How to launch a Non-Profit Organization in Japan
Recently several people 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 that we have to take note is — 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 laws.
NPO is under Act on Promotion of Specified Non-profit Activities. General Association and General Foundations are under Act on General Incorporated Associations and General Incorporated Foundations. In addition, there are
Act on Authorization of Public Interest Incorporated Associations and Public Interest Incorporated Foundation for organizations whose purpose meets public interest.
NPO has two types : the regular NPO and the “Approved” NPO. After 1 year we launch the regular NPO, we can ask the government to approve it.
General Associations and General Foundations can upgrade the status to Public Interest Incorporated Associations and Foundations. There are specific 23 categories that our activity must meet, and 18 rules that the organization must follow.
Tax Benefit
The first reason that people establish a non-profit organization is that they want to do social good. The second reason is often they can easily get donation from corporate sectors especially if the corporate members can get tax benefit.
- 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 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 is as follows.
- 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 manage its jurisdiction by its ordinance
Although we can control 1. & 2., 3. completely depends on the decision of municipality. The other types of organization are easy to register, but do not have much tax benefits.
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 NPO and upgrading it to “Approved” or “Specified” NPO is the way to go, but please 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.
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 to officers (director / 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 the total number, 1,177 is the “Approved” Specified NPO — only 2% approved.
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 the inspection of the government, what we need is to follow all the criteria/rules.
One of the reason that so many General Associations are incorporated is it’s 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 Public Interest Incorporated Association. In order to upgrade it, we do not have to wait for a year (like NPO), but practically many General Associations wait for the first financial statements since it will make the inspection process easier.
Corporate partners planning to donate for NPO?
Then NPO sounds good because the name of the legal entity states NPO and it’s easier for everyone to assume the organization is doing non profit activities.
Some General Associations do profit making activity (it’s completely legal), so some of your partners might be relieved to donate if it’s NPO.
This is the rough summary of how to incorporate a non-profit organization in Japan. Compared to the other western country, the concept of donation, charity or volunteer is not developed in Japan.
But everybody started talking about SDGs, ESG, social innovation, and social business nowadays, so Japan is catching up the tide of social impact.
Let’s hope the extra wealth goes to the right activity to support the less privileged members in our society!
