NGO Registration and Operation and Taxation of NGOs

Charter 1: Registration and operation of NGOs

The main legal resource for this section is the Law of Associations and Foundations, No. 246 from 18 July 2005 (which approves and modifies the Governmental Ordinance no. 26/2000)

1.1 Legal forms of NGOs

There are three forms of NGOs: associations, foundations and federations.

Associations and foundations can be registered by: 'physical and juridical entities, with the purpose of carrying activities of general interest, collective interest or in their own personal but non-patrimonial interest' (Article 1)

The association is the 'subject of law constituted by three or more persons who, on the bestis of their agreement, put together and without a right for restitution their material contribution, know how or engagement with time for the achievement of activities of general, collective or personal, but non-patrimonial interest' (Article 4)

The foundation is the 'subject of law founded by one or more persons, who, based on agreement between the living or for the cause of death (as a legacy), set aside permantently and without the right of revocation, a specific patrimony with the purpose of achieving a general or collective purpose' (Article 15)

Federations are 'associative structures consisting of two or more associations or foundations. Federations have own juridical personality and function in the same conditions with associations without patrimonial purpose.' (Article 35)

According to the Law of associations and foundations, the associations and foundations constituted according to this law are 'private juridical persons without patrimonial purpose'.

The term NGO or non-governmental organization it is not used in the law of associations and foundations or sponsorship law and has a few mentions in the Fiscal Code. Other terms used in legislation include: organizations without patrimonial purpose (Fiscal Code, Law of associations and foundations), organizations without lucrative purpose (Sponsorship Law, Fiscal Code), nonprofit organizations.

The fiscal code defines as nonprofit organization – 'any association, foundation or federation founded in Romania according to the existing legislation, but only if the revenues and assets of the association, foundation or federation are used for a general interest, community interest or non-patrimonial interest'. This coincides with the definition of the purposes of associations and foundations as defined by Law 246/2005, so actually any association and foundation that uses its revenues and assets according to its defined purpose should meet this criteria. There is one word that differs in this definition – while Law of associations and foundations defines the second area of purpose as being the interest of a 'collectivity', the Fiscal Code defines it as a 'community' interest, but it can be argued that the two words could be used interchangeably if community is not defined in strict geographic terms, but it reflects the idea of a group with common interest.

The law of associations and foundations does not regulate the activities of the trade unions, cult units / churches or political parties.

1.2 Who can register an NGO?

Associations and foundations can be registered by both physical and legal entities.

Federations are registered only based on collective agreement of two or more associations and foundations, which means only more than two special type of legal entities can register federations.

There are no stated restrictions in the Law of associations and foundations for foreigners setting up an association or foundation.

1.3 Capital required for registration

For associations, the minimum capital required for registration is one gross minimum salary per economy.

The gross minimum salary is established regularly by Romanian Government through Special Decision; last published decision is 1051 from 10 of September 2008 and establishes the minimum brut salary starting with January 1st, 2009 at 600 RON (200 USD). In the course of 2009, the initial patrimony for registering an association is 200 USD. The patrimony is formed of contribution in cash and in kind of the associates. For in-kind contributions, the constitutive act must be signed before a notary. (Art. 6)

For foundations, the initial assets in the patrimony should include goods or cash of a value of at least 100 times the brut minimum salary at the date of the establishment of the foundation. As an exception, in the case of the foundations constituted with the exclusive purpose (under the penality of dissolution by court decision) to fundraise for supporting other associations or foundations, so that the latter can achieve their programs. For these foundations, the initial assets in the patrimony can have a value of at least 20 times the brut minimum salary. (Article 15, (2))

In 2009, the initial patrimony of foundations should be around 20,000 USD. For fundraising/grant-making foundations the initial patrimony should be around 4,000 USD.

1.4 Requirements for the number of members/founders

The minimum required members/ founders is 3 in the case of associations, 1 in the case of foundations, 2 in the case of federations.

1.5 Place of NGO registration

NGOs are registered in the court, based on the location of their headquarters. All court decisions regarding the constitution, changes in operations and liquidation of associations, foundations or federations are communicated by the courts to the National Registry of Juridical Persons without patrimonial purpose. The National Registry is held by a specialized department within the Ministry of Justice. (Art. 73 and 74).

After legal registration, associations, foundations and federations may carry also a volunteer registration with the ministries and other governmental national or local authorites, requesting to become 'registered with these bodies' based on the field in which they operate. Public authorities are requested to keep an evidence of the associations and foundations, which approached them with this request. Any conflict of competence between public authorities is solved by the General Secretariate of the Government in 5 days from its being noted. In all cases, the Ministry of Justice will communicate for information to the competent public authorities copies from the court orders and other documents of proof in 5 days from the moment when they receive this documentation. (Art. 52)

1.6 Grounds for refusal of registration and grounds for termination of registration

Refusal or registration is only possible when the requirements for legal registration are not met and the representatives of the future association, foundation or federation fail to bring further documentation. A special emphasis is put on Art. 37 (2) from the Romanian Constitution. In the case the statute and constitutive act indicate failure to meet the provisions of this article, the prosecutor's office conclusions must be heard before a decision is made by the Court for the registration. (Art. 8-11). The registration process is quite fast, with requirements for review by the Court in 3 days from submission of registration request, maximum one week for hearing the representatives of the association or foundation with supplementary evidence, maximum 1 day for the court to make final decision and maximum 2 days for it to draw the documents and other needed forms.

The association registration can be terminated by right when: the duration for which is has been constituted is over, the purpose for which it was constituted was achieved, or cannot be achieved; impossibility of organizing the General Assembly or the Board of Directors meeting in accordance to the provisions of the statute, if this situation lasts longer than one year from the moment when the General Assembly or the Board of Directors should have taken place; reducing the number of members under the number required by law (3 members in the case of associations) if this is not completed back in maximum 3 months. At the request of any interest party, the Court takes an official note of the dissolvation. In the case of the foundations, first two grouds of termination by right listed for associations are also valid, while the third one is adapted to the foundation structure, in the impossibility of meeting the Board of Directors for at least one year from the moment the board meeting should have taken place. (Article 55, 56, 58)

The association can be also dissolved based on decision of the General Assembly. (Article 57).

Also, associations can be dissolved by Court Order at the request of any interested person, when 'the purpose or activity of the association is agains the law or the public order; when the achievement of the purpose is done through means agains the law or the public order; when the association follows a different purpose than the one for which is constituted; when the association is no longer solvent (able to pay debts)' The same works for foundations, with a particular emphasis on foundations constituted solely for the purpose of raising funds and giving grants to other associations and foundations. (Article 56 and 59)

1.7 Structure of the NGOs

Associations have 3 bodies: the general assembly, the board of directors and the auditor/audit committee. The general assembly is the leadership body consisting of all members. The general assembly establishes the strategy and general objectives of the association, approves the budget of income and expenses and the annual accounts statement, elects and revokes members of the board of directors, elects and revokes the auditor/members of the audit committee, establishes branches, changes the statute and constitution papers, decides on the liquidation of the association and distribution of assets post-liquidation, other responsibilities according to the statute. Change of the headquarters can be decided at the board of directors level if this is stated in the statute. The general assembly must meet at least once a year and has a permanent right of control over any other leadership bodies.

The board of directors ensures the application of the general assembly decisions. The board can also include non-members of the association, but not more than one quarter of its composition. The board of directors: presents to the general assembly the activity report for the previous period, execution of the income and expense budget, accounts statement and the projected income and expense budget and program plan for the next year; enters legal contracts on the behalf of the associaiton; approves the organizational strucutre and personnel structure of the association, unless otherwise regulated through the statute, carries all other responsibilities as established through the statute or delegated by the general assembly. The auditor or audit committee is named through the constitutive papers. If the number of members is higher than 15, an auditor is required. If the number of members is over 100, an audit committee is required. The audit committee must have an odd number of members. Members of the board of directors cannot be auditors. At least one of the auditors must be an authorized accountant or an expert accountant. The auditor or audit committee checks how the patrimony of the association is administered, prepares and presents its reports to the general assembly, can be part of the board of directors meetings, without voting rights.

The foundaiton structure consists of: board of directors and auditor/audit committee. The board of directors is the leadership and administration body of the foundation. The board of directors ensures the achivement of the aims of the foundation, having the following responsibilities: establishment of the strategy and programs of the foundation, approval of the income and expense budget and accounts statement; selection of the auditor or members of the audit committee, establishment of new branches; entering legal agreements in the name and on the behalf of the foundaiton; execution of the income and expense budget; approval of the organizational chart and personnel structure of the foundation; changes in the foundation statute. The decisions that are contrary to the law or the statute of the foundation can be attacked in court by the foundation's founder or any of the members of the board of directors who has not been part of the board meeting or voted against a certain decision and has requested to include her negative vote in the minutes of the board meeting. Any changes in the foundation purpose can be done only by the founder or the majority of the living founders. If none of the founders is alive, the change of the foundation purpsoe can be done only with 4/5 of votes of its board members. In all cases, the change of the foundation purpose can be done only if it has been achieved or it can no longer be achieved. The board of directors has at least 3 members.

1.8 Is there a public benefit status in your country?

Yes. An association or a foundation can be recognized by the Romanian Government as being of public utility if the following conditions are met: a) its activity is carried for a general or a collective interest; b) it functions for at least 3 years; c) it submits an activity report that shows a significant previous activity, with programs and projects specific to its purpose, together with its annual financial statements and budget and expense reports for the last 3 years, before the submission of the public utility status request; d) the value of its patrimony in each of the previous 3 years is at least equal to the value of the initial patrimony. (Art. 38)

The recognition by the Romanian Government of an association or foundation as being of public utility is done through Governmental Decision. For this, the association or foundation should submit a request to the Government General Secretariate, which in turn, forwards in maximum 15 days to the particular ministry or central public body relevant for the activity of the association or foundation. (Article 39).

In maximum 60 days, the central body receiving the request needs to examine the request and the fulfillment of the legal provisions. If these are met, the central body will propose the public utility status recognitin to the Romanian Government. Otherwise, it will send a motivated answer to the association or foundation. (Article 40)

Public utility status recognition gives to the association or foundation the following rights and obligations: right to use without pay publicly owned goods; right to use the public recognition in its public documents; obligation to maintain at least the level of activity and performance that determined the recognition; obligation to communicate to the relevant public body any changes of the statute and constitutive papers, as well as its annual activity and financial reports; the public body is required to ensure access of any interested person to these documents; obligation to publish in maximum 3 months from the end of the year its activity reports and annual financial statements in the Official Gazzete as well as in the Registry of the juridicial persons without patrimonial purpose.

1.9 Reporting requirements and oversight authorities

The Courts play the most important oversight role. As stated under point f, grounds for dissolvation, the associations can be dissolved by Court Order at the request of any interested person, when 'the purpose or activity of the association is agains the law or the public order; when the achievement of the purpose is done through means agains the law or the public order; when the association follows a different purpose than the one for which is constituted; when the association is impossibility of payment (not solvable)' The same works for foundations, with a particular emphasis on foundations constituted solely for the purpose of raising funds and giving grants to other associations and foundations. (Article 56 and 59)

All court decisions regarding the constitution, changes in operations and liquidation of associations, foundations or federations are communicated by the courts to the National Registry of Juridical Persons without patrimonial purpose. The National Registry is held by a specialized department within the Ministry of Justice. (Art. 73 and 74).

There is not one, specific, governmental body that oversights the activity of NGOs. NGOs have to complyy to different laws and are subject to control regulations and agencies, that have a role in monitoring and controlling the activity of legal persons in various areas. For examples, NGOs have to comply with regulations for accounting, financial and cash management and financial reporting to the Ministry of Finance; their activity as an employer is subjected to control and reporting obligations to the Ministry of Labour; if they have imoble property (buildings, land) or vehicles they have to register for paying taxes with the local government; also all NGOs have to nominate a representative in the relationship with the Office for Prevention of Money Laundry. If they use public resources they must comply with specific laws related to public acquisitions, if they keep track of personal data of members or donor, they have to comply with regulations related to personal data protection.

1.10 Possibility for direct economic activity

According to Article 49, 'associations, foundations and federations can undertake any direct economic activities if these are accessory (additional to) and are closely connected with the main purpose of the juridical person.'

1.11 Possibility to register a commercial company

According to Article 47, 'associations, foundations and federations can start commercial companies. The dividends obtained by the associations, foundations and federations from the activities of the comercial companies can be either reinvested in the same companies or used only for achieving the purpose/mission of the association, foundation or federation.'

Charter 2: Taxation of NGOs

NGO taxation is regulated mainly by the Romanian Fiscal Code (Law 571/2003) with further changes and completions. Other relevant legislation for this section includes the Sponsorship Law (32/1994, modified by the Governmental Ordinance 36/1998) that refers to both sponsorship and mecenate. Donations and legacies are regulated by the Romanian Civil Code/1993.

2.1 Taxation of NGO Income

There is a wide range of income sources that are profit tax exempt, including main income sources for NGOs: grants, sponsorship, donations, contributions from members and supporters, membership fees, interests and dividends of nonprofit income, income from occasional nonprofit fundraising, social and professional activities as well as income from occasional economic activities (up to 10 % of nonprofit income and less than equivalent of 15,000 EUR per year). Economic activities that go beyond this level and any surplus that they generate are taxed.

Article 15 (2) of the Romanian Fiscal Code: 'Nonproft organizations, trade unions and business owners unions are exempt from paying profit tax on the following types of income:
a) membership sign-up and regular fees;
b) financial and in kind contributions of members and supporters;
c) registration fees according to the existing regulation;
d) income from visas, fees and penalities or from participation to sports competitions or presentations;
e) donations as well as money or goods received as sponsorship;
f) dividends and interests obtained from placing financial surplus resulting from exempt income;
g) income for which there is a need to pay a public show fee;
h) resources obtained from public sources or from non-refundable financing (grants);
i) income from occasional events such as: fundraising events with participation fee, cultural events, raffles, conferences, used for the social or profesional purposes, according to the statute of these (nonprofit) organizations;
j) exceptional income resulting from selling of physical assets owned by the nonprofit organizations, other then those who are or have been used in an economic activity;
k) income from advertising, by public utility nonprofit organizations, according to the organization and functioning law, from the fields of culture, scientific research, education, sports, health, as well as chambers of commerce and industry, trade unions, owners unions;
l) amounts received as a result of failure to comply with conditions for donation or sponsorship, according to the law, with the condition that these amounts will be used by the nonprofit organizations in the current or following years to achieve its mission and goals, according to the statute and constituting acts;
m) income received from ensurance payment for damage of physical assets, other than those used for economic activity;
n) amounts received from the income tax of individual tax-payers.

Art. 15 (3): 'nonprofit organizations, trade unions and owners associations are exempt from profit tax also for income from economic activities up to the level of RON equivalent of 15,000 EUR in a fiscal year, but not more than 10% of total profit tax-exempt income from art. 15(2). The organizations stated here owe a profit tax for the part of the taxed profit that corresponds to the income sources, which are not stated in Art. 15 (2) or (3). The current level of profit tax is 16%.

Additionally, according to Art. 15 (1), the following entities are exept from profit tax: foundations constituted as as result of a legacy; state treasury, public institutions, religious cults (also for income from economic activities if they are used for nonprofit purposes), private education institutions authorized or accredited for income obtained according to the Education Law, etc.

Individuals are also tax exempt for income received as sponsorship, mecenate, scholarship, donation or inheritance. Thus, according to Art. 42, the following income sources are not subject to income tax: f) amounts or goods received as sponsorship or mecenate; i) scholarships received by any person who follows a form of scholarship or training in an institutionalized framework; j) amounts or goods received as inheritance or donation.

2.2 Taxation of NGO economic activities

The level of taxation is 16% on profit, for the amount that goes over 15,000 EUR / year or over 10% of nonprofit revenues. Further resources generated (e.g. from investing income resulting from taxed activities) are also taxed.

2.3 Taxation of donations

Donations are profit tax exempt income for NGOs and so is sponsorship. (See details of these in the list of exempt income sources, under point a).

2.4 Exemptions and other facilities for donors

There are no tax exempts for donors, however both individual and companies have some means of providing support to NGOs through different forms of sponsorship.

• Physical persons/individuals owing income tax can decide to direct 2% of the income tax to support a nonprofit organization, a church entity (religious cult) or to offer a private scholarship. While this does not exempt the individual from paying the tax, once this is paid it can be directed by Romanian Fiscal Authorities to the chosen nonprofit. (Art. 57, (4), (5), (6)).

• Authorised physical persons registered as having income from independent activities (usually professionals such as lawyers, accountants, various forms of consultants may be registered as such) can deduct from the tax base expenses with sponsorship, mecenate as well as private scholarships, up to 5% from the tax base calculated without this expense and membership fees paid to professional associations up to 2% of the same base (Art. 48, (1), o)).

• Companies or other legal persons that pay profit tax cannot deduct from tax base the expenses with sponsorship, mecenate or private scholarships, but they can deduct these from owed tax, for sponsorships, mecenate or scholarships below: 20% of annual owed tax and 0.3 % of annual turnover. Sponsorship for public libraries also qualifies for similar provisions. (Art. 21, (4), p))

2.5 Taxation of income from investments (deposits, dividends)

Only for the investment of income related to economic activities; nonprofit income invested generates tax-exempt income. This is similar also for dividends from direct investment.

2.6 NGO owned property tax

According to article 248 from the Romanian Fiscal Code, buildings, land and transportation means are subject to local taxes. The buildings for which there is no local tax include the buildings used for social and humanitarian activities, by associations, foundations and churches based on the decision of the local councils (Article 250). The value of the local tax on buildings for juridical persons is calculated as a percentage from the value of the building. The percentage is established through local council decision and will be in a range from 0.25% - 1.50% (Article 253).

2.7 Inheritance tax on property inherited by NGOs

There is not general inheritance tax except for inheriting imoble properties, if the successions is not debated and finalized in maximum 2 years from the death of the author of the will. If the succession is finalized beyond this term, the inheritance tax is 1% of the value of the inheritance mass.
Transfer of imoble property (buildings, constructions, land), including through donation also carries a tax (around 1-2% of the value of the property), except if it is the result of a donation between relatives.
Another limitation to receiving a high donation or legacy is given by the Romanian Civil Code. According to the presently valid Civil Code, donations and legacies cannot be higher than half of the goods and assets of the donor, if at death she leaves one child behind (and higher than one third, for two children, or higher than one quarter for three children or more). The term child applies to descendents of any degree. Donations and legacies cannot be higher than half of goods and assets in favor of the surviving wife/husband. Donations and legacies cannot be higher than half of the goods and assets of the donor if, in the absence of descendents, the donor leaves both her parents behind, or higher than three quarters if the donor leaves only one of her parents behind (article 841-843). If donations or legacies are higher than the available part, they will be reduced to this part, by first reducing legacies and then donations, from the later donations to the earlier ones.
Starting 24 of July 2010, a new Civil Code will become active. The new Civil Code defines the succesoral reserve as the part from the inheritance goods and assets that the surviving husband/wife, the descendants and the priviledged ascendants have a right to, even against the will of the deceased. (article 1086-1088). The succesoral reserve is half of the total value of assets and goods that would be legally inherited by one person, in the absence of donations and legacies.

2.8 Limitations of foreign funding of NGOs

There are no limitations related to the source of income for NGOs. Foreign juridical persons are recognized as a sponsor in the sponsorship law.

2.9 VAT situation for NGOs

The scope for VAT payable in Romania includes: operations who are or can be assimilated to supplying goods or offering payment based services, which take place in Romania and are done by a juridical person registered as VAT payer. It is considered an economic activy also the exploatation of assets in order to obtain an income on a continous basis.
According to article 141 from the Romanian Fiscal Code, the following operations are VAT tax exempt: providing of services and of goods to the member, in their collective interest, in exchange for an annual membership fee established according to the statute, by non patrimonial organizations with following objectives – political, trade union, religious, patriotic, philosophic, philanthropic, owner representation, professional, civic, members representation in the conditions in which such exemption does not provoke distorsions of competition.
A Romanian taxable person, with an annual turnover below 35.000 EUR can solicit a tax exempt status, called special exempt regime.

2.10 Other taxes
NGOs organizing public shows with paid entrance have to calculate and pay to relevant local government units the public show tax, which is 2% of the value of sold tickets or seasonal tickets for theater plays, ballet, opera, concerts or other musical events, presenting a movie on the cinema, circus or sports competition and 5% for other artistic events. (Article 274).
The public show tax is not applicable for shows organized with a humanitarian purpose. (article 276).
3. Relevant definitions used by various Romanian Laws
Nonprofit organization is any association, foundation or federation founded in Romania according to the existing legislation, but only if the revenues and assets of the association, foundation or federation are used for a general interest, community interest or non-patrimonial interest. (Romanian Fiscal Code)
Sponsorship is the the juridical act through which two persons agree on the transfer of goods or financial means in order to support activities without lucrative purpose carried by one of the parties, called the beneficiary of the sponsorship. The sponsor can be either a physical or a juridical person. The beneficiary of the sponsorship can be an organization without lucrative purpose that carries activities in one of the following fields: cultural, artistic, educational, scientific – fundamental and applied research, humanitarian, religious, philanthropic, sports, human rights protection, medical, social services, environmental protection, social and communitarian, representation by professional association, maitenance, preservation, restauration of historical monuments. Also, beneficiaries can be public institutions and authorities for activities in the above purposes, physical persons with recognized activity in those fields (certified by an organization without lucrative purpose or by a public institution active in the above fields), as well as radio or television shows, books and other publications if they are related to the above fields. (Sponsorship Law)
Mecenate is a liberality act through which a physical or a juridical person, called mecena, transferws, without any obligation of direct or indirect counter tranfer, their owernership rights over goods or financial means to a physical person, as a philanthropic and humanitarian activity, for supporting activities in the following fields: culture, artistic, medical, scientific. Any physical person can be a beneficiary of the mecenate, without them needing to be recognized by a juridical person without lucrative purpose or by a public institution and who needs support in one of the above mentioned fields. (Sponsorship Law)
Associations and foundations are physical and juridical entities, with the purpose of carrying activities of general interest, collective interest or in their own personal but non-patrimonial interest. (Law of associations and foundations)
Associations are the subjects of law constituted by three or more persons who, on the bestis of their agreement, put together and without a right for restitution their material contribution, know how or engagement with time for the achievement of activities of general, collective or personal, but non-patrimonial interest. (Law of associations and foundations)

Foundations are the subjects of law founded by one or more persons, who, based on agreement between the living or for the cause of death (as a legacy), set aside permantently and without the right of revocation, a specific patrimony with the purpose of achieving a general or collective purpose. (Law of associations and foundations)