How to launch a Non-Profit Organization in Japan
Photo by Nathan Lemon on Unsplash
Recently several people have sent me inquiries about how to launch a non-profit organization in Japan, and there seems to be no information in English, so I decided to summarize the rough idea of how to start a non-profit organization.
No official NGO in Japan
The first thing to take note of — there is no legal entity called “NGO” in Japan.
Under Japanese law, we can establish NPO (and Certified NPO), Association (社団法人), Foundation (財団法人), and these are all specified under certain laws.
NPO is under the Act on Promotion of Specified Non-profit Activities. General Association and General Foundations are under the Act on General Incorporated Associations and General Incorporated Foundations. In addition, there is the
Act on Authorization of Public Interest Incorporated Associations and Public Interest Incorporated Foundation for organizations whose purpose meets public interests.
There are two types of NPO: the regular NPO and the “Approved” NPO. One year after we launch a regular NPO, we can ask the government for approval to “ascend” into the second type.
General Associations and General Foundations can upgrade the status to Public Interest Incorporated Associations and Foundations. There are 23 specific categories that our activities must meet, and 18 rules that the organization must follow.
Tax Benefit
The primary reason that people tend to establish a non-profit organization is that they want to do social good. A secondary reason is so that they can easily receive donations from the corporate sector, especially if the donation may also provide tax benefits to donating corporate members.
Approved Specified Nonprofit Corporation (認定特定非営利活動法人)
Public Interest Incorporated Associations (公益社団法人）
Public Interest Incorporated Foundation (公益財団法人)
These three above organizations can get decent tax benefits, but it takes so much time to register these organizations because these must go through a criteria called PST (Public Support Test). The criteria are:
the donation out of all the income must be over 1/5
on average 100 donators must donate over 3,000 JPY every fiscal year
the organization must get certified by the municipality that manages its jurisdiction by its ordinance
Although we can control the first two listed criteria, the third completely depends on the decision of municipality. The other types of organizations are easy to register, but do not provide much tax benefits.
Photo by Elena Mozhvilo on Unsplash
Let’s compare!
Before making any decision, let’s compare the pros and cons of each types of organizations.
If you need to launch the organization ASAP, General Association is the way to go.
If your corporate partners are expecting some tax benefits, launching an NPO and upgrading it to “Approved” or “Specified” NPO status is the way to go, but make sure that you explain the timeline to the partners (in which case Japanese corporates tend to take time to make a decision…). It will take at least 6 months to launch a NPO, and at least 1 year to upgrade it to “Approved” status.
Comparison of non-profit organizations
Board of officers
One more thing we need to be careful is the number of members and officers.
If we go with NPO, we must have at least 10 members. Out of the 10 members, we must choose 3 directors and 1 auditor. Please keep in mind that the Article 21 of Act on Promotion of Specified Non-profit Activities warns that the NPO cannot include more than one relative of the four designated primary officers (directors and auditor).
(Exclusion of Officers’ Relatives)
Article 21 / The spouse or more than one relative within the third degree of kinship of each officer must not be included in the officers, or the officer, spouse and relative within the third degree of kinship must not account for more than one-third of the total number of officers.
Public Interest Incorporated Associations / Foundations have the similar criteria. The Article 5 (x) states as follows, and the number of relatives must be smaller than 1/3 of the total number of the members.
(x) With respect to each director, the total number of said director and his or her spouse or relatives within the third degree of kinship (including persons having special relationships specified by Cabinet Order with said director as those standing in a position similar to these persons) who are directors does not exceed one third of the total number of directors. The same shall apply to auditors.
Can we get approved?
The number of the regular NPO is 51,031 as of the end of September, 2020.
Out of that, 1,177 are “Approved” Specified NPO — only 2%.
The number of the associations and foundations is as follows:
Public Interest Incorporated Associations: 4,197
Public Interest Incorporated Foundations: 5,521
General Associations: 59,901
General Foundations: 7,496
(Reference : http://www.jfc.or.jp/bunseki/b1/ )
General Associations are the easiest legal form to incorporate, but still only 7% could upgrade the status to Public Interest Incorporated Associations.
Although it looks difficult to be “approved” or “upgraded” after inspection by the government, what we need to make sure to do is to follow all the criteria/rules.
One of the reasons that so many General Associations are incorporated is because of simple fact that it is easy to incorporate. Create Articles of Incorporation, pay ¥62,000, get notarized, submit the registration form at Legal Affairs Bureau, pay 50,000 — done.
No time?
If you need to incorporate a non-profit organization right away, go with General Association and plan/try to upgrade it to a Public Interest Incorporated Association. In order to upgrade it, we do not have to wait for a year (like NPO), but in the practical sense, many General Associations wait for the first year’s financial statements since it will help make the inspection process easier.
Corporate partners planning to donate to NPO?
In this case, an NPO sounds good because the name of the legal entity includes “NPO” and it provides credibility to the fact that the organization engages in non-profit activities.
Some General Associations do partake in profit-making activity (and yes, it’s completely legal), so some of your partners might be more inclined to donate if they can see that you are strictly an NPO.
This is the rough summary of how to incorporate a non-profit organization in Japan. Compared to other western countries, the concept of donation, charity, or volunteer is not as developed in Japan.
But with the recent trends in the topics of SDGs, ESG, social innovation, and social business on the rise, Japan is also doing what it can to catch up with the incoming tide of social impact-centric ideology.
Let’s work together towards putting extra wealth into the right activity to support the less privileged members in our society!
