Registration and Operation of NGOs and Taxation of NGOs
 
 
Registration and Operation of NGOs and Taxation of NGOs

CHARTER 1: Registration and operation of NGOs

  1. Legal forms of NGOs

The main law in the Russian Federation which regulates NGOs is the law "About Public Associations". It includes the lists of the following organizations:
-non-governmental organization;
-mass movement;
-public fund;
-non-governmental institution;
-local community body;
-political party;
-unions and associations.

As the NGO we can consider all mentioned above units except the political parties.
Another law – the law "About Non-Commercial Organizations" gives the following list of the organizations:
-public and religious organizations;
-the communities of aboriginal national minorities;
-the communities of Cossacks;
-foundations;
-governmental corporation;
-governmental company;
-non-commercial partnership;
-private institution;
-autonomic non-commercial organization;
-the united groups of legal entities (associations and unions).

From the mentioned list we can consider as NGOs the following units: foundations; non-commercial partnership; private institution; autonomic non-commercial organization; the united groups of legal entities (associations and unions).

So the legislation of the Russian Federation names the following types of NGOs:

  •  non-governmental organization – the aim: common activity for the protection common interests and reaching common aims in accordance with the statute of the organization;
  •  mass movement – it's a group of people who have common social, political or other aims of public utility;
  •   public fund – the aim: the forming of funds on the ground of donations, other legal sources of income and using these funds for the aims of public utility;
  •  non-governmental institution – the aim: providing services in accordance with the interests of founders; these services can be offered to general public;
  •  local community body - the aim: solving various social problems of citizens at the place of living, working or studying; this activity can satisfy the demands not only the participants of the body but general public as well;
  •  non-commercial partnership – is the organization which is founded to support the founders (physical and/or legal entities) to reach the following aims: social, charitable, cultural, educational, scientific or administrative;
  •  private institution – the aim: administrative, socio-cultural and other non-commercial activity;
  •  autonomic non-commercial organization – the aim: the services in the fields of education, health, culture, science, law, physical culture, sport etc.
  •  associations and unions – these types of NGO unite different NGOs for the reaching common interests.
  1. Who can register an NGO – physical or legal entities, foreigners

According to the art. 18 of the law "About Public Societies" public societies can be created by the initiative of their founders – no less than 3 physical entities. At the same time for some types of societies special laws can provide special regulation with another number of founders (for example – private institutions can be founded by one founder). Legal entities can be the founders of public societies as well.
Foreigners can be founders of public societies. At the same time some special laws can include restrictions for foreigners to be the founders or members in some situations. For instance the following categories of foreigners and apatrides can't act as founders for non-commercial organizations:

    •  Foreigner or apatride who has been legally considered as a person whom stay in the Russian Federation is not desirable;
    •  A person who is indicated in the list of extremists organizations;
    •   which implements extremistic activity when it leads to the violation of rights and freedoms; 
    •  A person who acts in the extremistic manner and it's determined by the decision of the court;
    • A person who is not satisfied the requirement indicated in the law.

 Governmental bodies and municipalities can't be the founders of public societies.

  1. Is there a minimum capital requirement

There is no minimum capital requirement for public societies.

  1. Is there a minimum requirement for number of founders/members

 

Generally the minimum number of founders of public societies is 3 physical persons. But the law "About Non-Commercial Organizations" says that one person can be the founder of a non-commercial organization (art. 15) except non-commercial partnerships, associations and unions (there is need in at least 2 founders) so funds can be founded by one person.
The founders of NGOs – physical entities – should be at least 18 y.o.
There is a law "About State Support of Youth and Children Associations" which regulates the associations which can include as members people under the age of 18 (children associations – from 8 y.o. and youth – from14 y.o.). But the rules for the foundation of youth and children associations are the same with other organizations – the founders should be at least 18 y.o.

  1. Where are NGO registered – in court, in a ministry

NGOs are registered in the Ministry of Justice (the Order of the President "The Questions on the Ministry of Justice of the Russian Federations").

  1. Grounds for refusal of registration and grounds for termination of registration

According to the art. 23 of the law "About Public Societies" the ground for refusal in registration are the following:

  • If the statute of a public society is in contrary to the Constitution or the legislation of the Russian Federation.
  • If there is no complete list of documents, or the documents haven't the appropriate form, or they are presented to non-relevant body;
  • If the person who appears as a founder has no such right (there is a list of cases when a person has no right to be a founder of NGO);
  • If another registered NGO with the same name works in the same region;
  • If there are invalid data in the presented documents and this fact is determined;
  • If the name of NGO offences the morality, national or religious feelings of citizens.

If the organization got the refusal they can make necessary corrections and apply again. There is no limitation for repeated applications.

  1. Structure of the NGOs

Different types of NGOs have different structure:

  • non-governmental organization – there is a membership within the organization; the superior body is conference or common meeting; the permanent ruling body is elected collective body which is accountable to the conference or general meeting
  • mass movement – there is no membership within the movement, there are participants; the superior body is conference or common meeting; the permanent ruling body is elected collective body which is accountable to the conference or general meeting
  • public fund – there is no membership within the foundation; the superior body is formed by founders and/or participants or by the election on the conference or general meeting
  • non-governmental institution – there is no membership within the institution; the administration of the property of the institution is made by the person/persons who is/are pointed by the founder/founders; there can be elected collective body (it's decided by the founders)
  • local community body; – there is no membership within the body; inner structure depends on the decision of founders
  • unions and associations – consist of other public societies
  • non-commercial partnership – there is a membership within the partnership; inner structure depends on the decision of founders – there are no special legal requirements (except general requirement to follow laws of the countr);  
  • private institution – inner structure and other conditions depend on the decision of founders
  • autonomic non-commercial organization – there is no membership within the organization; inner structure depends on the decision of founders
  1. Is there a public benefit status in your country?

 

NGOs have some benefits according to the legislation, among these benefits:

  • Tax benefits – especially for the organizations of people with disabilities but also NGOs have benefits for the property taxes, land taxes, transport taxes, state duties;
  • Possible governmental financial support within special programs;
  • Financial support from foundations established by the government or financed by the governmental bodies;
  • Governmental contracts for providing services or goods by NGOs for state needs;
  • Social governmental contracts;
  • Governmental subsidies for charitable organizations;
  • Governmental subsidies for youth and children organizations;
  • Advantages for using state and municipal property;
  • Etc.

As we can see there are no any significant benefits.

 

  1. Reporting requirements and oversight authorities – who is responsible for monitoring NGO activity?

According to the art. 29 of the law "About Public Societies" the societies must:

  • Each year inform the Ministry of Justice about the continuation of its activity and indicate the real location of permanently ruling body, its name and the names of the leaders
  • To present to the Ministry of Justice the financial report if the Ministry requires
  • Allow the representatives of the Ministry of Justice to visit the conducting activities
  • Inform the Ministry of Justice about the amount of donations from international and foreign organizations, foreigners and apatrides and about the ways of using these donations
  1. Possibility for direct economic activity

According to the art. 37 of the law "About Public Societies" public societies have right to conduct business activity but with the following condition – that should be only in those limits which are necessary for reaching the aims of the society e.g. the profit from this activity shouldn't be distributed among the participants of society but should be used to reach the aims of the society. The societies have also right to use the profit for charity. So they are free to conduct economic activity (and for these cases they are rules by the common regulations for the economic activity according to the Civil Code) but they have restrictions in the ways of the spending the results of this economic activity.
Public societies have right to act as founders for commercial organizations.

  1. Possibility to register a commercial company

According to the art 37 of the law "About Public Associations" have right to found commercial organizations for conducting business activity.

  1. Possibilities to engage in political/public policy activity

The main idea of NGOs in Russia is not the political activity but in fact many of them influence of the politics in the country and they have some authorities in this field.
NGOs are free to conduct any legal activity in accordance with their aims as far as it's not directly forbidden by the legislation so they are able to run the following types of the activities:

    • Initiation of the campaign to change the law – NGOs have the right for such kind of activities.
    • Support of a candidate during the election – the public societies are able to declare their support of any of the candidates during the election
    • Participation in political campaigns – participation of NGOs in various campaigns with political requirements is possible
    • Funding political parties – NGO can financially support political party if it's necessary for reaching the aim of the NGO

 

CHARTER 2: Taxation of NGOs

  • Is NGO income taxed? Is there tax on grants?

 

According to the general rule the incomes of any organization are subjected to taxation but the art. 251 of the Tax Code gives the list of incomes which are not counted during taxation – among these kinds of incomes are – having a special purpose incomes for the implementation of the activity of non-commercial organizations which have been given free of charge by organizations and physical entities and are used in accordance with the aim e.g. these amounts are given to an NGO to form a special-purpose capital; membership fees; donations.
Grants as usual are subjected to taxation. At the same time grants from governmental organizations and grants from the organizations which are listed in the orders of the Government are free from taxes (art. 251 of Tax Code). The organization should pay taxes from the grants which came from the not-listed organizations. The list of these organizations regularly changes but at this moment the list of the international organizations is the following:

  • UNESCO
  • UN Department of Industrial Development
  • The Commission of European Communities
  • The Council of the States of Baltic Sea
  • The Council of the Ministers of Northern Countries
  • International Agency of Atomic Energy
  • The Organization of Black Sea Economic Partnership
  • UN Program for Nature
  • UN Development Program
  • UN Children Foundation
  • The Foundation "Evrimash" of the Council of Europe
  • The United Institute of Nuclear Researches
  • Is there a tax on the NGOs economic activity income?

The legal regulation for the business activity of NGOs is the same with the regulation of the business activity of other legal entities so the incomes from economic activity of NGO are subjected to taxation (art. 19 of Tax Code). The tax rate for the income of organizations is 20% (art.284 of Tax Code).
It's a general rule – at the same time some exemptions are possible for some special types of NGOs (for instance – organizations of people with disabilities – chapter 25 of Tax Code).

 

  • Is there a tax on donations?

In accordance with the letter of the Ministry of Finance from 04.06.2008 № 03-03-06/4/40 donations for NGOs are not subjected to taxation. This rule works if the NGOs use the donations in accordance with the aims for which this donation was given (at the same time this aim should be in the framework of the legal activity of the NGO as well e.g. indicated in the statute of NGO).

  • Are there exemptions for donors of NGOs (both physical or legal)?

In accordance with the art. 219 of Tax Code the following amounts are not counted during the determination of the taxation for physical entities – incomes which have been transferred for charity to the organizations of science, culture, education, health and social security which are partly or fully financed by the budget (state, regional or municipal) and donations for religious organizations. These sums are counted in their real amount but no more than 25% of the all incomes of a person. The same rule is for the investing the endowment of the NGO.
Other donations are counted for the taxation reasons.

  • Is there a tax on income from passive investments (interest on deposits, dividends, etc)?

 

In accordance with the art. 210 of Tax Code at the moment of the determination of the basis for payment of the taxes incomes are taken into consideration; in accordance with the art. 218 dividends and interests which have been taken from Russian organization or international one are considered as incomes.
So the dividends and interests are subjected to taxation as a part of income (the tax rate – 13% for physical entities and 20% for legal entities).

  • Are there taxes on the property owned by NGOs?

In accordance with the art. 373 of Tax Code organizations (including NGOs) are subjected to the property tax. This tax is paid yearly (art. 379) and the rate of the tax is determined by the legislation of the region but can't be more than 2,2% (art. 380). 

  • Is there inheritance tax on property inherited by an NGO?

 

In accordance with the art. 251 of the Tax Code the property which has been inherited to NGO is free of taxation.
At the same time the property of NGO after its termination can be used only for the implementation of the aims of NGO.

  • Is there any limitation on foreign funding (e.g. there needs to be a preliminary approval of the state, it can be any a certain percentage of your total income, etc.)

In accordance with the art. 31 of the law "About Public Associations" the property of a public association is formed from the following sources: membership fee, optional contributions and donations, incomes from lectures, exhibitions, lotteries, auctions, sporting and other kind of activities, incomes from business activity, civil contracts, international activity  and other not-forbidden by the law types of the activities.
There is no indication about the limitations on foreign funding.

  • Are there any exemptions from VAT for NGOs?

In accordance with the art. 149 of Tax Code various activities are not subjected to the value added tax, among these kinds of activities: goods which have been produced by the organizations of people with disabilities; good and services which have been given/produced as charity defined in the law "About Charitable Activity and Charitable Organizations".

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