Taiwan

Overview

Taiwanese people donate time and money for charitable purposes, but only to family members and close acquaintances. They are not accustomed to giving to strangers. Giving money to an intermediary organization to manage and use the money on the donor's behalf for different charity works is also very uncommon.

The matter relates essentially to the Chinese system of quanxi or personal connections. The quanxi connections extend to those who share a certain identity (village, town, province, or alma mater).

People in Taiwan are interested in giving for religious purposes and benefits. Public donations can also be easily collected during disasters, for example earthquake, for helping the victims. So far the donation to the third sector organization is concerned Taiwanese people tend to prefer organizations that are associated with charismatic or famous personalities.

Policy Environment

Due to the end of the martial law in 1987 and government's liberal policy, Taiwan's nonprofit sector has expanded and diversified. Many new third sector organizations have been created to meet the people's new demands generated by the social and political changes since 1987.

A major policy development has been the initiation of 'community-oriented welfare approach' to privatise social welfare services through the nonprofit sector. The government has been 'contracting out' some social welfare service responsibilities to the qualified non-profit organizations and foundations.

Taxation

A third sector organization cannot provide any economic benefits to any person other than the beneficiaries as stipulated in the governing document. Further, no foundation is allowed to lend the directors any fund for private use. The regulating agency may bring civil or criminal court actions against the NPO to recover the improperly transferred assets should their corrective orders not be heeded to in the time period allowed for corrective action.

All third sector organizations are liable to pay all taxes, duties, and levies chargeable to individuals or for-profit enterprises. Third sector organizations are, however, allowed tax exemption for certain entities or items. For example, educational, cultural, public interest, and charitable organizations established in accordance with the regulations are exempt from income tax.

The government, as a principle, has not made special effort in its tax policy to encourage donation or corporate giving from the individuals or business community. Although in the Charter of the recently established National Foundation for Culture and Arts, a government foundation in nature, specific stipulation is made to facilitate corporate contribution and donation, no special tax exempt incentive is provided. The Council on Cultural Development and Planning, the central government branch in charge of cultural affairs, however, can issue a certificate of appreciation to the corporate body that has made substantial contribution to the Foundation. At present, corporate donation to the non-profit sector can be tax exempted up to 30% of its total annual business revenue, and the tax exempt ratio for individual is 10% of the personal income for a year.

In order to receive income tax exemption for a financial year, a third sector organization must fulfil ten conditions. For example, the organization should have proper registration, must use resources in accordance with the stated objectives of the foundation, must follow the restrictions related to the operational and financial involvement of the donors, etc. A third sector organization fulfilling the conditions may apply to the National Tax Bureau for income tax exemption for the financial year concerned. The NTB judges the case on the ten criteria established for the purpose and if satisfied grants the third sector organization the tax-exemption status for the year, if not, asses the income tax.

The continuation of the income tax exemption status depends on the continued compliance with the criteria during the year. If the NTB, during its periodic screening process, detects any violation of the conditions in the third sector organization it has the authority to repeal the tax-exempt status of the third sector organization and assess income tax for the year. Thus the monitoring process by the NTB is very stringent.

If an NPO qualifies for income tax exemption, it will not pay tax on contributions and gifts received. It will also be exempted from paying tax on its passive investment income (dividends, interest, rents, royalties, and the like). Income generated from the sale of goods or services by a private school that complies with the provisions of the criteria and established with the approval by the competent authority is exempt from income tax. The net proceeds of these activities must, however, be used entirely by the NPOs themselves. The private school must use that money for the implementation of a plan, formulated as per the Article 62 of the Private Schools Law and approved by the respective government agency, in the next three years. In all other cases, the income derived by an NPO from the conduct of income-producing activities is taxable. However, if its income is not sufficient to finance the cost of conducting the NPO activities in support of its stated purposes, the excess cost may be deducted from the NPO's taxable income.

If a non-profit organization disagrees with the government regarding its qualifications for tax exemption, the NPO may file for a reassessment with the authorized tax agency, and if that does not succeed, the NPO may request a ruling from the National Tax Bureau. If the NPO is not satisfied with the ruling, it may file an administrative complaint with the Ministry of Finance. The NPO may appeal the MOF decision to the Administrative Court- whose decision shall be final on that particular case. However, unless the Administrative Court specially orders that its ruling on that particular case constitute a legal precedence, the MOF or the tax authorities will not be bound by the decision on other similar cases.

The contributions and donations made by a legally registered for-profit organization to an educational, cultural, public interest, or charitable nonprofit organizations may be regarded as an expense or loss in the year it is made. The allowable limit for tax deductibility of the corporate donation is limited to a maximum of 30% of its annual revenue and is calculated on the basis of a formula prepared by the Ministry of Finance.

An individual's donation to legally incorporated third sector organizations is tax deductible to the limit of 10% of his/her annual gross income or NT$200 million, which ever is less.

References:

Feng, J.Y. (1999). 'Taiwan', in T. Silk (ed) Philanthropy and Law in Asia: A Comparative Study of the Nonprofit Legal Systems in Ten Asia Pacific Societies (San Francisco: Jossey-Bass Publishers).

Pye, L.W. (1985). Asian Power and Politics: The Cultural Dimensions of Authority (Cambridge, Mass: Cambridge University Press).

Pye, L.W. (1999). 'Civility, social capital, and civil society: Three powerful Concepts for Explaining Asia', The Journal of Contemporary History 29:763- 77.

Yang, M.M. (1994). Gifts, Favors, and Banquets: The Art of Social Relationships in China (NY: Ithaca).