How to set up a non-governmental organization? Most frequently asked questions concerning the existence of NGO in Ukraine.
Our firm often receives requests with the questions concerning the establishment and activities of non-governmental organizations. Today we will give answers to the most frequently asked questions affecting an NGO (a Non-governmental Organization) founders and members.
The issue of a taxpayer status. Must an association of citizens receive a non-profit status and can they stay under the general taxation system? Is it possible to get the status of a VAT payer or have other options?
- Non-governmental organizations can be unprofitable if their charter and type of activity falls under the criterion of non-profitability.
- A non-governmental organization does not have to receive a non-profit status, but rather stay under the so-called general taxation system and pay the income tax.
- It should be noted that there is no such thing as a “general taxation system” in the laws of Ukraine. It has taken root, in particular, among accountants and it identifies all those people who have not chosen a single tax or other tax regime (for example, a non-profit status).
- Non-governmental organizations can be VAT payers. The legislation provides for such an opportunity, but in practice we have not yet seen this.
Can non-governmental organizations be payers of a single tax of the 3rd group?
Legislation provides such an opportunity. Indeed, according to the Tax Code, the third group includes business entities of any legal form, the income of which within 12 calendar months did not exceed five million hryvnias.
Can an association of citizens engage in entrepreneurial activity?
In the very law "On Public Associations" there are some discrepancies on this issue.
For example, according to Part 5 of Art. 1 of the Law, a public association is a non-entrepreneurial association, the purpose of which is to make a profit. At the same time, clause 2, part 2, article 21 of the same law grants the right to NGO’s to carry out entrepreneurial activity, if it is provided for by their charters and if this is consistent with the purpose of the association or helps to achieve it.
In order to fully understand this issue, you need to consider each individual case and it is advisable to consult with specialists.
Related article: Is it possible to obtain a license for implementation of a specific kind of economic activity for public organization or charity foundation?
How do tax authorities respond to entrepreneurial activity of NGO’s?
The vast majority of such organisations have the status of non-profitability. The Tax Code stipulates that the income of non-profit organizations should be used only for their maintenance and to achieve the goals stipulated by the charter. Thus, the tax code does not containprohibitions on doing business and making a profit from it. The main thing is to use the profit for its intended purpose.
But in practice, tax authorities often refuse to grant a non-profit status to those organizations whose charters have even the slightest hint of entrepreneurial activity.
For example, if the charter stipulates that the organization has the right to:
- distribute its newspapers or booklets;
- organize seminars and forums;
- carry out other activities related to the distribution of information about NGO’s
- tax officials have repeatedly asked to make changes and add: "without the goal of making a profit."
Is it possible to change the form from a non-governmental organization to a public union after registration and vice versa?
To change the legal form, you need to go through the reorganization procedure. At the same time, one legal entity ceases to exist, and the other becomes its legal successor. The EDRPOU (Unified State Register of Businesses and Organizations) code is retained.
Is it possible to re-register an NGO without legal entity status to an organization with a legal entity status and vice versa?
The legislation does not sufficiently regulate such a mechanism and there are certain contradictions. In particular, it was established that NGO’s operating without the status of a legal entity can apply for it in the manner prescribed by the law "On state registration of legal entities, sole traders and public associations." Where and who to turn to for this is not specified. However, if we open the law in question, then we will not find this procedure there at all.
Except for the fact that in the aforementioned norm it is implied that the organization must be re-established, but with the status of a legal entity.
Can the head of an NGO be elected as a chairman of the meeting?
Yes, he/she can. The law does not contain a ban on such a situation, which is quite common in practice.
Do I need to fill out a registration form for the association as an all-Ukrainian one during registration?
No, you do not. For this, not only is it unnecessary, but also technical impossible. First, an NGO is set up, and then the all-Ukrainian status is acquired.
Can the head of an association of citizens work free of charge?
On the one hand, a chairman is an official and a hired worker who must be properly put on staff. And that means his/her work must be paid for.
On the other hand, there is a letter of the Ministry of Social Policy N 228/13 / 84-15 of 03/02/2015, which indicates the possibility of fulfilling the duties of the chairman and members of the board, as well as other members of the organization on a voluntary basis. In other words, the answer is yes.
We hope that the answers to the above questions will be useful to you. If you still have any questions, please contact our specialists!
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