How Does Indonesia Control Its Charitable Organizations?
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Types of Organizations
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Indonesia consists of two principal types of charitable not-for-profit organizations--foundations and associations. However, according to the United States International Grantmaking (USIG) Council on Foundations, legal complexities arise due to the fact that "associations" are governed under Dutch law derived from Indonesia's colonization in 1870, while "foundations" are governed by more modern Indonesian law. Understanding the major difference between charitable foundations and associations is the key to understanding Indonesia's policies on regulating them. In a foundation, the supervisory, governing and executive boards are forbidden from legally receiving any benefit from the foundation, be it direct or indirect, such as a proprietary interest in the income or assets of a foundation, nor are they allowed to countermand a contribution. Also, upon liquidation, any remaining assets must be turned over to other organizations pursuing similar objectives. Conversely, the government does not regulate any proprietary interests in the income or assets of charitable associations. Additionally, upon liquidation of the association, board members are permitted to receive their contributions back from the existing assets.
Controlling Organizational Activities
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As a general rule, charitable organizations can undertake any activity or directive so long as it is not in violation of existing Indonesian law. However, before starting its intended activities, the organization must be vetted and approved by the country's Ministry of Law and Human Rights. The ministry does not require the charity to engage in activities that provide a public benefit, nor does it call for restrictions prohibiting alignment with political parties or interests. The charity, be it a foundation or an association, is allowed to establish itself as a commercial enterprise as long as all activities relate to the organization's fundamental, statutory purposes. However, board members in a foundation are expressly forbidden from serving in that same capacity in any commercial enterprise that the foundation establishes, invests in or supervises. There are no such regulations concerning association board members. If the ministry finds an association or foundation to be in violation of any existing law, it can revoke the organization's status and potentially bring criminal charges against its board members. It can also withdraw the organization's license if it deems the group a "threat to public welfare."
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Taxes and Reporting
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Donations and grants given to the charitable organization are not taxable so long as no business or commercial relationship exists between the two parties. However, existing law demands that any contribution of $70 or more be made public. According to the USIG, both corporate and individual taxpayers are able to deduct charitable contributions for the following specific areas: "natural disasters, research and development activities, development of social infrastructure, education facilities and sport." There is no government limit on the amount of a deduction. Additionally, scholarships issued by the organization are tax exempt. Taxable income, on the other hand, includes any profits realized by the organization upon the transfer or sale of assets.
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