensure that they are not violating PRC law, threatening PRC’s national security, harming the PRC’s national interests or the legal rights of other groups and citizens, or disrupting public order and morality, conducting or funding for-profit activities or political activities, or illegally conducting or funding religious activities.

India

The Indian government has recently increased its scrutiny of foreign-funded NGOs. This spring, the Indian government canceled Foreign Contribution Regulation Act 2010 (FCRA) licenses of around 8,975 NGOs. The Indian government cited that the FCRA licenses were revoked due to the NGOs’ failure to file annual returns and/or to respond to requests to file annual returns.

The FCRA regulates the receipt and utilization of foreign funds in India. The Indian government recently announced that in order to increase transparency, accountability, and real-time review of the receipt of foreign funds, new FCRA regulations may be introduced as early as mid-June 2015. The new regulations are likely to strengthen the government’s oversight and scrutiny of foreign-funded NGOs. Some of the key points of the proposed regulations are as follows:

• NGOs would be mandated to have a website on which they will be required to stipulate the details of each foreign inflow for public viewing within 48 hours of receiving the funds.
• Specific project information, such as the source of the funds and the intended activity for which the funds are expected to be used and the details of any partnering NGOs, would need to be posted.
• NGOs would be required to publicize their annual audited reports for previous years.

It is important for both foreign and domestic NGOs working in India to ensure proper and timely compliance under the various applicable regulations in India.

Given the changing environment in both China and India, it is critical that all foreign donors are aware of the laws and regulations governing NGOs and that donors ensure recipients are compliant with all the respective tax and regulatory laws.

About the author:

Anita Whitehead is a Managing Director with KPMG’s Development and Exempt Organizations practice. Based in Washington, DC, she assists global commercial organizations strategize their philanthropic vision and manage the legacy they wish to leave behind. KPMG’s DEO professionals are uniquely familiar with the trends affecting corporate responsibility, corporate philanthropy and charitable activities – including tax compliance services related to giving within the commercial environment.

Timothy Stiles is the National Practice Leader of KPMG’s tax exempt practice and the Global Chair of KPMG’s International Development Assistance Services (IDAS) practice. He is responsible for delivery of services to not-for-profit organizations and foundations participating in the program.