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December 21, 2017

You’re Registered. Now What?

With almost 300 foreign NGO representative offices registered this year, implementation of the Foreign NGO Law has entered a new phase: management. For foreign NGOs that were operating informally or under a different status before, formal registration under the Foreign NGO Law may come with additional administrative requirements that they hadn’t had to consider before. A number of these requirements—though not all of them—relate to Article 24 of the law: foreign NGOs must adopt the Chinese unified accounting system and have their financial accounts audited by a mainland accounting firm.

New administrative requirements include:

  • Contracting a financial service provider, audit firm, and human resources provider. The financial service provider will draft the NGO’s grants and contracts. The human resources provider must handle the NGO’s hiring of Chinese staff.
  • Training staff on the Chinese accounting rules; obtaining financial software that meets the requirements of Chinese government accounting rules and being trained on its use.
  • Ensuring compliance with accounting regulations such as obtaining official receipts (fapiao) for every financial transaction—from disbursing a grant to buying a grantee a coffee at Starbucks. For disbursement of funds to grantees or consultants, foreign NGOs must use these fapiao to deduct income taxes from the grant or payment (previously it was left up to the recipient to declare the income), meaning that either recipients now net less money per disbursement, or the foreign NGO must increase the amount of their disbursements to keep the amount the same.
  • Ensuring Chinese language is used on all official documentation, including financial accounts, grant templates, and contracts, meaning that such documents will either be exclusively in Chinese or bilingual.
  • Obtaining new official seals, leases, signage, and stationery with the foreign NGO’s official registered office name. This will be necessary because registered offices’ official names follow a set pattern as required under the Foreign NGO Law. For example, “Generic NGO,” a U.S.-based non-profit registered in Beijing, would be officially registered as “Generic NGO (United States) Beijing Representative Office.” Multiple different seals may be required for different administrative purposes. Existing leases may need to be re-signed to show the official registered name of the NGO’s office in China.

Most of the items outlined above come with costs above and beyond what previously unregistered groups may have been accustomed to paying. For example, an unregistered NGO may have previously hired local Chinese staff directly; under the new system, the NGO must go through a Chinese human resources provider to make the same hire, and must pay for the provider’s services to do so.

These administrative requirements raise several questions about how foreign NGOs may need to change their practices. Might groups need to hire additional staff to handle the extra tax and accounting work? Does an increase in the use of Chinese in foreign NGOs’ internal documentation alter its headquarters’ ability to monitor the office’s activities, if no one at headquarters is proficient in Chinese?

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