Accounting Support for Charitable Organizations: Assisting German Benefactors in Ukraine

Charitable organizations play an immensely vital role in society by providing support to those most in need. This role is particularly crucial in Ukraine, given the current state of martial law. However, for a charitable organization to function successfully, it requires not only widespread public support but also professional accounting oversight.

Recently, citizens from Germany approached us with the aim of offering humanitarian aid to Ukraine during these challenging times. They envisioned their mission as one of supporting Ukrainians and assisting in the recovery of affected territories. To fulfill these objectives, they decided to establish a charitable company. In response, we assisted them in registering the charitable organization and obtaining all necessary documentation, including a work permit for a foreign director.

However, as they proceeded with the process of opening bank accounts for the organization and setting up its operational framework, they realized they would require assistance with accounting matters and navigating the intricacies of Ukrainian tax legislation. They turned to us for professional support in these areas. Our company took on the responsibility of not only providing legal counsel but also offering comprehensive accounting services for the charitable organization. This included payroll management, tax compliance, and the preparation of relevant tax reports.

Accounting Services for Charitable Organizations: Why Paying Unified Social Contribution (USC) for a Foreign Director is Important and What the Failure to Pay this Tax Can Pose as a Threat

During our consultations, even at the stage of establishing a charitable organization, we emphasized to our clients the importance of compliance regarding the employment of a foreign director. It's not just about obtaining a work permit for them in Ukraine but also about adhering to legislative requirements to prevent permit revocation. If the employment center revokes the permit due to violations, the organization cannot obtain a new one for any foreign position within a year.

So, what are these legislative requirements? Upon obtaining the work permit, the organization has three months to conclude an employment contract with the foreign director. Once the contract is signed, the organization must start paying Unified Social Contribution for the foreign director. How does the employment center monitor Unified Social Contribution payments?

They request information from the Pension Fund, using the foreigner's identification code. Therefore, we advise including the foreigner's taxpayer identification number when submitting a copy of the employment agreement to the employment center within 10 days of its signing. Failure to do so may lead to the employment center being unable to verify the Unified Social Contribution payment, resulting in the need for additional explanations and documentation to prove compliance.

Why is it Important to File Financial Reports for a Charitable Foundation?

Firstly, Ukrainian legislation mandates that all enterprises and organizations must compile and submit financial reports based on their accounting data. These reports should be both annual and quarterly. Failure to do so may result in fines, which our clients were eager to avoid.

Secondly, these financial reports, particularly the section concerning employees, can be used to prove the payment of Unified Social Contribution for a foreign director. This information serves as the basis for determining the amount of mandatory contributions paid for employees. As part of our accounting support service for charitable organizations, our specialists ensured the successful submission of financial reports and their approval by regulatory authorities.

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How a Charitable Foundation Can Maintain Its Non-Profit Status and Why This Status Is Important

Throughout our interactions with clients, we have advised them on the possibility of their organization acquiring non-profit status. This status holds significant benefits for charitable organizations, as it exempts them from paying the 18% profit tax. A crucial requirement for attaining this status is ensuring that all income is solely used to finance the organization's maintenance and to fulfill the goals and activities outlined in its charter. Drawing upon our extensive experience in obtaining this status for various organizations, our clients entrusted us with their support, leading to their successful inclusion in the registry.

However, we warned that having non-profit status does not exempt organizations from paying other taxes. For example, if there are employees (as in the case of our clients), they must pay Unified Social Contribution, Personal Income Tax, and military tax. Importantly, obtaining this status does not eliminate the possibility of it being revoked in the future. Therefore, to prevent this, our task was to monitor:

• The expenditure of income received for purposes outlined in the organizational charter.
• The non-distribution of income among members or employees (excluding salaries) or other individuals

Additionally, we warned that for a charitable organization, annual administrative expenses should not exceed 20% of their yearly income. This means adhering to the "80/20 rule," where 80% of expenditures are strictly designated for purposes outlined in the organization's charter. Otherwise, they risk being categorized as non-targeted, resulting in the loss of non-profit status. Therefore, meticulous monitoring of every step is crucial, a responsibility our company ensured through our accounting services.

In conclusion, we emphasize that even charitable organizations require competent legal and accounting support. Our extensive experience reveals that founders of such organizations often overlook this critical aspect, leading to various problems. Hence, we stress the significance of seeking professional legal and accounting assistance for charitable organizations. This ensures compliance with tax legislation, effective accounting management, and timely payment of mandatory contributions.

Our law firm, with over 15 years of experience specializing in legal and accounting support for charitable organizations, can provide a wide range of services, including:

• Consultations on tax legislation
• Comprehensive accounting support
• Payroll processing, report submissions, and more

Contact us today! Engaging our legal and financial experts will help you avoid legal risks, ensure the financial stability of your organization, and create a solid foundation for continued success and the fulfillment of your charitable mission.