Non-profitability of charitable organizations: what is it and how to get the status?

Not-for-profit means charities don’t pay 18% income tax. The status of a non-profit organization is not acquired automatically. A charity must meet certain criteria and declare that it intends to be a non-profit.

What to do to become a non-profit organization?

1. Prepare constituent documents for registration of a charitable organization (application, decision, or protocol on establishment, charter, ownership structure).
2. Create and register a charitable organization (as a charitable foundation, society, or institution).
3. Submit an application for inclusion in the Register of non-profit institutions and organizations and founding documents.

Constituent documents of the organization

Special attention to the constituent documents of the organization, which must contain certain mandatory provisions, namely:

🔹 It is forbidden to distribute the received income between participants and employees.

🔹 Use of income to maintain the organization and to implement areas of activity. This refers to the payment of room rent, fuel, legal services, etc.

🔹 Upon liquidation, the obligation to transfer assets to another non-profit organization or to the state budget.

The application for inclusion in the Register of non-profit institutions and organizations must be submitted:

🔹To the registrar during the registration of a charitable organization. Then, the application and constituent documents in electronic form are sent to the tax inspectorate.

🔹 Directly to the tax inspectorate at the place of registration of the charitable organization (within 10 days after registration). This is application form No. 1-RN and certified paper copies of the founding documents.

If the charitable organization and its founding documents meet the requirements of the law, within three working days, the tax authority makes a decision on inclusion in the Register of non-profit institutions and organizations.

You can check the decision on the website of the State Tax Service in the relevant register. But now access to it is restricted, so we advise you to contact the tax office directly.

Also, you can get a paper copy of the decision to include your charitable organization in the Register of non-profit institutions and organizations.

The charitable organization must transfer 80% of the collected funds to the beneficiaries, and use 20% to cover the administrative costs of the organization (office rent, legal or other consulting services, mail delivery, mobile communication, etc.).

If a non-profit organization violates the requirements and does not meet the “non-profit” designation, it is removed from the register and becomes a payer of income tax.

Conclusion

The decision to create a charitable organization should be approached carefully. We advise you to focus on the preparation of documents for your organization in order not to miss important provisions, without which there is a risk of not receiving the status of a non-profit organization.

When a charitable organization is established and operates as a non-profit, it is important to enlist the support of lawyers and accountants. They are the ones who will help to properly document the activity and use the income.

In the case of any questions, our team of lawyers will be happy to assist 💙💛