Charitable organizations and public associations: how to obtain non-profit status

Requirements for Non-Profit Institutions and Organizations

A non-profit institution or organization must simultaneously meet five requirements:

1. It is established and registered in accordance with the procedure defined by special laws.
   For charitable organizations — the Law of Ukraine “On Charitable Activities and Charitable Organizations”;
   for public associations — the Law of Ukraine “On Public Associations.”
   In addition, the provisions of the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations” and the Tax Code of Ukraine must be taken into account.

2. Its founding document (charter or founding act) must contain a prohibition on distributing income (profits) among founders, participants, members, employees, members of governing bodies, or other related persons.
   The only exceptions are employee remuneration as well as payment of taxes and social contributions (as the institution/organization acts as a tax agent).

3. Its founding document (charter or founding act) must provide for the transfer of assets to one or several non-profit organizations of the corresponding type, or their allocation to the state budget in the event of liquidation of the institution/organization.

4. Its income (profits) must be used exclusively to fund the maintenance of the non-profit institution or organization, as well as to achieve its goals, objectives, and areas of activity.

5. It must be included by the controlling authority in the Register of Non-Profit Institutions and Organizations.

Thus, if a charitable organization or public association meets the above requirements, it acquires non-profit status.

Procedure for Obtaining Non-Profit Status for an Institution or Organization

To verify compliance with the requirements, an application for inclusion in the Register of Non-Profit Institutions and Organizations, along with the founding documents, must be submitted to the tax authority.

There are two possible ways to submit the documents:

• To the registrar during the registration of a charitable organization or public association.
  The application (Form 2 or Form 4) and the founding documents are transmitted electronically to the tax authority.
• Directly to the tax inspectorate at the place of registration (within 10 days after registration).
  An application (Form 1-RN) and certified paper copies of the founding documents must be submitted.

If compliance with the legal requirements is established, the tax authority shall, within 3 working days, adopt a decision to include the organization in the Register of Non-Profit Institutions and Organizations, effective from the date of registration.

If a decision refusing inclusion in the Register is issued, the deficiencies may be corrected and the documents resubmitted.

After a charitable organization or public association is established, it may become necessary to amend its founding documents.
In this case, an application and the updated version of the founding documents must also be submitted to the tax authority for inclusion in the Register.

Violation of Requirements

The distribution of income among the members/participants of a charitable organization or public association, as well as the use of income for purposes unrelated to statutory activities, are examples of violations. Other types of violations may also occur.

If the tax authority identifies a violation:

• The organization is excluded from the Register of Non-Profit Institutions and Organizations;

• The obligation arises to submit a Report on the Use of Income and to pay corporate income tax at the rate of 18%;

• Until 31 December, the organization is required to submit a corporate income tax return quarterly, pay corporate income tax at the rate of 18%, and file financial statements applicable to corporate income taxpayers.

Conclusion

Before establishing a charitable organization or public association and planning its activities, it is important to coordinate key matters in advance. For example, selecting a name, defining the goals and areas of activity, determining the governing bodies, and other essential aspects.

In addition, significant attention should be given to preparing the founding documents and ensuring that their provisions comply with the requirements of the legislation.