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Comparative Study of Laws and Regulations Governing Charitable Organizations
in the Newly Independent States 1

For

“International Charity Law: Comparative Seminar”
Beijing, China

October 12-14, 2004

This paper is intended to provide an overview of the legislation governing charitable
organizations in the Newly Independent States (NIS). 2 Not all NIS countries provide for
a charitable or public benefit st atus. Turkmenistan and Belarus, for example, currently
have no legislation governing charitable organizations. And although Azerbaijan,
Georgia, and Uzbekistan make reference to charitable organizations in their respective
tax codes, they have no rules defining legal st atus of charitable organizations, nor do they
provide any special tax benefits for charitable organizations. Ar menia and Russia have
enacted legislation governing charitable orga nizations, but provide for no benefits in
coordination with such provisions, rendering them essentially mean ingless. Kazakhstan
has created a unique system fo r providing special benefits to so-called “Social Sphere
Organizations” (“SSOs”) which are different from traditional charitable organizations
and include not only non-commercial organiza tions, but also businesses operating in
specified social areas, as l ong as they meet certain require ments established in the tax
code. Only Kyrgyzstan, Moldova, Tajikis tan, and Ukraine have both stand-alone
legislation on charitable/public benefit stat us and meaningful tax exemptions for which
organizations with this status are eligible.

Except where indicated otherwise, therefore, this paper will describe the experience of
the six countries which have enacted sta nd-alone legislation governing charitable
organizations, namely: Armenia, Kyrgyzsta n, Moldova, Russia, Tajikistan and Ukraine.
The experience of these six countries will comp rise the primary basis for the conclusions
presented in this paper. However, Ukra ine is the country which has accumulated the
most comprehensive experience in the implem entation of laws and regulations governing
charitable status, and therefore it is the Ukrainian experience, out of these six countries,
which will be described in the greatest detail.
1 This paper was prepared by Natalia Bourjaily, ICNL’s Vice-President for NIS, and Melanie Lyon,
ICNL’s Legal Counsel for NIS.
2 The Newly Independent States incl ude Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan,
Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
@ 2004 ICNL. All Rights Reserved. 1

Because the laws governing non-commercial organizations likewise govern charitable
organizations, the narrative below analyzes both the laws governing NCOs and COs,
recognizing that both are relevant to understanding the not-f or-profit legal framework in
the NIS. For the purposes of this paper, associations, foundations and other similar
entities are referred to as “non-commercia l organizations” or “NCOs,” except when
referring to a particular count ry that uses a different relevant term (public organization,
non-profit organization, etc.). The subset of organizations that are governed by separate
laws on charities will be referred to as “charitable organizations” or “COs.”
3

I. Provisions of the General Laws

A. Consistency and Clarity of the Laws

Lack of consistency and clarity in the laws is one of the preeminent problems with
legislation affecting charitable organizations in several NIS countries. Most notably,
Moldova and the Russian Federation suffer from inconsistency stemming primarily from
multiple and conflicting levels of legislation. For example, the legislation of the Russian
Federation regulates gifts, dona tions, gratuitous aid, grants and humanitarian assistance
using different, and sometimes overlapping, definitions, making it confusing for
charitable organizations to claim relevant tax benefits. In Moldova, the 2002 Law on
Charity and Sponsorship estab lished the procedure for obtaini ng charitable status through
the registration of an organization as a charitabl e legal entity with the Ministry of Justice.
This law is implemented in parallel proce ss to that which was set by the 1996 Law on
Public Associations and in 1999 Law on Public Foundations, according to which
registered associations and foundations can obtain a charitable status through a
certification process with the ch arity commission. There is no official justification for
such confusion other than inconsistency a nd dual regulation of the same issue in the
legislation.

However, the legislation on charitable orga nizations in most NIS countries is quite
simple, usually consists of only a few laws , and, at least theoretically, is easy to
administer. Among the countries with the most consistent legal framework governing
charitable organizations are Kyrgyzstan and Tajikistan. Both countries have laws on
charities, have only one relevant framewor k law – such as the Law on Non-commercial
Organizations in Kyrgyzstan and the Law on Pub lic Associations in Tajikistan – and have
revised the corresponding provisions in the Ta x Code (defining “charitable organization”)
in order to render them consistent with the de finition that exists in the separate laws on
charity.
4

B. General Constitutional Framework

3 This paper does not address the legal framework fo r trade unions, political parties, or other similar
organizational forms.
4 Section 9(4) of the Tax Code of Kyrgyzstan and Section 129 of the Tax Code of Tajikistan.
@ 2004 ICNL. All Rights Reserved. 2

In general, all constitutions in the NIS guarantee the rights of freedom of association as
well as other basic human rights, which allow for establishment of non-commercial
organizations including charitab le organizations. Ukraine provides a useful exemplar.
The Constitution of Ukraine of June 28, 1996 guarantees the right of citizens to form
associations: “Ukrainian citizens have a righ t to form political and public associations; to
exercise and protect their ri ghts and freedoms; and to pursu e political, economic, social,
cultural and other interests w ith due regard for the restrictions imposed by law in the
interests of national security, public order, national health, or in the protection of the
rights and freedoms of others.”
5 Other Articles of the Ukrainian Constitution guarantee
the freedom of speech and thought; the freedom of expression of opinions and religious
beliefs; the freedom to collect, use and disseminate information in any form
6; the
freedom of peaceable assembly, public gatherings, marches and demonstrations 7; and the
freedom of artistic expression. 8

Constitutions typically also provide for limite d circumstances in which such rights may
be abridged. For example, the Constitution of Moldova provides that the right to free
association may be limited only if organiza tions are, “by their aims or activities [] engaged in fighting against political pluralism, the principles of the rule of law, the
sovereignty and independence or territorial integrity of the Republic of Moldova.”
9

C. General Legal Framework

The central problem with the regulation of charitable organizations in the NIS is that
some countries (Belarus, Turkmenistan) either provide no charitable status whatsoever, or
even where they do recognize charitable organizations as a separate category of non-
commercial organizations (NCOs), they provide no meaningful benefits to such
organizations (Georgia, Armenia, Azerbaijan, Russia, and Uzbekistan). Therefore, NCOs
in these countries have no incentive to seek out charitable status, and, as a result, any
laws or provisions on charitab le status in these countries are merely descriptive; they
have not been implemented in any real se nse. Only Armenia, Moldova, Kyrgyzstan,
Russia, Tajikistan, and Ukraine have enacted laws specifically regulating charitable
organizations, and only four of these six c ountries (Moldova, Kyrgyzstan, Tajikistan and
Ukraine) provide for any m eaningful charitable status.

It is also the case that many of the regulations in general laws affecting NCOs also cover
charitable organizations (COs.) Accordi ngly, the following provides a brief overview of
the legislation governing NCOs in Armenia, Kyrgyzstan, Moldova, Tajikistan, Ukraine,
and Russia. The typical legal framework woul d include, at a minimum: the civil code
provisions, the law on NCOs (and/or special laws on different organizational forms of
non-commercial legal entities, like laws on foundations and on associations), a law on
5 Article 36 of the Constitution of Ukraine (1996). 6 Id., Article 34. 7 Id., Article 39. 8 Id., Article 54. 9 Article 41 of the Constitution of the Republic of Moldova (1994).
@ 2004 ICNL. All Rights Reserved. 3

registration of legal persons, a special law on charitable organizations, laws on licensing,
and appropriate tax c ode provisions.

As a general matter, the civil codes of the countries of the NIS will contain provisions
outlining the types of non-commercial legal en tities (i.e. associations, foundations, etc.)
that are permitted within the country. In addition to any civil code provisions, each
country has its own set of laws governing NCOs, of which charitable organizations are a
subset. Typically, the number of recognized organizational forms is quite limited, with
countries only recognizing associations a nd foundations. Accordingly, associations and
foundations are the most common organiza tional forms into which charitable
organizations are incorporat ed, although some countries do recognize additional forms
such as institutions or unions of legal entities.

1. Ukraine

For example, in Ukraine, a new civil code (having come into effect on July 1, 2004)
outlines the basic organizational forms for NCOs (known as non-entrepreneurial legal
entities in Ukraine): non-entrepreneurial partnership (which is similar to an association)
and non-entrepreneurial institution (similar to a foundation). The 1997 Law of Ukraine
on Charity and Charities establishes a registra tion procedure, as well as the process of
establishment and permissible activities of charitable organizations in the forms of
foundations and associations.

The new Law on Registration of Legal Persons (which also came into effect on July 1,
2004) establishes yet another registration pro cedure, applicable to all legal entities
including charitable organizations. Howeve r, this new law allows for peculiarities
relating to the registration proce dures for public associations to be established in separate
laws. Therefore, as some charities are esta blished as public associations, it is not clear
whether the registration proce dure from the new Law on Registration of Legal Persons or
the old registration procedur e from the 1997 Law on Charitable Charity and Charities
will apply to charities going forward.
10 In Ukraine, tax legislation permits special
treatment of certain organizati ons based not simply on registra tion as charities, but rather
on compliance with specific tax law requirement s. Accordingly, public associations and
foundations which have not been registered as charities might qualify for the same tax
treatment as charities, if they are capa ble of meeting these tax requirements.

2. Russia

In Russia, the civil code establishes th e basic organizational forms, rules for
establishment of and permissible activities fo r non-commercial legal entities. The Law on
Non-commercial Organizations and the Law on Public Associations further define the
rules for establishment of NCOs and the t ypes of activities which may be undertaken by
the various organizational forms. The Federal Law on Registration of Legal Entities
established registration procedure for all NCOs, with the exception of public associations,
10 For the purposes of this overview , we will refer to the registration procedure in the Law of Ukraine on
Charity and Charities (1997).
@ 2004 ICNL. All Rights Reserved. 4

whose registration procedure is regulated by the Law on Public Associations. The Federal
Law on Charitable Activities and Organizations allows for the establishment of charities
in any of the permissible legal forms for NC Os, and establishes special requirements for
charities providing the impression that charities will enjoy some tax preferences as a
result. Unfortunately, no tax benefits exist in federal Russian legislation for charities, nor
are any other benefits tied to the Law on Charitable Activities and Organizations.
Without such benefits, there is no incentive for Russian groups to register as charities,
rendering the Law on Charitable Activities and Organizations merely declarative.

3. Kyrgyzstan

In Kyrgyzstan, the civil code establishes the basic organizational forms and rules for
establishment and activities for non-commercia l legal entities (NCOs), as well as the
registration procedure, activiti es and internal governance of all legal persons, including
non-commercial legal entities. The La w of Kyrgyzstan on Non-Commercial
Organizations further regulates the establis hment procedure and activities of different
forms of NCOs. (Charitable organizations ma y be established in any one of the forms
regulated by this law). The Law on Registration of Legal Persons sets forth a detailed
registration procedure for all legal entities, including charities. And the Law on Charities
and Sponsorship provides specific requirement s for charitable organizations, which, if
satisfied, enable them to become eligible for additional tax benefits. The tax code further
defines the criteria by which charitable or ganizations may become eligible for tax
benefits, which are consistent with the crit eria established in the Law on Charities and
Sponsorship.

4. Moldova

As with other NIS countries , the civil code of Moldova defines the permissible
organizational forms, rules for establis hment, and permissible activities for non-
commercial legal entities. Outs ide of the civil code, however, the situation in Moldova
differs significantly from othe r NIS countries. Moldova is the only NIS country to have
established a separate commission for awar ding charity status – the Certification
Commission. Moldova had enacted a 1996 Law on Associations and a 1999 Law on
Foundations, which both contain provisions governing the procedure for obtaining
charity status from the Certification Commi ssion. A legal entity registered under one of
these two laws could apply to the Certification Commission
11 to become eligible for
charitable (tax-exempt) status. However, the current situation is confusing. In 2002, a
new Law on Charity and Sponsorship was a dopted, establishing a separate registration
procedure for charitable legal entities with the Ministry of Justice under which charitable
status is obtained at the mo ment that the group obtains state registration as a legal entity,
bypassing the Certification Commission. Yet th is new procedure has not superseded the
old one, and for some time has been implemen ted in parallel with the old procedure of
certification by the Commission. It remains to be seen whether this new law will
eventually render the Certification Commi ssion obsolete. Notably, the text of the
11 The rules and procedures of the Certification Commission are set forth in the Order of the Ministry of
Justice of Moldova’s Regulation on the Order of Functioning of the Certification Commission (1997).
@ 2004 ICNL. All Rights Reserved. 5

Moldovan Law on Charity and Sponsorship is almost identical to the Russian Federal
Law on Charitable Activities and Charitable Organizations.

5. Tajikistan

Similarly, Tajikistan has provisions in its civil code which establish the basic
organizational forms, rules for establis hment, and permissible activities for non-
commercial legal entities. The Law on Public Associations further regulates these entities
by establishing a registration procedure and re quirements for establishment and activities
of one organizational form – the public associ ation (which is the primary organizational
form for charities in Tajikistan). Additional criteria for charities and public associations
which have qualified for charitable status-rel ated tax benefits are defined in the Law on
Charities and in the releva nt tax code provisions.

6. Armenia

In Armenia, the Law on Charity regulates charitable organizations in a manner similar to
Russian federal law. And as with Russia, Armenian legislation does not provide any
incentives, financial or otherwise, for organizations to register as charities.

D. Types of Organizations

As a general rule, countries of the NIS permit charitable organizations to be established
in any legal forms available for non-commercia l legal entities. Every NIS country has
developed a legal framework for associations and foundations, and several countries have
created additional organizational forms beyond these two basic models. As a general
principle, associations are always define d based on membership. Many countries limit
membership in associations to individuals and other associations (such as Russia,
Moldova, Armenia, Kazakhstan, Uzbekistan, Belarus or Turkmenistan), while other
countries allow for membership by any legal or physical person (for example, Georgia
and Azerbaijan). Foundati ons are commonly defined as nonprofit organizations which
are not membership-based, and are formed on the basis of voluntary property
contributions. Most NIS countries allow for foundations to be of public or mutual
benefit. In some countries, like Russia a nd Uzbekistan, however, foundations must be
devoted to pursuing social, charitable, cultura l, educational, or any other public benefit
objectives.

Other organizational forms for charities wh ich may be found in the NIS include the
institution and the union of legal entities, present in Russia, Uzbekistan, Kyrgyzstan,
Moldova, and Tajikistan. An institution is defined as a non-profit organization created by
the owner for performing managerial, social, cultural, or any other functions of nonprofit
nature, and which is financed partially or in full by the owner. Unions are defined as
membership-based organizations for legal entities, and are considered a separate
@ 2004 ICNL. All Rights Reserved. 6

organizational form of public association in countries where public associations allow
only physical individuals to obtain membership in public associations.

Russia is the NIS country with the largest numbers of organizational forms. Russian
legislation provides a variety of organizational forms for non-commercial legal entities,
which include public and religious organizatio ns (associations), nonprofit partnerships,
institutions, autonomous nonprofit organizati ons, social, charitable and any other
foundations, associations and unions. There ar e other sub-forms for public organizations
which are established and regulated under the Law on Public Associations. Russia allows
for charitable organizations to be establis hed as public organizations (associations),
foundations, and institutions, and in other forms determined by the federal laws for
charitable organizations.
12 Ukraine also provides several forms for charitable
organizations, defined in the Law of Uk raine on Charity and Charities, including
membership-based organization, charity foundation, a charity institution, or other charity
organizations (foundations, missions, leagues, etc .).
13

Kyrgyzstan permits charitable organizations to be created in the form of “public
organizations (associations), foundations, institutions and other forms.” 14 Moldovan law
permits the creation of charitable organizati ons in the form of associations, funds, and
other legal forms not prohibited by law.
15 And Tajikistan permits charitable
organizations to be “created in the forms of public organizations (associations), funds,
institutions, and in other forms foreseen by the legislation of the Republic of Tajikistan
for charitable activity.”
16 Armenia permits charitable organi zations to be established as
public unions (associations), foundations, and any other forms permitted by law. 17

E. Purposes

Despite extensive similarities between the treatment of non-commercial organizations
and charitable organizations, many countries do distinguish between charitable and other
non-commercial organizations in outlining purposes which such organizations may serve.
The common distinction made between charitable and other non-commercial
organizations is that charitable organizations shall serve only the public at large and/or
the categories of persons specified by law, while other non-commercial organizations can
benefit their members and/or pers ons and groups of their choice.

Ukrainian law defines charitable organizat ions as non-governmental organizations, the
primary activities of which are both charitable and public-oriented, as defined by the
Law.
18 The Law goes on to define charitable activities as selfless activities performed by
charitable organizations that do not envision profit making. This phrase seems clearly to
include any public benefit activ ity. The Law of Kyrgyzstan on Patronage and Charitable
12 Article 7 of the Federal Law of Russia on Charitable Activities and Organizations. 13 Article 6 of the Law of Ukraine on Charity and Charities (1997). 14 Article 6 of the Law of the Kyrgyz Republic on Patronage and Charitable Activity (1999). 15 Article 8(1) of the Law of the Republic of Moldova on Philanthropy and Sponsorship (2002). 16 Article 7 of the Law of the Republic of Tajikistan on Charitable Activity (2003). 17 Article 11 of the Law of the Republic of Armenia on Charity (2002). 18 Article 1 of the Law of Ukraine on Charity and Charities.
@ 2004 ICNL. All Rights Reserved. 7

Activity 19 provides that a charitable organization shall be a non-governmental (non-
commercial) organization created for implemen tation of purposes stipulated in the Law,
by carrying out charitable activity in the interest s of society in general and/or on behalf of
certain categories of pers ons. Tajikistan, Russia and Mo ldova define charitable
organizations in a similar fashion to Ukraine and Kyrgyzstan, while Armenia does not
specify that charities must be “non-govern mental,” but otherwise employs a similar
definition.
20

As a general rule, NIS countries which have drafted laws on charitable organizations
have included lists enumerating the purposes which are deemed to serve charitable
goals.
21 These lists vary from country to count ry, not only in the number and detail of
specified purposes, but also as to whether the lists are “open” or “closed.” For example,
in Ukraine, Russia, Moldova, Kyrgyzstan, and Armenia, the lists of permissible
charitable activities are “close d lists,” meaning that they enumerate the activities or aims
which qualify as charitable, and do not include a catch-all category that would allow for
the categories to reflect the changing needs of the populace. Tajikistan, alone out of NIS
countries with stand-alone charity laws, provides for an open list, by including a catch-all
phrase, “other socially meaningful aims dete rmined in accordance with the legislation of
the Republic of Tajikistan”.
22

The following list of purposes taken from the Moldovan law on charity 23 is
representative of the region. The Moldovan la w states that charitable activity can be
carried for the purposes of:

1. social support and protection for indivi duals, including improving of life quality
for poor, social rehabilitation of unemployed, and other persons who are due to
physical or mental disability or other ci rcumstances cannot realize their rights and
lawful interests;
2. preparation of the population to overcoming consequences of natural disasters,
ecological and other catastrophes, for overcoming accidents and disasters;
3. providing assistance to those who suffered as a result of war, natural disaster,
epidemical , ecological or other catastr ophes, social and ethnical conflicts;
4. increase of the prestige and role of family in the society, and protection of
motherhood and childhood;
5. providing material assistance to charitab le organizations, social and medical
institutions; and
19 Article 5 of the Law of Kyrgyzstan on Patronage and Charitable Activity. 20 Article 11 of the Law of Armenia on Charity. 21 As was mentioned earlier, nearly all NIS countries (except for Belarus, Turkmenistan and Uzbekistan)
have at least developed a definition of “charity organi zation” (typically in the relevant tax code provisions)
and/or “charitable activity”, which would include a brief definition of charitable goals/purposes. However,
the discussion herein will be limited to those definitions of purpose presented by the six stand-alone laws
on charity from Armenia, Kyrgyzstan, Moldova, Russia, Tajikistan and Ukraine.
22 Article 3 of the Law of Tajikistan on Charitable Activity. 23 Article 2 of the Law of the Russian Federation on Charitable Activities and Organizations contains the
same list of purposes as that of the law of Moldova.
@ 2004 ICNL. All Rights Reserved. 8

6. assistance to other activities of public m eaning which require such financial and
material support.

The purpose-related provisions in the Russian law on charity are in all relevant aspects
identical to those of the Moldovan law, and those of Ukraine, Kyrgyzstan, Tajikistan and
Armenia are also quite similar to those of the Moldovan law. Nevertheless, there are
some substantive differences between the Mold ovan list and those of other NIS countries.
For example, the Ukrainian law allows charit ies and philanthropists themselves to define
the concrete directions of a charitable or ganization and to define charitable activity.

F. Registration or Incorporation Requirements

As with several other issues, there are no sp ecial provisions in the laws on charities
dictating special registration or incorporation requirements for charities. Even when the
laws on charities define the registration procedures (as with the Ukrainian Law on
Charity and Charities, or the Moldovan Law on Charity and Sponsorship), these rules are
almost identical to the rules for regist ration established for other NCOs, public
associations in particular. Typically, charitab le organizations must register in the same
manner dictated in the law of their country fo r their particular legal-organizational form,
and may be founded by the same entities that are permitted to found the chosen NCO
organizational form. The following discus sion describes the general rules for non-
commercial organizations, which are equally applicable to charitable organizations.

1. Who can be a founder?

The founders’ requirements will depend upon the relevant legal organizational form. For
example, charities that are founded in the fo rm of public associations may be founded by
natural persons (over the age of 18, domestic, and in most instances, as foreign) and other
public associations, in Russia, Ukraine, Moldova and Kazakhstan. In Kyrgyzstan,
Georgia, and Armenia, associations can be founded by any natural and/or legal persons
(domestic and foreign), and foundations can be founded by either natural or legal persons
(domestic and foreign).

There are a few additional limitations on who can found a charitable organization. For
example, in Russia, Ukraine, Moldova, a nd Tajikistan, bodies of central and local
government and governmental institutions cannot be founders of charitable organizations.
In Ukraine, only physical pers ons and other public associations can be the founders of a
public association (including one with charit able status). Or in Moldova, government
officials cannot be founders of public associations (including on es with charitable status),
if their professional responsibilities include re gistration and control over the activities of
public associations.
24

2. Number of founders

24 Article 4 of the Law of the Republic of Moldova on Public Associations (1996).
@ 2004 ICNL. All Rights Reserved. 9

Different organizational legal forms require different minimal number of founders.
Typically, foundations will require only one or more founders, while associations may
require from 2 to 10 or more. The re quired minimum number of founders for
associations varies from 2 (Armenia, Geor gia, Russia), 3 (Moldova, Tajikistan, Ukraine,
and Kyrgyzstan) to 10 founders (Uzbekistan, Turkmenistan, Belarus). More founders
might be required for charitable organizations incorporated as public associations with
national, regional, or international status.
25

3. Associations of Charitable Organizations

All NIS countries do allow public associations or charitable organizations to create a
union of other associations, to re gister it as a legal entity, and to obtain charitable status.
Such unions or associations of legal en tities require a minimum of two founders.

4. Government Body in Charge of Registration

The common practice throughout the NIS is to require charitable organizations to register
as newly established legal entities under the au spices of the Ministry of Justice or other
government body authorized to carry regist ration of legal persons, such as the
Registration Chamber. Moldova is the only country of the NIS to have established a
special Certification Commission fo r registration of charities, although the status of this
commission is currently unclear.
26 In addition, some cities and regions in Russia,
including the cities of Moscow and Saint Petersburg, have chosen to adopt procedures
and establish commissions comparable to that that of Moldova, although these
commissions will not be disc ussed in this report.

The imposition of an additional certificati on procedure for registration with the tax
authorities is likewise typically required for charitable organizations in order to qualify
for tax benefits. In Ukraine, for example, si mply registering as a charitable organization
is not sufficient to obtain tax- exempt status. In order to obtain this status, any public
association (not only charitable organizations) must be recorded in the Registry of Non-
profit Organizations (NPOs) maintained by the Tax Administration as required by the
Law on the Taxation of Profits of Enterprise s and the Regulation on Registries of NPOs
25 In the Russian Federation, Tajikistan, Kazakhstan, Ukraine, Moldova, and Uzbekistan, the registration
procedures differentiate depending upon the territorial status of the association, i.e. whether they are
planning to perform their activities locally, in several te rritorial regions, or on the entire territory of the
country. The more expansive the territorial scope of the organization, the more complex the registration
requirements will be, including requiring a greater number of founders.
26 Moldova is somewhat unusual, in that it has created a special Certification Commission for awarding
charitable status (also within the Ministry of Justice), that was originally responsible for registering
charitable organizations, prior to the adoption of the 20 02 Law on Charity. After this new law was enacted,
the situation became somewhat unclear. In the past , the Certification Commission reviewed the application
of an organization and advised the tax authorities as to whether the charitable organization had been
awarded a public benefit certificate entitling it to tax benefits. With the adoption of the 2002 Law on
Charity, which incorporates its own registration pr ocedures without reference to the Certification
Commission, the status of this Commission is in d oubt. Therefore, we will examine the procedure
contained in the 2002 Law because it is the most curre nt, despite the fact that it remains unclear whether
this procedure has taken the place of the Certification Commission.
@ 2004 ICNL. All Rights Reserved. 10

approved by Order N232 of the Ukrainian State Tax Administration. 27 According to the
Kyrgyz Tax Code (Section 9.4), a charitable or ganization will be eligible for tax benefits
if it “ has obtained under the established procedure a document, issued by the tax organs,
confirming its rights to tax privileges unde r Sections 112 [exemptions for charitable
activity] and 145 [VAT exemptions] of th[e] Code.”

5. Registration Process 28

NIS charity laws, such as those in Russia, Ky rgyzstan, or Armenia, often do not establish
a separate registration process for charities, choosing instead to incorporate by reference
the procedures applicable to all non-commercial legal entities.
29 The following
discussion identifies the basic requirement s of the registration procedure for non-
commercial organizations in the various countries.

a) Ukraine

In Ukraine, the following documents must be filed in order to register a charity:
(1) founder (s) application or th at filed by his representatives, (2) bylaws (regulations)/
the protocol of the constituent meeting (congr ess, conference), (3) the information about
the founder(s) and the charity executive, (4) the information about the charity’s local
branches (affiliates, offices), and (5) a document to prove payment of the state
registration fee.
The application for state regist ration of a charity must be considered within two months
from the date of submitting all necessary documents. The outcome of consideration must
be communicated to the applicant within 10 days. The organ which is responsible for
state registration may inspect the data contained in the submitted documents. After
consideration of the a pplication, the registering body must decide to either register or
refuse to register a charity. If registra tion is granted, the founder(s) is issued a
registration certificate in a format stipulated by the Cabinet of Ministers. Fees are
charged for state registration in an amount also determined by the Cabinet of Ministers,
but this amount may not exceed the equivale nt of ten times the pre-tax amount of
minimum salary as determined by the government of Ukraine.
27 In order to obtain the special tax benefits accorded to NPO status, charitable organizations must
demonstrate that they are in compliance with the requirements of the Law on Taxation of Profit of
Enterprises (which dictates the type of income that can be received) and apply to be listed on the registry of
NPOs. The primary requirement is th at a charitable organization cannot conduct any service for a fee. If it
does so, it will be excluded from the registry of NPOs and will lose its tax benefits. This outcome does not
affect its registration as a charitable organization. Ho wever, the meaningful aspect of such nomenclature is
in the benefits, to which it will no longer be entitled.
28 Some countries, such as Armenia and Moldova, have developed special registration requirements for
foundations, provided in separate laws on that orga nizational form. Because associations are the more
common organizational form used in the NIS, however, we will limit our discussion on registration
processes to those for associations.
29 The typical provision, such as that from Article 9 of the Federal Law of Russia on Charitable Activities
and Charitable Organizations provides that “[s]tate registration of a charitable organization is accomplished
in accordance with the procedure, determined by (federal) laws.”
@ 2004 ICNL. All Rights Reserved. 11

Registration may be refused for failure to fully comply with the registration process,
violation of other laws or normative acts of Ukraine, or in the event that another
registered charity bears the same name. Th e decision to refuse a charity the state
registration may be appealed in the cour t in accordance with Ukraine’s legislation.

b) Russia

In Russia 30, the following documents must be submitted for registration of a public
association: (1) application signed by members of a permanent governing body, (2) two
copies of the charter, (3) extracts of th e minutes of the founding congress or general
meeting reflecting establishment of the asso ciation, the approval of the charter and the
formation of governing and supervisory bodies, (4) information about the founders, (5)
documents confirming payment of registration fees, (6) document confirming the legal
address of the association, (7 ) minutes of the foundation congresses or general meetings
for international, all-Russian or interreg ional public associations, and (8) documents
confirming authorization for the association to use its chosen name and symbols.

An application for registration must be considered within one month of submission, and
within that time, the registeri ng body must decide either to register the public association
or to refuse registration. If an associati on is granted registration, it is then issued a
certificate of state registration, which testifie s to the successful state registration of the
public association, the entry of this associa tion by the registration body into the unified
state register of legal entities, and the payment of appropriate registration fees.
Registration fees are determined by th e laws of the Russian Federation.

In the event of a refusal to register, the registering body must provide the applicants with
written reasons supporting the refusal, which mu st specifically identify the violations on
which the refusal is based. Refusal to regi ster may be based on the following reasons:
(1) if the charter of the public associati on contravenes the Constitution of the Russian
Federation, the constitutions (charters) of the subjects of the Russian Federation, the
provisions of Articles 16, 19, 20 and 21 of Law on Public Associations or the laws on
specific types of public associ ations; (2) if the list of the founding documents was not
submitted in full or they have not been completed in proper order; (3) if a public
association with the same name was regist ered earlier in the territory where this
association carries on its activ ity; (4) if the registering body has established that the
founding documents submitted for registration cont ain untrue information; or (5) if the
name of a public association offends th e morality and the national and religious
sensibilities. Registration ma y not be refused on grounds of impracticality of purpose.

c) Kyrgyzstan

30 Registration procedure may be found in Articles 21, 22 and 23 of the Federal Law of Russia on
Charitable Activities and Organizations.
@ 2004 ICNL. All Rights Reserved. 12

The procedure in Kyrgyzstan 31 (specified in the Law on Registration of Legal Entities)
applies to both NCOs and commercial legal entities. Under this law, the following
documents are required for registration: (1) decision of founders, and (2) by-laws and/or
charter, depending on organizational form.
32 A decision must be made on registration
within 10 days. The registra tion is conducted free of char ge. Registration may only be
refused on the grounds that some aspect of the registration documents violates the laws of
Kyrgyzstan. Arguments for refusal for regist ration shall be provided to founders in
writing.

d) Moldova

Moldova 33 requires that public associations seeking registration provide the following
documents: (1) application signed by all me mbers of the governing body; (2) two copies
of the charter; (3) copy of the minutes of the constituent meeting, demonstrating adoption
of the charter, decision to found the associa tion, and election of leaders; (4) information
about the founders; (5) application of persons to use a personal name of a citizen in the
name of the public association (where relevant ); (6) decision of the highest organ of the
public association to represent the associa tion during the process of registration; (7)
document showing the residence of the asso ciation; and (8) bank document confirming
payment of registration fee.

A decision on registration must be made with in one month, resulting in registration of the
association (and issuance of a certificate of state registration), postponement of a decision
on registration, or rejection of the application. Registration can be postponed for a period
of up to three months, but a publ ic association must be notified of such a decision within
3 days of the decision.

Refusal to register may occur in the following circumstances: (1) if the Charter of the
public association contradict s the Constitution of the Republ ic of Moldova, the present
Law and other legislative acts of the Re public of Moldova; (2) if requirements,
mentioned in the decision about the delay in registration are not fulfilled within a three-
month period; (3) if the Char ter of the public association with the same name was
registered before; (4) if the application about registration of the Charter of public
association was presented before the expirati on of the year since the date of the coming
into legal force the decision of the court about the termination of the activity of the
mentioned public association; (5) if th e registration body has found out uncertain
information in the constituent papers presente d for registration; (6) if the name of the
public association insults morals, national and religious feelings of citizens. A public
association may not be refused registration due to reasons of impracticability of its
purpose or because its legal address is that of a member of the association.

e) Tajikistan

31 Article 12 of the Law of the Kyrgyz Republic on Registration of Legal Entities as of January 18, 2003. 32 Article 7 of the Law of the Kyrgyz Republic on Registration of Legal Entities. 33 Article 19 of the Law of Moldova on Public Associations.
@ 2004 ICNL. All Rights Reserved. 13

In Tajikistan the registration procedures for charities established primarily in the form of
public associations 34 is very similar to that of Russia.

f) Armenia

Armenia 35 requires that public organizations applying for registration submit (1) an
application for registration, (2) the protocol of the founders’ assembly (with resolutions
approving the charter, the elec tion of an authorized person to represent the organization,
and the decision to apply for registration), (3) information on the founders (only 5 are
required if there are more than 5 founders), (4) at least two copies of the charter, and (5) a
receipt demonstrating payment of registration fees.

The registration body must make a decision with in twenty-one days as to whether to
accept or reject the application for registration. In the event that the documents submitted
are not complete or are illegi ble, the registration body must notify the association within
7 days, and the registration body may suspend it s consideration of the application for a
period of not more than ten days. Rejection may be based on the following grounds: (1)
if the organization did not remedy the problems with its application or did not apply to
the state registration body to cancel its application with in 10 calendar days after being
notified that not all documents were presented or that they were illegible or contained
faults not related to the main content, (2 ) the name of the organization, short name
(abbreviation) and the logos did not correspond to the requirements of Article 10 of the
law, or (3) the presented charter contra venes the RA Constitution or other laws.

6. Right to Appeal

All NIS countries being discusse d here provide that an organization whose application for
registration is refused is entitled to receive a written explan ation identifying the specific
faults in the application, and may appeal this decision to a court, subject to the general
laws of the country, although Moldova places a time limitation of one month on this right
to appeal. In addition, all c ountries provide that refusal of registration may not prohibit
the organization from rea pplying for registration.

G. Charitable Organization Register

None of the NIS countries maintain a uni fied special register of all charitable
organizations. In fact, most countries have multiple registries which have information
about charitable organizations (and often about all registered NCOs). In Russia, Ukraine,
Moldova, and Tajikistan, countries which requ ire registration of charitable organizations
depending on their territorial status (international, all-republic an, regional, or local), the
central government body (the Ministry of Ju stice or Registration Chamber) maintains
records on international and all republican organizations, while their regional offices and
municipal executive committees maintain information about regional and local
organizations, respectively. However, in Armenia, registration of non-commercial
34 Article 15 of the Law of Tajikistan on Public Associations. 35 Article 12 of the Law of the Republic of Armenia on Public Organizations.
@ 2004 ICNL. All Rights Reserved. 14

organizations (including charitable organizations) is carried out only by the central office
of the Ministry of Justice.

The following description of the proce ss governing registries of non-commercial
organizations in Ukraine is representative of many NIS countries. Ukrainian law
establishes multiple registries for charitable organizations, and there is no a unified
registry. The Ministry of Justice departments that carry out the registration of charitable
organizations are required to maintain a sepa rate registry for charitable organizations.
The Cabinet of Ministers of Ukraine set th e procedure for registry maintenance and
publication of registry contents.
36 While public access to the registries is technically
provided by law, in practice many obstacl es prevent individuals from receiving
information from any registry. Each divisi on of the registration body (e.g. departments of
the Ministry of Justice and municipal executive committees) maintains a separate registry
of the charitable orga nizations it registers.
37 Registry data on national and international
charitable organizations should be published in the official mass media. This is not done
in practice. The following information is stated in the registry for charitable
organizations: date of registration of pres ented documents, name of the charitable
organization, its legal address, the date of approval of the statute of the CO, date of state
registration, the purpose of activity of a CO, the members of the highest executive
governing body of a CO, the date of issuing a certificate, information about changes into
the statute, information about re-organization/liquidation.
38 Defunct COs which have not
been formally liquidated remain on the regi ster, which does not contain any information
about the actual activities of a CO. The register does not list orga nizations that were
denied the right to register or which have been sanctioned or disciplined.

All legal persons in Ukraine must be also regi stered with the Ministry of Statistics in
order to receive a “code” used for openi ng bank accounts, applying for a stamp, and
conducting other operational necessities).
39 To register, an organi zation’s representative
must submit a statement drawn up according to form and specifying the organization’s
name, registration date, registra tion certificate number, legal status, title of the executive
authority, and legal address. Th e organization is then issued a certificate of entry into the
government statistical registry and is given its code. In accordance with the Law on State
Statistics,
40 the State Statistical Registry may disclose information to COs and to other
legal or natural persons for a fee, except wh ere otherwise stipulated by law (e.g. when the
information is considered a commercial or state secret). Statistical information is
supposed to be disclosed free of charge only if an organization or other persons are acting
on behalf of governmental authorities. Generally, access to statistical information is
restricted.

36 Article 8 of the Law of Ukraine on Charity and Charities. 37 Regulation on the Procedure of State Registration of Charitable Organizations, approved by the Decree
of the Cabinet of Ministers # 382 as of March 30, 1998.
38 38 Regulation on the Procedure of State Registration of Charitable Organizations, approved by the Decree
of the Cabinet of Ministers # 382 as of March 30, 1998.
39 The Law on State Statistics of Ukraine of July 17, 1992 (with subsequent amendments) 40 Article 8 of the Law on State Statistics.
@ 2004 ICNL. All Rights Reserved. 15

In addition to the statistical registry, a charitable organization must register with the tax
administration, which grants the charitable or ganization a taxpayer code. Under the Law
on Humanitarian Aid,
41 recipients of humanitarian aid must be entered into the unified
registry of humanitarian ai d recipients maintained by the Commission on Humanitarian
Aid and by its regional and distri ct branches, as established by the Cabinet of Ministers.
42
In practice, access to registri es is restricted because no overarching law regulates this
process. State authorities maintaining individu al registries establish their own regulations,
and these authorities are usually not interested in assuring public access to the registries.

In addition to the above-described procedures which are similar to those in other NIS
countries. In Ukraine, in order to be elig ible for tax benefits on profits, a charitable
organization must be entered into the registry of non-profit organizations (NPOs)
maintained by the tax administration in acco rdance with the Law on the Taxation of the
Profits of Enterprises.
43 In order to be included into the register, a charitable or other
qualified organization which meets requirements of the tax law, shall submit to the local
tax authority an application in accordance with the approved form, copies of by-laws and
statutes.

According to the Law on the Taxation of the Pr ofits of Enterprises (the Enterprise Tax
Law), a CO is tax exempt if:
(a) it complies with requiremen ts in article 7.11 of the Law,
(b) it is included into the Registry of NPOs, and
(c) it does not have incomes other th en listed in Article 7.11 of the Law.

All charitable organizations that comply with the law can be included into the Registry of
NPOs and are eligible for tax benefits. In accordance with the Law on the Taxation of
the Profits of Enterprises,
44 NPOs with tax-deductible status include charitable
foundations and charitable organizations established under the Law on Charitable
Activities. The Tax Administration determ ines the requirements for the acceptance of
organizations into the NPO registry, verifies organizational compliance with these
requirements, and enters organizations into the registry, resulting in the receipt of tax-
exempt status. There is no appeals procedure if the CO gets rejected from inclusion into
the registry of NPOs. A CO can be exclude d from the registry based on the decision of
the tax authority maintaining the registry, resu lting violation of tax or other legislation by
a CO.

H. General Powers

41 Article 1 of the Law on Humanitarian Aid of Ukraine of October 22, 1999. 42 The Resolution by the Cabinet of Ministers of Ukraine on the Approval of Procedure of Conducting of
the Single List of Beneficiaries of Humanitarian Aid, dated March 22, 2000, N543.
43 Regulation on the Register of Non-profit Organizations and Institutions, approved by the Decree of the
State tax Administration of Ukraine # 232 as of July 11, 1997.
44 Article 7.11.1(b) of the Law on the Taxation of the Profits of Enterprises.
@ 2004 ICNL. All Rights Reserved. 16

As discussed earlier, charities are, as a general matter, required to register as legal entities
in order to qualify as “charitable organizations,” and accordingly possess the same
general rights and powers which are accorded to all legal entities. They are permitted to
own real property and enter into contracts in the same manner as other legal entities. In
many cases, however, there are limitations placed upon a charity’s right to use its
resources for prohibited purposes, or the law of a particular country may endow donors or
beneficiaries with certain rights as to the use of the charity’s funds. Such limitations
typically relate to usage of property, limita tions on administrative expenditures, and
limitations on charitable organizations’ ri ght to conduct economic activities. For
example, the Armenian Law on Charity forb ids charitable organizations to accept any
property as a donation on conditi on of using it for the benefit of the donor. The law also
contains additional provisions limiting the usage of property, requiring that an
organization limit its administrative expenditu res to 20% of the yearly profit of the
organization, and requiring that at least 80% of the monetary donations and endowments
must be used within a period of one y ear from the donation, unless the donor or
charitable program specifies otherwise. In the event that donations are not used within
the prescribed time period, they may be conf iscated through a court decision. Or in
Tajikistan, charitable organizations are not al lowed to be co-founders of commercial legal
entities alone with other entities.
45 Other countries have similar limitations which will be
discussed in other relevant se ctions of this report.

NIS laws do not typically provide any special rights for potential or intended
beneficiaries of a charitable organization to seek redress in court beyond that which
would be available against any other type of legal entity. Yet the absence of such
provisions in charity laws doe s not prohibit an individual or legal entity from bringing
these types of actions. Even when the laws on charity do not explicitly grant such rights,
there is no obstacle for indivi duals with claims against a ch aritable organization that is
governed by a separate law to bring a case agai nst the organization in court, particularly
in instances where the donation has been gran ted to a charity for a specified purpose and
codified in a written agreement. And of c ourse, any person who believes that a charity is
violating the law may bring its suspicions to the attention of the authorized bodies
(registration, tax body or a pros ecutor’s office) for their pursuit. Only the Russian and
Moldovan laws specifically provide that any di sputes which arise between the charitable
organization and individuals or legal entities which have donated funds for charitable
purposes, regarding the use of these f unds, shall be brought to court.

I. Membership Organizations

Associations are the most common legal form of charitable organization in NIS. As a
rule, NIS charity laws do not provide for sp ecial rights or obligations of members of
charitable associations which are different from those of associations in general.
Members of a charitable associ ation, unless otherwise specified in the relevant law on
charity, would have the same rights and obliga tions as those provided under separate laws
on associations. The restriction on distribut ion of assets, including profits among the
members applies not only to charities but to all public associations in many countries.
45 Article 14 of the Law of Tajikistan on Charitable Activities.
@ 2004 ICNL. All Rights Reserved. 17

Most commonly, NIS laws on associations define individuals’ rights to freedom of
association by prescribing that no one may be forced to join a public association and no
one may limit one’s right to leave the association. The Law of Ukraine on Public
Associations states that public associations are founded and run on the basis of “equality
of all members” and also provides that “nobody can be forced to join any civic
association.”
46 The Russian law on Public Associations also states that, “[t]he right of
individuals to form associati ons includes the right to form voluntary public associations
for the protection of common interests and th e advancement of common goals, the right
to join existing public associations or to refrain from joining them, and the right to leave
public associations.”
47 Much the same phrases appear in the laws of Tajikistan and
Moldova on Public Associations. 48

The Armenian Law on Public Organizations st ates that after establishment of a PO,
founders become members with rights identical to those of other members. 49 However,
this Law – while stating that the right to form association includes the right to become a
member and to freely withdraw from membership – also provides that, “this right may be
restricted, in cases and manner envisaged by law, for the servicemen of the military and
law enforcement bodies.”
50 Subject to this general ground for restriction, the Law
provides further that members of an associati on have the following specific rights: (1) to
be present at the assembly of the organization, if it is held with the participation of the
delegates of the members of the organization, and the person was not elected as one; (2)
to get acquainted with the recorded document s of the work of the organization bodies, to
receive copies of the adopted resolutions (fees collected for the copies shall not exceed
the expenses incurred for making the copies); and (3) to appeal the decisions of the
organization’s bodies to higher bodies in th e manner envisaged by the charter of the
organization.
51 The Law of Kyrgyzstan on Non-comm ercial Organizations, in contrast,
requires only that all NCOs should be created and should act on the grounds of
voluntarism, self-governance, lawfulness and openness.
52

Beyond these provisions, most laws of the NIS on associations do not specify any
particular procedures that must be follo wed when a member joins or leaves an
association. Rather, the NIS laws permit asso ciations to establish their own procedures
governing the exclusion and re moval of members, as well as the procedures by which
members may join the association, requiring merely that such procedures be contained in
the association’s charter. For example, th e Law of the Russian Federation on Public
Associations provides th at, “[m]embers of the public a ssociation enjoy rights and bear
responsibilities in accordance w ith the requirements of its charter and may be expelled
from the public association for violating these requirements, following a procedure
46 Articles 6 and 7 of the Law of Ukraine on Charity and Charities. 47 Article 3 of the Federal Law of Russia on Public Associations (1998). 48 Article 3(2) of the Law of Moldova on Public Associ ations; Article 3 of the Law of Tajikistan on Public
Associations.
49 Article 6(1) of the Law of Armenia on Public Organizations. 50 Article 3(2) of the Law of Armenia on Public Organizations. 51 Id., Article 7. 52 Id., Article 4.
@ 2004 ICNL. All Rights Reserved. 18

indicated in the charter. 53 Other countries simply require that the charter of the
organization specify the “rights and respons ibilities, conditions and procedure of
admission to the organization and resigning from it.”
54

Most laws on public associations also de signate some sort of age requirement for
members of associations: Ukraine (pers ons at least 14 years old, except for youth
organizations, which can be determined by the statutes) (Article 12), Russia (18 years or
older, 14 for youth associations and 8 for ch ildren’s associations) (Article 19), Moldova
and Tajikistan (18 years for public associa tions, 14 for youth associations and 10 for
children’s associations) (Article 15) (Artic le 12). Armenia and Kyrgyzstan’s laws on
Public Associations and Non-Commercial Organizati ons, however, place no age
restrictions on membership.

For a specific discussion of the types of lega l entities that may join associations, see
earlier discussion, p. 9, regarding “ Who Can Be A Founder?”

II. Governance

A. Structures

All NIS countries dictate some aspects of stru cture for charitable organizations, either in
the stand-alone laws on charity or in the general laws pertaining to non-commercial
organizations. However, the extent of detail provided varies from country to country, and
also depends upon the relevant organizational le gal form. For example, Russia, Ukraine,
Moldova, and Tajikistan all cont ain some provisions within their respective stand-alone
laws on charities dictating certain elements that must be contained in the structure and
governing bodies of charities in order to comply with the law. In contrast, Armenia and
Kyrgyzstan do not have such provisions in their respective charity laws. However,
similar provisions to those found in the laws on charity from other countries can be found
in the Armenian laws on public associat ions and foundations and in the Law of
Kyrgyzstan on Non-commer cial Organizations.

As a general matter, NIS legislation permits the founders of a charitable organization
some leeway to decide upon the management st ructures they prefer and to codify these
structures within their charters or by-laws. However, there are some consistent features
among the various countries. For example, all countries specify that for charitable
organizations in any form, the highest gove rning body shall always be a collegial body,
although the term given to this body may vary depending on the organizational form of a
charitable organization and the country. For a ssociations- it is typically a general meeting
of members, and for foundati ons, it is typically a board of directors (or supervisory
board), although again the act ual terminology used to describe this entity varies
throughout the region. These laws also vary c onsiderably in the extent to which they
53 Article 6 of the Federal Law of Russia on Public Associations. 54 Law of Kyrgyzstan on Non-commercial Organizations, Article 10; see comparable provisions in: Law of
Moldova on Public Associations, Article 18; Law of Armenia on Public Organizations, Article 11; Law of
Tajikistan on Public Associations, Article 13; La w of Ukraine on Charity and Charities, Article 13.
@ 2004 ICNL. All Rights Reserved. 19

specify details such as voting procedures, officers, duties of various governing bodies,
etc. Therefore, we will describe the requirements for each country separately.

1. Ukraine

Article 17 of the Law of Ukraine on Charity and Charities dictates the name and
responsibility of various management organs w ithin a charity. According to this Law,
the highest management organ of a charity is a collegial body (general meeting of
members of a conference), wh ich carries its responsibilities in compliance with the
charity’s by-laws. Areas of competen ce of the highest management body include
approval of by-laws, adoption of amendments to by-laws, election of the charity’s
executive and supervisory organs, approval of charity programs, determination of the
charity’s activity guidelines, decisions rega rding reorganization and liquidation, and any
other issues stipulated by the charity’s by-laws.
55 The Board is the executive organ of a
charity, whose responsibilities ar e dictated by the by-laws of the charity, and which is
headed by the president (or director) whose authority is likewise determined by the by-
laws.
The highest management organ of a charitable organization is authorized to elect the
executive (supervisory) and c ontrolling councils of the charitable organization, and to
hear reports by the supervisory council on the use of funds and assets of the charitable
organization.
56 The executive organ of a charity is the Board. Competence of the Board
is defined in the by-laws of a charity. In order to provide for day-to-day work, the
organization appoints an ad ministrative- executive organ headed by the Director
(president), whose competence is also de fined in the organization’s by-laws. A
supervisory board is an optional organ for a charity, which can be created by the highest
management organ, and would perform controlling and supervisory functions. The
members of the executive bodies of a charity, with the exception of the Director
(president) cannot receive salaries for their work at the charity. Their expenses, which
occur in relation to performan ce of their functions, may be co mpensated at the expense of
the charity upon the decision of the Board.
The Ukrainian law on Charity does not distingui sh between public associations and other
organizational forms such as foundations fo r the purposes of describing structure and
governance requirements, nor does it specify (b eyond that which is describe above), the
types of officers that an organiza tion must have or rules for voting.

2. Russia

Russia’s Law on Charitable Activi ties and Charitable Organizations 57 provides that the
highest management organ of a charitable or ganization is its collegiate body, formed in
accordance with the procedure determined by th e by-laws of the charitable organization.
This body is responsible for th e amendment of the by-laws of the charitable organization;
the establishment of executive bodies of the charitable organization and of its supervisory
55 Article 17 of the Law of Ukraine on Charity and Charities. 56 Id., Article 5. 57 Article 10 of the Federal Law of Russia on Charitable Activities and Organizations.
@ 2004 ICNL. All Rights Reserved. 20

bodies, and termination of their authority; the approval of charitable programs; the
approval of the annual plan, of the budget of th e charitable organization and of its annual
report; the adoption of the decisions on setting up commercial and non-profit
organizations, on the participation in such organizations, on opening branches and
representative offices; the adoption of decisions on the reorganization and on the
liquidation of a charitable organization (w ith the exception of a charitable foundation).

Members of the highest management organ of a charitable organization must perform
their work as volunteers, and may not occ upy staff positions in the administration of
commercial or non-commercial organizations which have been established by the same
charitable organization. The hi ghest management organ of a charitable organization may
include only one worker of its execu tive bodies (with or without a vote).

Russian Laws on Non-commercial Organizations and on Public Associations establish
additional rules for structure and compet ence of management bodies of various
organizational forms of non-commercial organiza tions, which also apply to charities.

3. Kyrgyzstan

The Kyrgyz Law on Charity and Sponsorship remains silent regarding the management
structure and competence of the management bodies of charitable organizations. These
issues are addressed in the Law on Non-commercial Organizations which does provide
for separate provisions governing the st ructure of associations, foundations and
institutions, including ones with charitable status.

For associations, the law designates the “general meeting” (collegial body) as the highest
management organ, and specifies the responsibil ities that this organ will maintain. The
law also specifies that changes and amendmen ts to the by-laws of an organization must
be introduced upon the decision of the general meeting. The general meeting is also
exclusively responsible for the following issues
58: introduction of amendments and
additions to the by-laws; priori tizing the directions of activity of the public association
and procedure for use of its property; pr ocedures for admission and expulsion from
membership of the association (unless ot herwise is provided for in the by-laws);
procedure of forming the governing bodies; a pproval of the organization’s annual report
on activity and annual balance; decisions regarding the establishment of branches and/or
representative offices; participation in activit ies of other legal entities; reorganization and
liquidation; other issues except for those with in the authorities of other bodies of the
association, as writ ten in the by-laws.

This Article also specifies that the procedures for conduc ting meetings and voting shall
be regulated by the by-laws and are not dictat ed by the Law itself. In addition to the
general meeting, a public asso ciation may establish additional governing bodies through
its by-laws or by adoption by the general mee ting, with the by-laws of the organization
designating the procedure for the creation of and the permissible activities of, such
bodies.
58 Id., Article 20.
@ 2004 ICNL. All Rights Reserved. 21

Instead of a general meeting, foundations are required to have a Board and a Supervisory
Council, with the members of the Board a ppointed by the Supervisory Council, and the
structure of the Supervisory Council to be di ctated by the by-laws of the organization.
According to the Law, every foundation must have a Board, which is responsible for
managing and representing the foundation. Th is Board may consist of one or more
members – legally capable physical persons, a nd must follow the lawful orders of the
Supervisory Council of the foundation. The Bo ard is responsible for submitting reports
on the foundation’s activity to the Supervisory Council. Other responsibilities and
powers of the Board must be provided for in the foundation’s by-laws. The Board will be
considered to have a quorum for voting purpos es if not less than half of its members
participate in the meeting.
59

It is the Supervisory Council which is char ged with controlling the activities of the
foundation, supervising the de cisions of its governing bodies and enforcing these
decisions, making decisions regarding the utilization of the funds of the foundation, and
ensuring that the foundation properly complies with legislation and the requirements of
its by-laws. As with the Board, a meeting of the Supervisory Council will be deemed to
have a quorum if half of its members atte nd the meeting. The Supervisory Council has
the following specified areas of authority
60: to control and determ ine the directions of
activity and the policy of the foundation; to introduce amendments and additions to the
by-laws; to adopt a decision on reorganization of the foundation; to appoint and remove
the members of the Board; to approve decisions of the Board regarding transactions in the
amounts exceeding the amounts specified in the by-laws, as well as transactions with
certain types of the property specified by the by-laws; to approve transactions that have
conflict of interest; to appr ove annual report on activities of the foundation prepared by
the Board of the foundation; to approve decisi ons of the Board regarding involvement in
commercial corporations or te rmination of such involvement; to solve other issues in
accordance with the by-laws; to examine and audit any and all foundation documents;
and to inquire into any aspect of the foundation’s activities.

The founders also have supervisory rights over a foundation, retaini ng the right to make
decisions on any issues relating to the activit y of the foundation (whether or not the issue
is within the competence of the Board or Supervisory Council), and even shall have the
right to veto any decision of the Supervisory Council.
61

4. Moldova

The provisions in Moldova’s Law on Charity are id entical to those in Russia in regards to
the highest management organ of a charit y. In addition, Moldova explicitly permits
charitable organizations to have executive and supervisory bodies in addition to the
collegial body.
62 Moldovan Laws on Public Associations and on Foundations establish
59 Article 26 of the Law of the Kyrgyz Republic on Non-Commercial Organizations. 60 Id., Article 28. 61 Id., Article 22. 62 Article 11(2) of the Law of Moldova on Charity and Sponsorship.
@ 2004 ICNL. All Rights Reserved. 22

additional rules for structure and competence of management bodies of various
organizational forms of non-commercial organiza tions, which also apply to charities.
For example, the Law of Moldova on Foundations contains extensive provisions setting
forth the composition and procedures for the Foundation Board. Moldova (Articles 24-
29) requires that foundations be governed by a Foundation Board, with the power to
create additional bodies at the discretion of the Board (in comp liance with the statutes of
the foundation).

The highest management organ of a f oundation is the Board. The procedure of
assignment and recalling of the members of the Board, the scope of their authority, as
well as the procedure of the activities of the Board must be set forth in the by-laws of a
foundation. Initial membership on the Board of a foundation shall be assigned by the
founder or the executor if the members ar e not listed by name in the will. The
Foundation Board has the authority to: (a) elaborate the st rategy of foundation
development; (b) approve th e budget and its changes, financial reports, and annual
reports on foundation activities;(c) manage th e property (assets) of the foundation and the
procedure of merger with ot her foundations unless such merger is prohibited by the
foundation’s by-laws; (d) elect new members of the Board and adopt decisions on the
recall of Board members; (e) establish other management organs; (f) direct activities on
the enlargement of foundation property; (g) adopt decisions on all matters relating to
foundation activities; And (h) ensure observance of the ethical norms of the non-
commercial sector by the foundation. The Board shall have access to a ll the documents of
the foundation and be entitled to control th e accounting and property record-keeping as
well as legality of operati on execution by the foundation.

Other bodies of a foundation might include a tr ustee (or supervisory) council established
to supervise a foundation’s activ ities. Public foundations whose property value or assets
exceed 1 million leus must have a trustee c ouncil. The trustee council shall exercise
oversight of the compliance of Foundation activ ities with the legislation, the foundation’s
by-laws, and ethical norms, as well as oversi ght of the accounting and record-keeping.
This council shall engage in an audit of a nnual financial reports and annual reports on
foundation activities, it shall po int out the defects and make suggestions to the Board as
to possible methods of elimination, and no less than once a year, it shall submit an
account of its activities to th e Board. The trustee council sh all be entitled to examine
documents of the foundation and call special meetings of its Board. Members of the
trustee council shall be entitled to pa rticipate in foundation Board meetings.

The foundation may also have other bodies ex ercising executive functions. These bodies,
along with the board of trustees, shall be established by the founders or the foundation
Board. The order of establishment and functi ons of these bodies are specially envisaged
by the foundation’s by-laws.

5. Tajikistan

Tajikistan’s Law on Charitable Activity provides that the highest management organ of a
charitable organization shall be the general meeting (or collegial body), which shall be
@ 2004 ICNL. All Rights Reserved. 23

formed in compliance with charity’s by-laws. The matters reserved to this collective body
are: adoption of amendments to by-laws, election of the charity’s executive and
supervisory organs and termination of thei r authority, approval of charity programs,
approval of charity’s annual work plan, budget, and of its annual report, deciding on
establishment of commercial and non-commercial legal entities, on participation in such
entities, on opening of branches and representative offices, and decisions regarding
reorganization and liquidation (with the exception of a charitable foundation).

In addition, Article 15 of Tajik Law on Char itable Activity provides that executives of
branches and representative offices are appo inted by the highest management organ of a
charity and perform based on a power of atto rney issued by the charitable organization

Tajikistan does not specify (beyond that which is described above) th e types of officers,
their powers, or rules for voting.

6. Armenia

As with Kyrgyzstan, the Law of Armenia on Charity provides no guidance on the types
of governance structures required for charities. Therefore, we must look to the stand-
alone laws on public organizations a nd foundations for these details.

As with other NIS countries, the highest manage ment organ of a charitable association is
its general meeting. However, it is up to th e founders to choose the remaining structure
of the organization; “the struct ure of the organization is stipulated by its charter and (or)
by the decisions of its bodies corresponding to its charter.”
63 The law also provides for
some minimal requirements, i.e. that the regu lar meeting of the organization must be held
at least once every two years, and that me mbers must be notified in advance of the
meeting of the assembly in the manner specif ied by the charter, but no later than 14 days
prior. In addition, this mee ting will only be considered valid if it is convened in the
manner prescribed by the by-laws, and if the number of participants exceeds the total
number of all the members or the delegates stipulated by the charter, which may not be
less than half of the total number.

The exclusive authority of the highest management organ of the association: 64

1. To approve the organization’s charter (if it was not approved by the founders
assembly), the introduction of changes and (or) amendments to it, or approval of a
new charter.
2. To approve the reports on the activities of the organization and on utilization of
property.
3. To elect those bodies, which are subordin ate and accountable exclusively to the
supreme body (if he organization has bodies other than the supreme body),
including the election of the body which shall carry out supervision of the
activities of the organization; to intro duce changes to the staff or premature
63 Article 14 of the Law of Armenia on Public Organizations. 64 Id., Article 14(5).
@ 2004 ICNL. All Rights Reserved. 24

termination of the authority of those bodies, meanwhile the duration of their
authorities may not exceed the time period envisaged by the charter for the
convention of regular meeting of the organization.
4. To make decision on restructuring the organization; to approve the act on
devolving property or the balance sh eet on division of property, except
restructuring by the decision of the court.
5. To make decision on dissolving the orga nization, except cases when decision on
dissolution is made by court.
6. To solve other issues, if the charter of the organization envisages the solution of
those issues exclusively by the supreme body.
7. The supreme body of the organization cannot delegate its right on adopting of a
decision on exclusive issues to the other bodies of the organization.
8. The general meeting of the organizati on shall make decisions in the manner
prescribed by the charter of the organization.

Article 14(7) of the Law on Public Organizatio ns also prescribes the process by which the
general meeting must make deci sions, stating that this process may be dictated by the
charter of the organization, subj ect to a requirement that a decision on an issue within the
exclusive authority of the supreme body shall be accepted as valid only if more than half
of the members of the organization or of all the delegates have voted for this decision,
and if the law or the organization’s charter does not require a larger number of votes for
the adoption of this decision.

Armenia also has a stand-alone law on foundations, which prescribes separate
requirements for this organizational form. For Armenian foundations, the law envisages
two main supervisory organs; the highest mana gement organ is the Board of Trustees of
the foundation, and the other supervisory orga n is the manager or executive director.
However, the statute permits the founders to draft the by-laws to provide for additional
bodies (such as corporate executive bodies), within the discretion of the founders. The
Board of Trustees has the authority to make decisions in the following areas:
65

1. Development of strate gy of the foundation;
2. Approval of the foundation’s budget and its changes, the financial reports and the
annual reports on foundation’s activities;
3. Approval of the procedure on manage ment of the foundation’s property;
4. Decisions regarding reorga nization of the foundation;
5. Election of new members of the foundation’ s board of trustees and adoption of
decisions regarding early suspension of authorities of members of the board of
trustees;
6. Decisions regarding the elec tion of the president of the board of trustees, the
manager of the foundation and other bodies envisaged by the charter, and early
suspension of thei r authorities;
7. Formation of other bodies of the foundation envisaged by the charter;
8. Decisions concerning the adoption of change s and additions to the charter of the
foundation, approval of new editions of the charter;
65 Article 25 of the Law of Armenia on Foundations.
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9. Decisions regarding the crea tion of commercial companies or participation in
them, as well as decisions regarding th e creation of separated subdivisions and
institutions and the adoption of the charters of the latter;
10. Supervision of the financial-econom ic activities of the foundation;
11. Hearing the reports of the manager of th e foundation with regularity envisaged by
the charter;
12. Supervision of the process of implementa tion of the board of trustees’ decisions;
13. Election of the person who sha ll conduct audits (auditor);
14. Fulfillment of other authorities envisaged by th is law, the charter, as well as those
authorities that have not been reserv ed for other bodies of the foundation.

In addition, the Law on Foundations provides for the election of a President of the Board,
who is responsible for organizing the work of the board of trustees; gathering the sessions
of the board of trustees and chairing them; a nd organizing the recordings of the sessions.

The following rules govern the votin g of the Board of Trustees: 66

1. The board of trustees fulfills its activities through sessions. The session of the
board of trustees is consid ered authorized if more than half of its members
participate in it, unless the charter envisages a greater number of participants. The
decisions of the board of trustees are ma de by simple majority of votes of the
members present at the session, unless this law and the charter of the foundation
envisage a greater number of votes.
2. Decisions regarding the election and dismi ssal of the president of the board of
trustees or the manager of the foundation, as well as decisions regarding
reorganization or liquidation of the founda tion, or changes and additions to be
made in the charter (adoption of new editions of the charter) are made by majority
of votes of all members of the board of trustees.

The Law also provides for the election of a Manager of the foundation, whose election
and dismissal are also within the province of the Board, and who is responsible for all
other issues which are not expl icitly reserved to the Board.

B. Accountability

Many of the laws on charity (as well as laws on NCOs) do provide some guidance on
conflict of interest problems, although in most NIS countries this area is not yet regulated
in much detail. Kyrgyzstan and Russia are the only countries with comprehensive
conflict of interest provisions, although thes e provisions do not appear in the charity
laws, but rather in legislation on NCOs. Uk raine, Tajikistan, Armenia and Moldova have
a few provisions that are intende d to reduce the possibility of conflict of interest problems
within their charity laws, but do not have any pr ovisions detailing procedures to follow in
the event of a conflict of interest problem.

66 Id., Article 24.
@ 2004 ICNL. All Rights Reserved. 26

As a preliminary matter, most laws governing non-commercial organizations contain
some form of a prohibition agai nst distribution of assets to members or employees of the
organization, except in the form of wages or payments to legitimate social funds (known
as the principle of non-distribution). The la nguage contained in the Russian Charity Law
is representative of such provi sions throughout the region: “I f a charitable organization’s
revenues exceed its expenditures, the amount of the excess is not subject to distribution
among its founders (members), but [] must be di rected towards realizing the goals, for the
sake of which this charitable organization was established.”
67 In addition, there is also
typically a prohibition on distribution of assets among founders upon the dissolution of a
charitable organization. Instead, property retained after payment of creditors must be
used for charitable purposes in accordan ce with the procedures determined by the
organization’s charter or, in some cases, if this is not possible, to revert to the state. The
language in the Law of Moldova on Charity a nd Sponsorship differs somewhat from that
of other NIS countries on this issue, in that it prohibits distribution of remaining assets to
founders upon liquidation, except for assets actually contributed by founders.
68

In order to prevent conflict of interest problems, Russia, Ukraine, Moldova, Kyrgyzstan,
and Armenia (for foundations) dictate that members of the supreme governing body
and/or board members, must perform thei r work as volunteers and may not receive
compensation or be otherwise employed by the organization. Russia permits at most one
paid employee to serve on the governing body, while Ukraine permits only the Director
to be a paid member of the board.
69 In addition, Russia, Moldova, Armenia, and
Tajikistan choose to explicitly prohibit members of the supreme executive or supervising
body from occupying staff positions in the administration of commercial and/or non-
commercial organizations established by or with the participation of the charitable
organization for which they are a member of the governing body.
70

Beyond these general principles, most countries do possess some additional provisions
designed to address conflict of interest pr oblems, although, again, the extent of detail
present in such provisions varies cons iderably among the various countries.

1. Ukraine

Current law does not directly a ddress the issue of conflict of interest or of transactions
concluded for the personal benefit of founders , members of the board or other interested
parties of an organization. The Law on Charity and Charitable Organizations provides
that founders and employees of charitable organizations do not have the right to seek
material benefits or additional funds in connection with their position in such
organizations except where otherwise stipulated by law.
71 In addition, the Criminal Code
67 Article 6(2) of the Federal Law of Russia on Charitable Activities and Organizations. 68 Article 12(4) of the Law of Moldova on Charity and Sponsorship. 69 Article 10.3 of the Federal Law of Russia on Char itable Activities and Organizations, Article 17 of the
Law of Ukraine on Charity and Charities.
70 Article 10.4 of the Federal Law of Russia on Charitable Activities and Organizations, Article 10.4. Law
of Moldova on Charity and Sponsorship, Article 11.4; Law of Tajikistan on Charitable Activity, Article 12.
71 Article 14 of the Law of Ukraine on Charity and Charitable Organizations.
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contains penalties for causing damage by conflicts of interest, 72 i.e., misuse by officials
of their position for personal benefit, for prof it-making or in the interests of third parties
if such misuse has caused significant damage to State or public in terests, or to the
interests of any natu ral or legal person.

2. Russia

Russia’s Law on Charitable Activities does not contain any special provisions dedicated
to conflict of interest prevention. However, there are such provisions in Russia’s Law on
Non-commercial Organizations (Article 27). This Law states that personal interest in
certain acts of an NCO, including transact ions, may result in a conflict of interest
between the interested persons and the NCO. The Law goes on to define “interested
persons” as including the manager (and deputy manager) of the organization, members of
the governing bodies of the organization or members of the bodies supervising its
activity, if these persons are employed by the or ganization or individuals, are participants
or creditors of the or ganization, are close family relati ons with such persons, or are
creditors of the such persons.

The same rule applies if the organizations or individuals are suppliers of goods or
services to the organization, major consum ers of goods or services produced by the
organization, have certain property formed pa rtially or in full by the organization or may
generate a profit from the use or disposal of the property of the organization.

When an interested person has an interest in a transaction to which an NCO is or intends
to be a party, or if there is any other conflict of interest between the interested person and
the organization with respect to an existing or supposed tran saction, the interested person
must inform the governing or supervising body of the organization prior to the decision to
enter into the transaction and the trans action must be approved by the governing or
supervising body. If the interested person does not follow the requirem
ents in the law,
the transaction may be invalidated by a court, and the interested person will be held
responsible to the organization for any losse s to the organization resulting from this
transaction.

3. Kyrgyzstan

The only provision within the Law of Kyrgyz stan on Patronage and Charitable Activity
governing conflict of interest provides that the property of a charitable organization
cannot be transferred (by means of sales or payments for goods, works or services) on
terms which are more favorable for founders or members of the organization than would
be available to other persons. Howeve r, Kyrgyzstan’s Law on Non-Commercial
Organizations contains several provisions pert aining to conflict of interest, which apply
72 Article 165 of the Criminal Code of Ukraine.
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to all legal organizational forms (associations, foundations and institutions) equally.
According to Article 13 of this Law, a trans action is deemed to suffer from a conflict of
interest, where it is conducted between the organization and any interested persons. The
term “interested persons” is defined as: o fficers, members of governing bodies of a non-
commercial organization, or other persons that, by strength of their position, may
influence the use of property by the organiza tion, and conduct a transaction with their
organization personally or via a representative. A conflict of interest is also presumed
when a non-commercial organization concludes tr ansactions with relatives of interested
parties or with their creditors. This Law provides for procedures that must be followed
for settlement of a conflict of interest when it arises. According to Article 14, any
interested person must inform the authorized body of the organization (as determined by
the organization’s charter) of the conflict of interest in a transaction before that
transaction is concluded. If the transaction is not approved prior to completion, the
interested person bears res ponsibility for compensating the losses incurred by an
organization as a result of this transaction.

4. Moldova

The Law of Moldova on Charity contains no sp ecial provisions on conflict of interest.
However, the Law of Moldova on Foundations sp ecifies that members of the Board of a
Foundation must recuse themselves in the ev ent that the Board discusses a matter in
which that member has a financia l or other interest (or of a relative within one to three
degrees), and may not participat e in voting on such an issue.
73 In addition, the records
of all cases of decisions made by the board fa voring a board member must be entered into
the minutes of the meeting. The Law on Public Associations has no provisions on conflict
of interest.

5. Tajikistan

Article 12 of the Law on Charitable Activity st ates that members of the highest body of a
charitable organization shall not be simultane ously executives of both the charity and of
any commercial entities of which the charity is a partner or a founder. According to
Article 18 of the Law on Charitable Activity, transfer of assets which belong to a
charitable organization to its founders or me mbers on conditions more favorable than for
the third persons is prohibited. Article 24 of the Law on Public Associations states that
income generated from activities of an association shall not be distributed among
founders/members of the association, and sh all be used for statutory and charitable
purposes.

6. Armenia

Armenian laws on Charity and on Public Orga nizations do not contain special provisions
dealing with conflict of interest issues. However, the Law of Armenia on Foundations
provides that, if the Board of Trustees discusses an issue which con cerns the property or
other interests of one of the members or of any person related to him/her (parent, spouse,
73 Article 26(2) of the Law of Moldova on Foundations.
@ 2004 ICNL. All Rights Reserved. 29

child, brother, sister, the spouse’s parent, child brother or sister), than this member shall
not participate in the voting. 74

C. Additional Issues

Other than the provisions that may be found w ithin the legislation specifically governing
charitable organizations, one may also find rele vant provisions in other laws, for instance
in the relevant criminal code, imposing pe nalties for damage caused by conflicts of
interest, i.e. for misuse of one’s official position for personal benefit or profit-making, or
providing for penalties if such misuse has cau sed significant damage to the interests of
the state, the public, or any natural or lega l person. Prosecutions for such violations,
however, are somewhat rare, particularly as there are no private sector watchdog
organizations involved in monitoring charitab le organizations, nor is there a history of
governing body members being held liable for no n-criminal violations of general duties
such as the duty of care or dut y of loyalty. In addition, mechanisms for self-regulation,
the most common of which would be volunt ary adoption of a code of ethics among
NCOs or charitable organizations, remain rare in the region. We are not currently aware
that such a development has taken place in any of the six countries being considered here.

III. Dissolution, Winding Up and Liquidation of Assets

In most cases, a charitable organization ma y be terminated through liquidation (either
voluntary or involuntary) in accordance with th e procedures established for the relevant
organizational form – usually association or foundation. Most charity laws in the NIS do
not specify liquidation procedures for charities which are different from those established
for other not-for-prof it legal entities (which are ofte n different depending upon the legal
organizational form). Instead, for example, th e laws of Ukraine, Russia, Kyrgyzstan and
Tajikistan all state in their respective laws on charity that liquidation and reorganization
are carried out in the manner sp ecified in the legislation of the country, thereby referring
to procedures set in separate laws on public associations, foundations, etc.
75 The Law of
Armenia on Charity contains no provisions on voluntary dissolution or liquidation (but
does specify procedures to be followed in the event that the charity violates the law), and
therefore by implication falls into this sa me category. The Law of Moldova on Charity
specifies simply that a charitable organizati on may be reorganized or liquidated pursuant
to the decision of: the supreme governi ng body, the executive body, founders or by court
decision.
76 Any additional specific provisions regarding liquida tion that are present in
laws on charity typically take the form of requirements that, in the event a charitable
organization has been involunt arily liquidated due to legal violations, it may be
74 Article 24 of the Law of Armenia on Foundations. 75 See Article 10 of the Law of Ukraine on Charity an d Charities, stating merely that “Liquidation of a
charity is done in accord ance with a method stipulat ed by legislation”; see also Article 6 of the Law of
Kyrgyzstan on Patronage and Charitable Activity; Ar ticle 13 of the Law of Tajikistan on Charitable
Activities; and Article 11(1) of the Federal Law of Russia on Charitable Activities and Organizations.
76 Article 12(1) of the Law of Moldova on Charity and Sponsorship.
@ 2004 ICNL. All Rights Reserved. 30

compelled to repay certain tax benefits it has improperly received as a result of its
charitable status. 77

A. Voluntary Dissolution

For associations, the common practice is th at the highest management organ of the
organization (as this entity is defined by the law and/or the organization’s by-laws)
possesses the power to volunt arily initiate dissolution of a charitable organization.

1. Ukraine

In Ukraine, the Law on Charity does not cont ain provisions on dissolution or liquidation.
However, the Law on Public Associations prov ides simply that a public association may
voluntarily liquidate in the manne r determined by its charter.

2. Russia

Russia’s Federal Law on Charitable Activities and Organizations specifies only that
reorganization and liquidation are accomplished in the manner set by other laws. 78 In the
Law of Russia on Public Associ ations, it is specified that the decision to liquidate may be
made by the general meeting or congress of the association, in the manner specified by
the by-laws, or through judicial procedure, after which time the association must notify
the registering body in order to have itself removed from the state register of legal
entities.
79 Only a court can make a decision as to the liquidation of a foundation. 80 A
Foundation may be liquidated: (1) if the F oundation’s property is not sufficient for the
realization of its goals, and th e possibility of obtaining the ne eded property is unrealistic;
(2) if the Foundation’s determined goals ca nnot be achieved, and it is impossible to
change the goals; (3) if it is not working to wards the realization of its statutory goals; or
(4) under other circumstances determined by federal law.

3. Kyrgyzstan

There are no provisions on liquidation of a charity in the Law on Charity and
Sponsorship. The Law on Non-commercial Orga nizations of Kyrgyzstan (Article 16)
prescribes that the liquidati on procedure for non-commercial or ganizations is established
in the civil code and other laws of Kyrgyz stan. According to the Law on Kyrgyzstan on
Registration of Legal Entities, in order to voluntarily liquidate a non-commercial
organization, the authorized organ (for a ssociations, the highest governing body) must
immediately inform the registering body of its plans to liquidate, and must provide a copy
77 “Taxes and other obligatory dues of the charitable organization which have not been paid as a result of
submitting false information about its activities are s ubject to confiscation according to the procedures
stipulated by the legislation of the Republic of Armenia.” Law of Armenia on Charity, Article 19.
78 Article 11 of the Federal Law of Russia on Charitable Activities and Organizations. 79 Id., Article 26. 80 Article 18 of the Federal Law of Russia on Non-commercial Organizations.
@ 2004 ICNL. All Rights Reserved. 31

of the decision to liquidate (taken by the court or the authorized decision making body),
along with originals of constituent docume nts, certificates of state registration,
certificates from tax inspectors certifying th e absence of outstanding tax obligations, a
certificate demonstrating that the organization has closed its bank accounts, permission of
the National Bank of Kyrgyzstan, a certificate demonstrating absence of debt to the social
fund, and a certificate demonstrating that the organization has surrendered the seal and
stamps of an artificial person.
81 A foundation may only be liquidated by the court upon
the application of interested legal and/or physical persons. 82

4. Moldova

In Moldova, the relevant provision in the Law on Charity dictates simply that a charitable
organization may be reorganized or liquida ted based on the decision of its highest
management body, executive body, by decision of the founders or by court decision.

83 A
charitable organization cannot be reorganized into a business partnership. According to
the Law of Moldova on Public Organizations , the decision regarding liquidation may be
made by the general meeting or convention of the organization.
84 According to the Law
on Foundations (Article 34) the procedure fo r voluntary liquidation of a foundation is
established by founders and stipulated in by-laws.

5. Tajikistan

In Tajikistan, the highest management organ of a charitable association, the general
meeting (or collegial body), has the authority to make decisions regarding reorganization
and liquidation.
85 Liquidation or reorganization of foundations must be accomplished
through court permission.

6. Armenia

The Law of Armenia on Public Organizations provides that a public organization may
voluntarily dissolve upon the decision of its supreme body, for any reason, including for
expiration of the terms for which the organi zation was founded, or satisfaction of the
organization’s established objectives.
86 This law also prescribes that the procedures to be
followed for dissolution are the same as thos e which apply to all legal entities.

The Law of Armenia on Foundations, however, provides special grounds and procedures
for voluntary liquidation of foundations. First, the decision to liquidate must be made by
81 Article 17 of the Law of the Kyrgyz Republic on Registration of Legal Entities. 82 Article 28 of the Law of the Kyrgyz Republic on Non-commercial Organizations. 83 Article 12 of the Law of Moldova on Charity and Sponsorship. 84 Id., Article 40. 85 Article 12 of the Law on Charitable Activities. 86 Article 20 of the Law of Armenia on Public Organizations.
@ 2004 ICNL. All Rights Reserved. 32

a majority vote of the board of trustees. 87 The Law specifies the following grounds for
liquidation of a foundation:

1. If the property of the foundation is not suffi cient for the realization of its activities
and the possibility of getting the necessary property is not real;
2. If the foundation by its activ ities has deviated from the goals envisaged by the
charter;
3. If it is impossible to reach the goals of the foundation, or to make changes in these
goals;
4. If the activities of the foundation endanger the safety of state and society, social
order, health and values of the co mmunity, rights and freedoms of others;
5. If the foundation has committed numerous or gr oss violations of the law, or it has
regularly carried out activities c ontradicting its statutory goals;
6. If the founder, while establishing the f oundation, has committed gross violations
of the law or falsifications. 88

However, only a court may approve a decision to liquidate, after which time the court
must establish a Commission on Liquidation to define the order and terms of the
liquidation process. After such a process ha s been initiated, the Liquidation Commission
takes over management of all affairs of the foundation. The Law designates the
responsibilities of the Commission during liquidation.
89

B. Involuntary Dissolution

All of the NIS countries being discussed here in (Russia, Ukraine, Kyrgyzstan, Moldova,
Tajikistan, and Armenia) require that invol untary dissolution be authorized by court
decision, which is accomplished upon action take n by the relevant oversight authority.
However, the procedures and grounds for such action differ among the various countries.

1. Ukraine

In Ukraine, the Law on Public Associations provides that a public association may
receive the following sanctions, in the event that it is found to have violated the laws of
Ukraine: (1) warning, (2) fine, (3) temporary suspension of some kinds of activities, (4)
temporary suspension of all activitie s, or (5) compulsory dissolution.
90 A written
warning should be issued when the association has broken the law (unless the law itself
provides for additional penalty). Gross or systematic violations of the law may be
punished by a fine, but such a fine may only be imposed pursuant to a court order. The
registration body or a Public Pr osecutor may also appeal to a court to order a temporary
suspension of some activities of the association for a period of 3 months in order to put a
stop to illegal activities. This period may be expanded, with court approval, up to 6
months. An association may appeal to a cour t to renew its right to conduct the suspended
87 Article 25 of the Law of Armenia on Foundations. 88 Id., Article 34. 89 Id., Article 35. 90 Article 28 of the Law of Ukraine on Public Associations (1992).
@ 2004 ICNL. All Rights Reserved. 33

activities if it demonstrates that it has eliminated the reason for suspension. Finally, upon
a motion of the registering body, or a pros ecutor, a court may order involuntary
dissolution of a public associa tion when: (1) the association violates provisions of the
Constitution (as stipulated by Article Four of the Law on Citizens’ Associations); (2) the
association engages in flagrant and rep eated violations of the Law on Citizens’
Associations; or the association resumes ille gal activities after the imposition of a legal
penalty.
91

According to the law, only a Ukrainian Cons titutional Court can order the dissolution of
all-Ukrainian and international public associatio ns. However, in practice, this provision
cannot be enforced because it contradicts Article 150 of the Constitution of Ukraine,
which defines the powers of the Constitutional Court. Bankruptcy is an additional
ground for liquidation of a public associat ion, and may be initiated by the tax
administration or any creditor. The aut hority seeking liquidation must announce the
court’s decision regarding involuntary liquida tion in the media within 15 days of the
decision.

2. Russia

The process for involuntary liquidation of public associations in Russia follows much the
same pattern as that of Ukraine, except th at the law designates different parties that
possess the right to seek liquidation, depe nding upon the territorial status of the
association. All-Russia or in ternational associations may be liquidated upon application
by the Procurator-General. For interregional, regional or local public associations, the
procurator of the respective subject of the Russian Federation bears responsibility for
liquidation procedures.
92

In both countries, the grounds for liquidation are the same regardless of the territorial
status of the association. A public association may be liquidated by the court for: pursuit
of goals or actions aimed at the forcible change of the constitutional system or the
destruction of the Russian Federation, undermining state security, establishing armed
groups, or incitement of social, racial national or religious hostility, or in the event that
the association violates the righ ts and freedoms of individuals.
93 The association may
also be liquidated if it engage s in repeated or gross violations of this law and other legal
acts or consistently acts in a manner which contravenes its statutory goals.
94

3. Kyrgyzstan

The Kyrgyz law on Charity and Sponsorship pr ovides that, in the case that a charitable
organization commits actions which contradict its goals or the provisions of the Law, the
Ministry of Justice must send a written warn ing. And in the event that a charitable
organization receives repeated written warn ings, it may be liquidated according to the
91 Id., Articles 19 and 32. 92 Article 34 of the Federal Law of Russia on Public Associations. 93 Id., Article 16. 94 Id., Article 44.
@ 2004 ICNL. All Rights Reserved. 34

procedures specified in the Law on Registration of Legal Entities. 95 This procedure
requires the registering aut hority to seek court authorization for liquidation.

4. Moldova

Moldova provides that public associations can be liquidated by decision of the court in
instances where they plan activities or co mmit acts which are intended to bring about
violent change in the constitutional system or territorial integrity of the government; (2)
plan activities or commit acts which are de signed to overthrow the government by force;
(3) stir up social, racial, nationa l or religious hatred or hostility; (4) violate the rights and
liberties of citizens which are protected by th e legislation of Moldova: (5) create military
groups within the organizational structure; or (6) in the event that an organization has
received repeated warnings during the previous year regarding viola tions of legislation
which have not been corrected.
96

Moldovan Foundations may be liquidated upon or der of the court (based upon petition by
the Ministry of Justice) in cases where: the annual value of the foundation’s property is
less than the value of its initial property; it de viates from its statutory objectives; its aims
or means become illegal or contradict the public order or moral norms, or damage the
principles, sovereignty, independenc e or territorial integrity of the state, or where it fails
to submit reports as required by Article 22 of the law.
97

5. Tajikistan

The Law on Charitable Activity refers to othe r laws of the Republic for the procedures
governing involuntary liquidation or reorganization of charitie s. The Law of Tajikistan
on Public Associations establishes nearly identical grounds for liquidation as those
provided in the Russian law. In the event that violations of the law are discovered, a
public association can be liquidated by the c ourt upon the application of the Ministry of
Justice (the registration body which is also in charge of supervision over the activities of
associations). After the cour t’s decision on liquidation, the Mini stry of Justice establishes
a liquidation commission and defines its competence.

6. Armenia

According to the Law of Armenia on Charity, in the event that the body authorized to
monitor compliance of COs with its legal re quirements determines that a violation may
have occurred, it should appeal to the court for a petition to carry out a review of the
CO.
98 Article 19 of the Law of Armenia on Ch arity further provides the grounds for
compulsory dissolution and the procedures that must be followed in order to carry this
out. In the event that the charity engages in activities that violate the requirements of the
Law on Charity, the authorized body should first warn the organization in writing. If the
95 Article 13 of the Law of the Kyrgyz Re public on Patronage and Charitable Activity. 96 Article 40 of the Law of Moldova on Public Associations. 97 Id., Article 35. 98 Article 18 of the Law of the Republic of Armenia on Charity.
@ 2004 ICNL. All Rights Reserved. 35

organization has received more than one written warning during the past year, or if
significant violations of the law have been discovered, the authorized body may act to
invalidate the organization’s st ate registration. In the event that taxes or other necessary
payments have not been paid as a result of submission of false information, the charity
may be forced to repay this amount, in the ma nner stipulated in other legislation of the
Republic of Armenia.

Under the Law of Armenia on Public Organiza tions, only a court may adopt a decision on
compulsory dissolution of a public organization, and only upon demonstration of
satisfaction of the grounds stipulated by law.
99 In addition, the Law on Public
Organizations sets the following grounds (whi ch are much the same as those in the
Moldovan Law on Public Associations) upon which the appropriate body within the
Ministry of Justice may file a lawsuit reques ting dissolution of the organization: (1) the
activities of an organization are aimed at th e forced overthrow of the constitutional order
of Armenia, incitement of ethnic, religious or racial hatred, or propaganda promoting
violence or war; (2) where an organization has committed numerous a gross violations of
law, or carried out activities which contrave ne its statutory purposes or (3) when the
founder or authorized person of the organization committed gross violations of the law
during the process of founding the organization. An association may also be liquidated
by means of bankruptcy. Involuntary liquidation may only be pursued where other
means of eliminating the violations of law have proven to be ineffective or to have been
exhausted.
100

While also subject to any relevant provi sions contained in the Law of Armenia on
Charity, which apply equally to charitable associations and foundations, a charitable
foundation will be governed by th e procedures contained in Article 34 of the Law of
Armenia on Foundations (described earlier in the section on voluntary dissolution of
foundations).

C. Appeals

All six NIS countries being discussed here allow charities to appeal a decision on
liquidation in court. Moldova, Armenia, Ru ssia and Tajikistan each explicitly provide
that public associations may appeal the court’ s decision to liquidate the public association
to a higher court.
101 Yet there are some minor differences among these countries. In
Russia, for example, in the event that the de cision to liquidate is overturned, the state
must compensate the association for all lo sses incurred as a result of the unlawful
liquidation.
102 And according to the Law of Ar menia on Public Associations, any
member of an association may challenge the decision to dissolve by appealing the
99 Article 20 of the Law of the Republic of Armenia on Public Organizations. 100 Id., Article 21. 101 Article 41of the Law of Moldova on Public Associa tions; Article 19 of the Law of Armenia on Charity;
Article 45 of the Federal Law of Russia on Public Asso ciations; and Article 29 of the Law of Tajikistan on
Public Associations.
102 Article 45 of the Federal Law of Russia on Public Associations.
@ 2004 ICNL. All Rights Reserved. 36

decision to a court within 10 days, after which time the court may suspend the decision
until it has the opportunity to review the decision.

D. Distribution of Assets Upon Liquidation

At a minimum, all NIS countries being exam ined here specify that, upon liquidation of a
non-commercial organization, the rights of cr editors must be satisfied prior to final
distribution of assets, after which time the remaining property is distributed in a manner
consistent with the by-laws and ch aritable goals of the organization.
103 Many countries
establish liquidation committees to manage the liquidation process, while others permit
the organizations themselves to continue to manage their own funds after the declaration
of intent to liquidate.

In Ukraine, the Law on Charity and Charities lo oks to other laws to establish the proper
grounds of distribution of the property of a li quidating charity. According to the Law on
Public Associations, th e assets and other property of li quidating public associations must
be used to fulfill the goals established in the organization’s by-laws, or in limited
circumstances, can by turned over to the gove rnment upon court decision. Ukraine does
not provide for a li quidating commission.

Russia provides that the property which remains after the satisfaction of creditors’ claims
shall be used for the purposes identified in the organization’s by-laws, or in the absence
of specification in the by-laws of the association, in the manner determined by the vote of
the general meeting, or in cases of dispute – by judicial decision. Russian law demands
that any decision on the use of remaining property must be published by the dissolution
committee in the press.
104

According to the Law of Kyrgyzstan on Non-Commercial Organizations, upon
liquidation, any property which remains after th e satisfaction of the demands of creditors
shall be distributed by the liq uidation commission or the body authorized to make the
decision pertaining to liquidation, in accord ance with the charter of the organization.
105

Moldova does not provide for a liquidation commission to supervise the liquidation of
public associations. Rather, the Law of Mol dova on Public Associations provides that, in
the event of liquidation, any property remain ing after satisfying creditors must be
directed to the objectives specified in the charter of the organization. As in Russia,
however, the law specifies that decisions regarding usage of the property must be
published in the press, and th at property of a liquidated public association may also
become the property of the sate afte r satisfying the demands of creditors.
106 Unlike with
public associations, the Law of Moldova on Foundations provides for the establishment
103 Article 40 of the Law of Moldova on Public Associations;
Article 16 of the Law of the Kyrgyz Republic on No n-Commercial Organization; Article 20 of the Law of
Armenia on Public Associations; Article 35 of the La w of Armenia on Foundations; Article 26 of the Law
of Russia on Public Associations; Article 13 of the Law of Tajikistan on Charity.
104 Article 26 of the Federal Law of Russia on Public Associations. 105 Article 16 of the Law of Kyrgyz Republic on Non-Commercial Organizations. 106 Article 40 of the Law of Moldova on Public Associations.
@ 2004 ICNL. All Rights Reserved. 37

of a Commission on Liquidation to supervise the liquidation of a foundation, and likewise
provides that this Commission shall engage in certain enumerated procedures for
identifying and paying creditors’ claims in th e property order of priority prior to final
distribution of assets.
107 Unlike associations, the property remaining after payment of
debts must be transferred to a nother foundation with similar aims.

Tajikistan provides for the establishment of a liquidation committee by the relevant
registration authority (the Ministry of Justice) in the event of liquidation of a non-
commercial organization. In the case of liquidation, the assets of a liquidating
organization must be distributed in compliance with the by-laws of the association. In
certain exceptional cases, the assets of a public association which has been liquidated by
the court can be confis cated by the government.
108

In Armenia, after the satisfaction of creditors’ claims, all remaining property of liquidated
public associations must be used for the furt herance of the organization’s statutory goals
or, if this is not possible, must be transferred to the state budget.
109 The Law of Armenia
on Foundations also provides a more detailed process that must be followed during
liquidation, including describi ng the responsibilities of the Commission on Liquidation
for identifying and paying debts of the foundatio n in the appropriate order (established by
Article 70 of the Civil Code of Armenia). As with public associations, however, after the
demands of creditors have b een satisfied, any remaining property must be used for
achievement of the statutory goals of the founda tion, or, if not possible, transferred to the
state budget.
110

IV. Regulation

A. Regulatory Authorities

In Ukraine, Kyrgyzstan, Moldova, Tajikistan, and Armenia, the Ministry of Justice is the
agency with principal regulatory authority over all not-for-profit organizat ions, including
charitable organizations, a lthough the relevant division ma y differ depending in some
countries depending upon the territo rial scope of the organization.
111 In Ukraine,
according to the new Law on Registration of Legal Persons which came into effect July
1, 2004, the registration of all legal entities will be conducted by a special registration
chamber. However, the situation remains unclear because the Law on Registration of
Legal Persons provides that other laws may define peculiarities of the registration
procedure for public associations. Therefore, it is possible that public associations will
not be registered by this new registration chamber, and the Ministry of Justice will
remain in charge of registering charitable asso ciations in Ukraine. In Russia, there is a
107 Article 36 of the Law of Moldova on Foundations. 108 Article 30 of the Law of Tajikistan on Public Associations. 109 Article 20 of the Law of Armenia on Public Associations. 110 See Article 35 of the Law of Armenia on Foundations for a full description of the liquidation process. 111 As discussed earlier, Russia, Ukraine, Moldova and Tajikistan require registration of charitable
organizations depending on their territorial status (international, all-republican, regional, or local),
@ 2004 ICNL. All Rights Reserved. 38

separate Registration Authority with responsibility for registering non-commercial
organizations other than public associations.

B. Licensing and Governmental Approvals

Non-commercial organizations, as with all le gal entities, are required to conduct their
activities in compliance with the current law. 112 Therefore, charitable organizations
wishing to engage in an activity which is licensed must obtain the necessary license.
Licensing requirements vary somewhat from co untry to country. The Law of Ukraine on
Licensing of Certain Kinds of Co mmercial Activities (which is typical of the laws of the
NIS region on this issue) provides that the following activities must be licensed:
production of medicine, wholesale and retail sales of medicine; passenger or cargo
transportation services, veterinary and medical practices, educational services by general
education, professional, techni cal or higher education institutions, local or international
tourism, excursions, physical education activit ies such as professional and amateur sports
or coaching.
113 The law further provides that all ot her types of activities – not specified
in the law on licensing – may be conducted w ithout a license. In addition, licensed
entities are placed on a Unified Registry of Licensed Organizations
114 as well as on
special sub-registries (journals) for each kind of licensed activity, where relevant. The
content of these registries is available to government authorities free of charge,
115 but
other entities must pay for information from th e registry. The authorities that maintain
these registries determine the method and amount of payment.

C. Reporting

The extent to which special reporting requirements for charities are specified in the
respective legislation varies fr om country to country. Ukrain ian charitable organizations
(along with other non-commercia l organizations) are required to submit reports on their
operations to the legalizing authorities that monitor their activities only upon the request
of these authorities. In pract ice, legalizing bodies, especially at the local level, require
organizations to submit an annual activity report. Of course, the Tax Administration
maintains a separate registry of NPOs for tax benefit purposes and is responsible for
verifying compliance with legal requirem ents related to such benefits.

In addition, the Tax Authority requires that NP Os substantiate their profit tax exemption,
although such substantiation does not have a set form. In such substantiations, NPOs
describe all their activities and declare that they did not engage in the provision of for-
profit goods, labor or services during the re porting period. These substantiations are
usually a formality. All Ukrainian non-commer cial organizations must file income and
expenses declarations to financial authorities accordi ng to approved procedures.
116 Non-
112 Article 16 of the Law of Ukraine on Charity and Charities. 113 Articles 2 and 9 of the Law of Ukraine on Licensin g Certain Kinds of Commercial Activities (2000) (with
subsequent amendments).
114 Id., Article 6. 115 Id., Article 19. 116 Article 26 of the Law of Ukraine on Public Associations.
@ 2004 ICNL. All Rights Reserved. 39

profit organizations that are listed in the registry of NPOs, and that do not engage in the
sale of goods, services or labor, may submit simplified reports (as compared to
commercial legal entities). If an organization does engage in non-statutory (commercial)
activities, it should maintain separate records for such activities, pay taxes and submit
regular tax declarations as nece ssary for other taxpayers.

Ukrainian law also entitles those individuals or organizati ons who have donated property,
funds or other materials to a charity to r eceive, upon request, a report on how the donated
materials were used.
117 Moreover, if donated property was specifically earmarked for
particular beneficiary then the charity is required to report to the benefactor as to how it
was used.

According to Article 19 of the Law of Russi a on Charitable Activities and Organizations,
charitable organizations must provide an annual re port to the registration body,
containing information on: (1) financial and entrepreneurial activity of the organization,
confirming the observance of the requirements for the use of property and for spending
funds of the charitable organization; (2) personal composition of the supreme governing
body of the charitable organization; (3) co mposition and content of the charitable
programs of the charitable organization (a list and description of the said programs); (4)
content and results of the activity of the charitable organi zation; (5) violations of the law,
exposed as a result of review conducted by taxation bodies, and measures which have
been taken to eliminate them.

In addition, Russia requires charitable or ganizations to present an annual report on
financial and entrepreneuria l activity to the relevant tax body. The tax body is
responsible for ensuring that charitable organizations comply with the necessary
requirements as to sources of revenue, prope rly report the amount of funds received, and
pay thee appropriate taxes.

Under the Law of Moldova on Charity, the onl y specific reporting provisions are related
to accounting of donations and beneficiaries. For example, ch aritable organizations must
keep accounting of all beneficiaries, incl uding the name, size and goal of the donation,
and are required to present such informa tion once every trimester to the appropriate
body.
118 In addition, failure to report on fina ncial resources donated or distributed will
result in the charity having to pay taxes on these funds. 119 Neither the laws on charity,
nor the law on public associations contain a ny additional specific provisions describing
the types of reports that must be filed by such organizations with the government
authorities. In addition, the Law of Moldova on Public Associations requires all public
associations to provide annual information as to its continuation of activities, and with an
indication of the current location of its gove rning body and other relevant details of the
organization. Moreover, if an association fa ils to provide information for two years, it
may be excluded from the State register of pub lic associations, and forfeit the status of a
public association and legal person, under the processes specified in the Law.
117 Article 22 of the Law of Ukraine on Charity and Charities. 118 Article 10 of the Law of Moldova on Philanthropy and Sponsorship (1995). 119 Id.
@ 2004 ICNL. All Rights Reserved. 40

In Kyrgyzstan, the Law on Patronage and Charitable Activity requires charitable
organizations who are conducting public campaigns for collection of charitable
donations, to publish an annual report in th e official press disclosing the amount of
collected donations and how such donations were used, and to give the public open
access to their annual reports.
120 Article 17 of the Law on N on-commercial Organizations
requires that information on revenue return structure and the amount of property of a non-
commercial organization shall be submitted to the state bodies in accordance with the
current legislation. As with all other taxpa yers, charities must file tax reports.

The Tajik Law on Charitable Activity (Article 22) provides that the registration body (the
Ministry of Justice) has authority to superv ise and control the activities of a charity. A
charitable organization is obligated to provi de free access to its annual reports to all
interested parties, including media. The law, however, does not provide a special form or
any particular requirements for this annual report. Information as to the amount and
structure of the revenue of an organization, as well as about the total value of its assets,
expenditures, number of staff, salaries and volunteer labor cannot be a commercial secret.
The registration body (Ministry of Justice) can request that a charity’s highest
management organ provide copies of protoc ols and decisions made by its management
bodies, and may send representatives to participate in an organization’s internal meetings
and events.

The Law of Armenia on Charity requires that charitable organizations submit yearly
reports on their activities to the Ministry of Justice and the Tax Authority, which must
include information regarding:

1. usage of the organization’s property and how it spends its resources;
2. financial activities guarantying complianc e with the requirements of the law;
3. the governing supreme body;
4. the contents of the charitable program;
5. the results of the organization’s activities; and
6. violations revealed during audits carried out by comp etent bodies and measures
taken for eliminating them.

D. State Enforcement and Sanctions

Failure to submit reports required by law is likely to endanger the ongoing existence of a
charity, or its continued access to any potential tax benefits. For example, the Law of
Moldova on Foundations provides th at failure to submit required reports (as specified in
Article 22 of the law) is grounds for susp ension or liquidation of the foundation.
121 The
same is true under the Law of Moldova on Public Associations. 122 See earlier discussion,
p. 40, regarding involuntary liquidation for add itional explanation of state penalties for
failure to meet legal requirements. Unde r the Law of Armenia on Charity, where the
120 Articles 12 and 13 of the Law of Kyrgyz Republic on Patronage and Charitable Activity. 121 Article 35 of the Law of Moldova on Foundations. 122 Article 27 of the Law of Moldova on Public Associations.
@ 2004 ICNL. All Rights Reserved. 41

annual report of the organization discloses possible signs of violations of the law, the
supervisory bodies (within the Tax Authority or the Ministry of Justice) may petition to
carry out a review of the organization. If the organization receives more than one written
warning during a year, or where significant violations of the law are discovered, the
authorized body may invalidate the state qualification and registration of the charitable
programs. At such time, taxes and other due s of the organization which have not been
paid as a result of submission of false info rmation about its activities are subject to
confiscation according to the laws of Armenia.
123

In Tajikistan, in the event that a charity vi olates the legislation of Tajikistan and/or
provisions of its own by-laws, the registra tion authority (Ministry of Justice) or
Prosecutor General can issue a warning addres sed to the organization. Such warning is
required before the authorized government authority can appl y to court for involuntary
liquidation of the public association.
124 In addition, activities of public associations can
be suspended in for violation of legislation of the Republic. 125

Suspension of activities means the prohibiti on (within a defined time period) of the
enjoyment of the rights of a legal person, pr ohibition on distribution of information about
organization, promotion of ideas and activitie s of an organization, participation in other
legal entities, establis hment of mass media, conduct of m eetings and demonstrations with
the exception of those which ar e prescribed by the by-laws for the governance bodies of
the organization. In the event that a charitable organization violates the law, an Attorney
General can bring this violation to the atte ntion of the government entity in charge of
control and supervision of the activities of charitable organizations (typically either the
registration or tax authority). The Law on Public Associations also provides that the tax
administration has the authority to supervise the compliance of public associations with
the limitations placed by law upon sources of profits, use of resources, and payment of
taxes, but does not provide for specific reporting requirements relating to this
supervision.
126

E. Sanctions for Abuse by the State

As for the penalties that exist for state violati on of the rights of charities, all charity laws
in the NIS contain similar basic provisions. The laws of Russia (Article 18 of the Law on
Charitable Activities and Charitable Organizatio ns), Moldova (Article 19 of the Law on
Charity and Sponsorship), Kyrgyzstan (A rticle 11 of the Law on Charity and
Sponsorship), Tajikistan (Ar ticle 21 of the Law on Charitable Activities) and Armenia
(Article 17 of the Law on Charity) all contai n provisions stating that the government
guarantees and ensures the pr otection of the legal rights and lawful interests of
participants of charity, as stipulated by th e relevant law on charity (and in other legal
acts), and guarantees that officials and any other persons hampering the charity
123 Article 19 of the Law of the Republic of Armenia on Charity. 124 Article 28 of the Law of Tajikistan on Public Associations 125 Id., Article 17. 126 Id. , Article 26.
@ 2004 ICNL. All Rights Reserved. 42

implementation rights of legal and natural persons will be held responsible in the manner
stipulated by the law.

V. Foreign Organizations

A. Registration

As a general matter, all of the NIS countries with laws on charity provide that foreign
organizations are equally eligible to conduct charitable activities as citizens of those
countries, although there may be some addi tional administrative burdens applied to
foreign entities wishing to conduct charitable activities in the NIS.
127 As an example, the
Law of Ukraine on Charity and Charities is typical of other countries, by providing that
foreign citizens have the right to do charity in Ukraine, but empowering the Cabinet of
Ministers to determine special rules for conducting charitable activities by them.

The Special Resolutions of the Cabinet of Ministers of Ukraine 128 set the registration fee
at US$500 for branches of foreign NGOs. Th e resolution also details the documents
required for registration with th e Ministry of Justice. The registration body must consider
the application within two months, the sa me timeframe as designated for Ukrainian
NCOs. Registration may be denied if the by-laws do not conform to Ukrainian law,
although such a decision may be appealed in court.
A registered branch of a foreign NCO
must also be registered with the national tax administration, which grants tax exempt
status. This application process is the same for foreign and Ukrainian NCOs.

There may be some additional registration requi rements for foreign organizations as well.
Tajikistan, for example, requires that legal en tities with foreign involvement must submit
additional documents, as set forth in the La w of Tajikistan “On Foreign Investments in
the Republic of Tajikistan.” As a general matter, these regulations are typically not
excessively burdensome or discriminator y, although it is not uncommon for foreign
organizations to be charged higher regi stration fees than local organizations.
129

B. Foreign Grants

In many NIS countries (and in nearly all of t hose with stand-alone laws on charity) there
are no special requirements within the laws for domestic organizations to be eligible to
127 Article 22 of the Federal Law of Russia on Charita ble Activities and Organizations; Article 26 of the
Law of Moldova on Charity and Sponsorship; Article 15 of the Law of the Kyrgyz Republic on Patronage
and Charitable Activity; Article 27 of the Law of Ukra ine on Charity and Charities; Article 24 of the Law
of Tajikistan on Charitable Activities; Article 21 of the Law of Armenia on Charity.
128 Resolution of the Cabinet of Ministers of Ukraine on the Procedure for Registering Affiliates, Branches,
Representative Offices and, Other Divisions of Foreign Public (Non-Governmental) Organizations in
Ukraine, dated February 26, 1993 (with subsequent amendments), N145 and Resolution of the Cabinet of
Ministers on the Procedure for State Registration of Charitable Organizations dated March 30, 1998, N382.
129 In Ukraine, for example, regional NPOs must pay a registration fee of approximately US$14, while the
registration fee for international or foreign organizations is approximately US$500.
@ 2004 ICNL. All Rights Reserved. 43

receive foreign grants. The exceptions to this rule are Russia, Kazakhstan, Azerbaijan,
Belarus and Turkmenistan, which have estab lished special requirements for determining
eligibility of foreign grant makers. Unde r the current Russian legislation, foreign
grantors have to be approved by the government and be included on the list of approved
grant makers in order for their grants to be exempt from income tax for recipients. A
similar list exists for fore ign grantors in Kazakhstan.

Other NIS laws typically guara ntee a general right to obtain charitable donations or
grants from foreign citizens, persons w ithout citizenship, or from foreign and
international organizations.
130 For example, the Laws of Ukraine, Kyrgyzstan, Moldova,
and Tajikistan on charity all explicitly state that charitable organizations have the right to
accept charitable donations from foreign citizens, stateless persons and foreign and
international organizations.
131 While the Armenian law does not have the same
statement, charities are eligible to receive foreign grants.

It is important to note that several countries distinguish betw een a grant (which is usually
defined as assets transferred on a gratu itous basis for a specific purpose, usually
stipulated in the written agr eement), a donation (a assets tran sferred on a gratuitous basis
without a specific purpose where the grantor does not have any legal civil power to
enforce the use of assets for a specific purpose), and, occasionally, gift. Several
countries (Russia, Georgia, and Azerbaija n) have special legislation on grants.

In most countries, this general right to receive foreign grants/aid may be qualified by
provisions contained in separate legislation on humanitarian aid, or in government
regulations on banking transfers, taxation, etc, but these requirements would be the same
for all non-commercial organizations.
132 In addition, income received in the form of
humanitarian aid will sometimes be exempt from VAT or profits tax. See discussion
below, pp. 49-58, on taxation of passive income, VAT and humanitarian aid, for more
details on this subject.

130 Article 21 of the Law of Tajikistan on Charitable Activity; Article 14 of the Law of Kyrgyzstan on
Patronage and Charitable Activity; a nd Article 26 of the Law of Ukraine on Charity and Charitable
Organizations.
131 Article 21(4) of the Federal Law of Russia on Charitable Activities and Organizations; Article 25(4) of
the Law of Moldova on Charity and Sponsorship; Article 14 of the Law of Kyrgyzstan on Patronage and
Charitable Activity; Article 26 of the Law of Ukraine on Charity and Charities; and Article 23 of the Law
of Tajikistan on Charity.
132 Extensive discussion of the system of treatment for humanitarian aid is outside the scope of this report.
However, see the discussion, pp. 56-60, on VAT and Humanitarian Aid for general description of these
regulations. Ukraine, Russia, Kyrgyzstan and Armenia all have separate legislation on treatment of
humanitarian aid: Law of Ukraine on Humanitarian Aid, Resolution No. 136 of the Government of
Armenia on Humanitarian Assistance; Law of Russia on Gratuitous Aid to the Russian Federation; Russian
Government’s Decree #1335 approving the Rules on Providing Humanitarian Aid to the Russian
Federation; and the Law of Kyrgyzstan on Contributions for Emergency situations prevention and
liquidation in the Republic of Kyrgyzstan; and Resolution of the Government of Armenia #136 of February
13, 2002 on Humanitarian Assist ance and Charity Programs and the Regulation for the Compensation of
the Amounts of the Value Added Tax subject to payment within the Framework of Humanitarian
Assistance or Charitable Programs, endorsed by the cited Resolution.
@ 2004 ICNL. All Rights Reserved. 44

VI. Miscellaneous

A. Rules for Mergers and Dissolution

The earlier discussion regardi ng procedures for liquidation is relevant here, since as a
general matter, the rules gove rning reorganization will be comparable to those for
liquidation, and indeed, are often governed by th e same articles. As with liquidation, the
specifics of the reorganization process will typically be left within the discretion of the
founders, enabling them to establish their pr eferred procedure for reorganization within
the charter of the organization. The most frequent limitation placed upon charitable
organizations (and usually equally applicable to other non-co mmercial entities), is that
charitable organizations may not be re organized into for-profit legal entities.
133 For
example, according to the Ukrainian Law on Charity and Charities (Article 10),
charitable organizations cannot be transformed into legal entities whose primary purpose
is generation of income.

In Russia, the Law on Non-commercial Organi zations sets up the following limitations
on transformation of various ki nds of non-commercial organizations (Articles 17):

1. A nonprofit organization may be transfor med into a public or a religious
organization (association), into a f oundation or an autonomous non-profit
organization.
2. An institution may be transformed in to a foundation, an autonomous nonprofit
organization or an entrepreneurial so ciety. The transformation of state or
municipal institutions into nonprofit organi zations of other forms or into an
entrepreneurial society is permitted under circumstances and following a
procedure determined by the law.
3. An autonomous nonprofit organization may be transformed into a public or
religious organization (association) or into a foundation.
4. An association or a union may be tran sformed into a foundation, an autonomous
nonprofit organization, an entreprene urial society or a partnership.
5. The decision to transform a nonprofit pa rtnership is taken by the founders
unanimously, and the decision to transform an association (union) is taken by all
members that have concluded the founding agreement.
6. The decision to transform an in stitution is taken by its owner.
7. The decision to transform an autonom ous nonprofit organization is taken by its
supreme governing body in accordance with this Federal Law following a
procedure determined by the charter of the nonprofit organization.
8. When transforming a nonprofit organization, the newly formed organization takes
over the rights and responsibilities of the reorganized nonprofit organization in
accordance with the stat ement of transfer.

Neither the Law of Kyrgyzstan on Patrona ge and Charitable Activity nor the Law on
Non-Commercial Organizations contains specific limitations or provisions on
133 Law of Ukraine on Charity and Charities, Article 10; Law of Russia on Charitable Activities and
Charitable Organizations, Article 11; Law of Moldova on Charity, Article 12;
@ 2004 ICNL. All Rights Reserved. 45

reorganization. The Moldovan law on charity only prohibits charitable organizations
from transforming into business partnerships. 134 In Tajikistan, there are no special
provisions for charities or non- profit organizations regulating their re-organization or
transformation. The same rules in the civil code apply to all legal entities. The Law of
Armenia on Public Organizations specifies that a public organization may only be
restructured into other legal-organizational forms of public associations or into a
foundation.
135 According to the Law of Armenia on Foundations, foundations can only
reorganize through uniting or merging with ot her foundations, and cannot be transformed
into other organizational forms.
136

B. Right to Invest Abroad

Russia, Ukraine, Moldova, Armenia, Tajikistan and Ukraine all permit charitable
organizations to open bank accounts abroad 137 , and do not specify a list of permitted
investments in the laws on charities. 138 None of the laws on charity reflect any more
specific provisions on this issue. As a gene ral principle, therefore, limitations on foreign
investment would be governed by the same pr ovisions which govern local investments of
all NCOs. For example, if an NCO is not permitted to invest in a domestic business, it
would likewise be forbidden from investing in a foreign one. In addition, there would be
a complex assortment of additional laws dealing with banking and international
transactions that would affect all legal entities equally. Examination of such legislation is
outside the scope of this report.

C. Right to Engage in Political Activities

All of the relevant laws on charities and non-commercial organizations contain some
restrictions on political activities by charit able organizations. Most are limited to a
prohibition on providing monetary donations to political parties or candidates. However,
the specific language does vary some what from country to country.
Ukraine provides a bit more detail than othe r NIS countries on this issue, by guaranteeing
the right to participate in political activ ities, to organize meetings, assemblies and
demonstrations, to support other public associ ations, to assist in the creation of public
associations to receive information from st ate and local government authorities necessary
for meeting its objectives, to submit propos als to the government, to disseminate
information, to advocate for its objectives a nd its ideals, and to create a news media
source.
139 Ukrainian law grants broad rights to NCOs undertaking pol itical activities,
such as participation in electoral and other political campa igns and expression of views
concerning political parties or candidates for office. Th e Law on Political Parties
134 Article 12 of the Law of Moldova on Charity and Sponsorship. 135 Article 19 of the Law of Armenia on Public Organizations. 136 Article 29 of the Law of Armenia on Foundations. 137 See Article 14 of the Law of Kyrgyzstan On Patronage and Charitable Activity and Article 23 of the
Law of Tajikistan on Charitable Activity.
138 All countries have extensive and complicated rules on foreign investments, which would apply equally
to charitable organizations. However, investigation of this body of legislation is outside the scope of this
paper.
139 Article 20 of the Law of Ukraine on Public Associations.
@ 2004 ICNL. All Rights Reserved. 46

prohibits charitable and religious organizations from financing political parties. 140 Yet
Ukrainian law allows NCOs to actively lobby an d participate in the preparation of legal
and normative documents, including those requ ested by state or local authorities or
political parties. As with other NIS countries, however, Ukrainian charities may not
provide monetary or other direct suppor t to political parties or candidates.

In Armenia, the Law on Charity states that monetary and other material means provided
to political parties and commercial organizations shall not be considered to be “charity,”
as that term is defined in the law, but does not provide any additional detail as to the
specific types of political activ ities which are prohibited.
141 The Law of Armenia on
Public Organizations, however, specifies that in order to qualify as a public organization,
that organization may not have “political object ives.” If it does, it must register under a
different legal-organizational form.
142 Similarly, the laws of Russia, Moldova, and
Kyrgyzstan on charity are almost identical in their prohibition on the expenditure of
monetary and other types of support to political parties, movements, groups and
campaigns, accomplished by excluding such activ ity from the definition of “charitable
activity”.
143 The Law of Tajikistan also specifies that charitable organizations may not
use its property or expend funds in support of political parties, motions, groups and
campaigns.
144

VII. Tax Laws
A. Tax-Exempt Status

No NIS countries provide for full tax-exempt status on any types of income received by
charitable organizations. Instead, charitie s are given varying tax treatment depending
upon the type of income involved. The followi ng discussion sets out a basic outline of
the treatment of various types of income w ithin the tax codes of the six NIS countries
with charity laws, as well as Kazakhstan, wh ich has created a unique type of organization
(the SSO), which is governed so lely by tax code provisions.

B. Economic Activities

With regard to income from economic activities, Russia, Kyrgyzstan, Moldova,
Tajikistan, and Kazakhstan all permit charit able organizations to conduct economic
activities directly (i.e. do not require the organi zation to establish a subsidiary) so long as
the activities are connected to the organization’s charitable purpose. Ukraine and
140 Article 15 of the Law on Political Parties in Ukraine of April 5, 2001. 141 Article 3 of the Law of Armenia on Charity. 142 Article 3 of the Law of Armenia on Public Organizations. 143 Article 2 of the Federal Law of Russia on Charitable Activities and Organizations; Article 2 of the Law
of Moldova on Charity and Sponsorship; and Article 1 of the Law of the Kyrgyz Republic on Patronage
and Charitable Activities.
144 Article 15 of the Law of Tajikistan on Charitable Activities.
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Armenia require that charitable organizations in the form of public associations set up a
separate subsidiary in order to carry economic activities.

Only three countries (Ukraine, Moldova, and Kazakhstan) provide for exemptions from
income/profits tax on income generated fr om economic activities (sales of goods and
services).

As a general rule, however, income from economi c activities, even those directly related
to the charitable/statutory purposes of the or ganization will be subject to income tax.
Usually in the NIS, a charity that carries out unrelated economic activities does not lose
its non-commercial status, but the profits gene rated through such activities are subject to
tax at the general rate

1. Ukraine

In Ukraine, charitable organizations (and other NPOs properly registered with the tax
authority as tax-exempt), are exempt from profits tax on income from entrepreneurial
activities, as long as such activities are related to the statutory purposes of the
organization.
145 The activities which are exempt from tax are those which fall into the
category of “primary activities,” defined as the provision of educational, cultural,
scientific, informative and othe r services for the public. In addition, “primary activities”
include the sale of goods and services that pr omote the principles and ideals for which the
charity was established, and whic h are closely related to its statutory goals (as long as the
prices charged are lower than the market price or subject to state regulation).
146 Income
from economic activities which do not fa ll into this category is fully taxed.

2. Russia

Russia does not provide any speci al benefits to charitable organizations. However,
Russian NCOs are permitted to engage in en trepreneurial activities as long as their
statutory activities remain their principal activities. As a general matter, Russian tax
legislation does not grant any exemptions for profits of NCOs arising from
entrepreneurial activit ies, regardless of the amount of profits or relatedness to the
statutory purposes of the organization, and provides for no special treatment whatsoever
for charitable organizations in contrast to other NCOs. Income of an NCO received as a
result of the sale of goods and services is subj ect to profits tax at the general rate. Unless
a charity sets up a separate subsidiary to carry entrepreneurial activities, current
legislation does not allow for separate accounting for exempt and not-exempt income,
and therefore a charity carryi ng any entrepreneurial activities cannot deduct legitimate
expenses from the revenue generated from entrepreneurial activities and has to pay
income tax on its entire revenue.

3. Kyrgyzstan

145 Article 7(11) (13) of the Law on Taxation of Profits of Enterprises of Ukraine. 146 Id.
@ 2004 ICNL. All Rights Reserved. 48

Charities in Kyrgyzstan are permitted to conduct entrepreneurial activities only if this
activity serves the charitable purposes for which the organization was established and
directly corresponds to such purposes.
147 However, entrepreneurial activities will not
result in the loss of tax privileges which ma y be applicable to passive or gratuitous
income. Moreover, income obtained from entr epreneurial activities will be taxed, unless
it is also used for charitable activities or purposes. Kyrgyzstan provides an exemption
from profits tax for income derived from “ch aritable activities.” In Kyrgyzstan, some
sales may qualify as charitable activities if they occur at or below cost, and therefore
income from such activities will be exempt from taxation. Income from other economic
activities will be fully taxed.

4. Moldova

Moldovan framework laws on charities, asso ciations and foundations all permit these
organizations to conduct entrepre neurial activities directly, as long as such activities are
related to the organiza tion’s statutory purposes.
148 Income from entrepreneurial activities
which are related to a charity or NCOs statutory purposes is exem pt from profits tax. 149
Entrepreneurial activities are “activities conducted in accordan ce with legislation, except
for work pursuant to labor contracts performed with the aim of receiving income or
where income is gained as a result thereof regardless of the aim of the activity from
which the income arises.” If a charity (or NCO) wishes to conduct unrelated economic
activities, however, it must establish a separa te enterprise, considered a “side business”,
whose income is taxed at the general rate of 25%.
150 Unrelated economic activity is
defined as any entrepreneuria l activity not provided for by the charter, by-laws, or other
documents of a non-commercial organization, and/or an activity conduc ted in violation of
the requirements set in the Tax Code. It is within the purview of the tax authorities to
decide whether any economic activity conduc ted by a charitable organization (or NCO)
should be classified as a re lated or unrelated activity.

5. Tajikistan

Tajikistan does not restrict the right of charitable organizatio ns to conduct entrepreneurial
activities, but charitable organizations are not given tax exemptions for profit derived by
them from such activities.
151
147 There is some confusion among various definitions that may be found in Kyrgyz laws relating to
economic and entrepreneurial activities. The Civil Code defines entrepreneurial activity as “independent
activity, conducted at a [person’s] own risk, aimed at derivation of profits.” Section 1 of the Civil Code of
Kyrgyzstan. The Tax Code does not use the term entrepreneurial activity, but elects to use the term
‘economic activity’, defining it as “all types of econo mic activities, conducted by persons regardless of
purposes and results of such types of activities.” Section 9(5) (1) of the Tax Code.
148 Article 28 of the Law of Moldova on Public Asso ciations; Article 13(3) of the Law of Moldova on
Charity and Sponsorship; and Article 23 of the Law of Moldova on Foundations.
149 Section 52 of the Tax Code of Moldova. 150 Section 53 of the Tax Code of Moldova. 151 Charitable activities are defined as “voluntary activities of physical and (or) legal entities aimed at
implementation of charitable purposes . . . in the form of transferring assets to citizens and legal entities,
rendering services and performing works on a gratuitous basis or on privileged conditions, or in exchange
@ 2004 ICNL. All Rights Reserved. 49

6. Armenia

In Armenia, charities in the form of public organizations may engage in entrepreneurial
activities 152 only through creating a commercial orga nization or through participating in
one. 153 Charitable foundations, however, are permitted under the Law on Foundations to
carry out entrepreneurial activit ies without establishing separate commercial entity if (and
only if) such activities (1) further the st atutory purpose of the organization, (2)
correspond to those purposes, and (3) are envisage d in the charter. In any event, profits
from entrepreneurial activities are fully taxe d, regardless of whether the organization may
conduct them directly or not. Direct engage ment in entrepreneurial activities by NCOs
(other than foundations) is prohibited by law, and may result in punitive actions taken by
registering authorities. However, such e ngagement does not appear to jeopardize tax
benefits applicable to income obtained on a gratuitous basis.

7. Kazakhstan

In Kazakhstan, NCOs are not entitled to a ny tax exemptions for income received from
economic activities, although they may qualify to receive exemptions for gratuitous
income or certain limited types of passive or investment income. Under the Tax Code,
however, organizations known as SSOs are ge nerally exempt from corporate tax on
income earned from “exempt activities”, whet her or not such activities include economic
activities. Any organization, commercial or non-commercial, can quali fy as a SSO. In
order to qualify as an SSO, an organization must derive no less than 90 percent of its
gross annual income from the government’s subsidies, public support, or provision of
services or conduct of exempt activities, i. e. activities which fall into one of several
enumerated fields, such as healthcare, child care and education, science, sports, culture,
library services and social welfare.
154 This exemption is avai lable only if the SSOs entire
income is used for the performance of the exem pt activities. In the event that the SSO is
found to have not met this requirement, the exemption will be denied and will result in a
retroactive imposition of income tax for the w hole tax period (financial year) in which the
organization failed to qualify.

for such payment as would not exceed costs incurred in connection with their sale.” Section 9(4) of the
Tax Code of Kyrgyzstan. See also Section 129 of the Tax Code of Tajikistan.
152 Entrepreneurial activities are defined in the Law of Armenia on Value Added Tax as: “economic
activities implemented regularly for the purpose of deriving income. The economic activity is any activity
performed for compensation.” Section 2 of the Law on VAT. However, the Civil Code also defines
entrepreneurial activity, but does not define it in terms of regularity, stating merely that activity is
considered entrepreneurial when the person engaging in it “aims at gaining profit by using his/her property,
selling goods, performing works or services, at his own risk.” Section 2 of the Civil Code. This
discrepancy between the two definitions of entrep reneurial activities results in a certain amount of
uncertainty, as to which definition applies, and therefore whether public organizations may conduct
occasional entrepreneurial activity without becoming subject to the requirements for “entrepreneurial
activities”.
153 Article 4(3) of the Law on Public Organizations. 154 SSOs also include organizations which meet a predetermined ratio of disabled/non-disabled employees.
Section 121(1) and 121(2) of the Tax Code of the Republic of Kazakhstan.
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C. Passive Income Taxation

All six NIS countries with charity laws provide for some type of exemption to charities for
gratuitous income, although the sp ecific types of exemptions vary considerably throughout
the region.

1. Ukraine

Ukraine provides that donations in cash or in kind (including grants) are exempted when
given to (among others) charitable foundations and public associations. Membership dues
are not exempt for charitable organizations or for other public associations. Ukrainian law
also permits charitable organi zations (and other NPOs listed in the registry) to engage in
investment activities and gran ts tax exemptions on investment income received by such
organizations.
155 The Ukrainian Profits Tax Law defines “passive income” as “revenues
received as interest, dividends, insurance bene fits and indemnities, as well as royalties.” 156
The passive income of all types of NPOs is ta x-exempt. Income of an NPO received in the
form of dividends is tax exempt (dividends are deemed passive income). While paying out
dividends, an issuer of dividends must wit hhold and make an advance payment of profits
tax in the amount of 30 percen t of the amount of dividends. The amount of profits tax paid
by the issuer upon distribution of dividends is deductible from the aggregate amount of
profit tax accrued in the current or subsequent reporting periods.
157

Rent and lease payments, however, are not consid ered to be passive income. They are not
taxed to the extent the rental payments do not exceed costs (including, for example,
maintenance costs, electric and other comm unal charges) and accrued depreciation. Any
income in excess of costs and depreciation is taxed on general grounds. Capital gains are
not considered passive income, and are fully subject to tax. This capital gains tax applies
even to one-time sales.
158

2. Russia

In Russia exemptions for gratuitous income are scattered throughout the Tax Code. The
following types of income, inter alia, are not included in the ta x base for the purpose of
profits tax:
159

6) funds, assets and other property obtained in the form of gratuitous aid under the
procedure established by the Gratuitous Aid Law; 160
155 Article 7.11.1(b) of the Law of Ukraine on Taxation of the Profits of Enterprises. 156 Article 7.11.13 of the Company Tax Law. 157 Article 7.8.2 to 7.8.4 of the Company Tax Law. 158 Article 5 of the Profits Tax Law. 159 Exemptions listed are those as may be relevant to this survey; references are to numbers of the
respective Sub-clauses of Section 251 (1) of the Tax Code.
160 The Law of the Russian Federation on Gratuitous Aid (Assistance) to the Russian Federation and on
Introduction of Changes and Additions to Certain Norm ative Acts of the Russian Federation on Taxes and
on Introduction of Privileges as Regards to Payments to the Budget and State Non-budget Funds in
@ 2004 ICNL. All Rights Reserved. 51

11) assets obtained on a gratuitous basis by a Russian organization from an
organization, if the latter owns more than 50 percent in the charter capital of the
Russian organization;
161
14) assets obtained by a taxpayer for purposes as designated by giver, including
grants (provided such assets are accounted for separately); 162
“Grant” is defined for purposes of th is Chapter as: “monetary funds and
other property, if their transfer (receipt) satisfies the following conditions:
– provided on a gratuitous and irrevocable basis by physical
persons, non-commercial organiza tions, including foreign and
international organizations and asso ciations, as listed and approved
by the Government of the Russian Federation;
– provided to facilitate specific pr ograms in the field of education,
art, culture, environmental protection, as well as for specific
scientific research; and
– provided on the conditions determined by the grantor, with
mandatory submission to the grantor of a report on the designated
use of the grant.”
22) property gratuitously obt ained by state and municipal educational institutions
and non-state educational inst itutions licensed to pursue educational activities for
carrying out their st atutory activities;

27) property (including money) and pr operty rights obtained by a religious
organization in connection with the perf ormance of religious ordinances and
ceremonies and from the production of religious literature and articles of religious
designation.

In addition, Section 251 (2) of the Tax Code exempts the portion of income spent on the
support of non-commercial organizations a nd for conduct by them of their statutory
activities, provided such funds ar e subject to separate accounting.
163 More specifically,
the following incomes are exempt from tax:

• entrance fees, membership fees, designated contributions and allocations to public
law professional unions established pursu ant to the principle of obligatory

Connection with Implementation of Gratuitous Aid (Assistance) to the Russian Federation as of May 4
1999 (Gratuitous Aid Law).
161 Property obtained under this sub-clause (e xcept for monetary funds) is not viewed as income provided
that it is not transferred to third persons within one year from the moment of its receipt.
162 The Tax Code includes as funds designated for defi ned purposes the “assets obtained by a taxpayer and
used according to its designation, established by the organization or physical person which is the source of
financing.” The Tax Code lists 9 such assets and includes grants. Among other types of funds designated
for defined purposes are “funds obtained from the Russian Fund for Fundamental Research, Russian Fund
for Technological Development, [and the] Russian Humanitarian Scientific Fund.”
163 Section 251 (2) refers to income (except excised goods and materials) specifically designated for
maintenance of non-commercial organizations and cond uct by them of statutory activities, received from
other organizations and/or physical persons and used by the said recipients according to the designated
purpose.
@ 2004 ICNL. All Rights Reserved. 52

membership, participatory contributions, and donations, recognized as such by the
Civil Code of the Russian Federation; 164
• property inherited by non-commercial organizations pursuant to a will;
• financing received from the federal budget, budgets of the federal entities of the
Russian Federation, local budgets, and budge ts of state non-budgetary funds,
provided for the conduct of statutory activ ities of non-commercial organizations;
• funds and other property obtained to conduct charitable activities;
• aggregate contributions by founde rs of non-state pension funds;
• pension contributions to non-state pension funds;
• funds donated by owners to institutions established by them, used in accordance
with their designated purpose;
• certain funding within and among profe ssional organizations of advocates;
• funds obtained by trade unions pursuant to collective contracts (agreements) for
conduct by trade unions of social and cultu ral and other events provided by their
statutory activities;
• certain funding to and from ROSTO (Ru ssian Defensive Sports and Technical
Organization);
• property (including monetary funds) and property rights obtained by religious
organizations for the purpose of conduct of statutory activities.

Although the list of type s of income that may be excluded from the taxable base may
seem extensive, in practice, a typical NCO is rather limited in its ability to receive tax
exempt income.

Types of income traditionally viewed as passive or investment income (under the Tax
Code identified as “non-realiza tion” income) are subject to profits tax and are not exempt
for non-commercial organizations.

3. Kyrgyzstan

In Kyrgyzstan, under the recent revisions to the tax code, the following types of revenue
of NCOs are not included in the calculation of “gross annual income ,” and are therefore
not taxed: (1) membership and entry fees, (2) gratuitously transferred assets, so long as
used for statutory purposes, and (3) humanita rian aid and grants, so long as used for
statutory purposes.
165

164 Section 251(2) (1) of the Tax Code names those type s of persons or entities to whom gifts are registered
as donations and thus exempt. The Civil Code limits the recipients of donations to the following: citizens;
healthcare, nursing, social protection and other simila r institutions; charitable, scientific and educational
institutions, foundations; museums and other cultural institutions; public and religious organizations; the
Russian Federation and its constituents; and municipal formations. Hence, not all non-commercial
organization may receive donations (f or instance, non-commercial partnerships, unions of legal entities,
autonomous non-commercial organizations, and house building cooperatives) and gratuitous transfer to
them will be deemed a gift and subject to profits tax.
165 Section 93 (6) of the TC.
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The Kyrgyz Tax Code provides thorough definitions of these terms, apparently in
response to the tax authorities’ prior difficulties in enforcing the Tax Code effectively:

• “Membership fees” are defined as: “assets contributed to membership-based non-
commercial organizations in the amount de signated and the manner stipulated in
the founding documents of the organizati on, provided that such transfer is not
conditioned upon reciprocal prov ision of services to such member free of charge
or below costs.”
166
• “Entry fees” are defined as: “assets contributed to membership-based non-
commercial organizations by persons upon jo ining the organization in the amount
designated and under the procedure stipul ated in the founding documents of the
organization, provided that such transf er is not conditioned upon reciprocal
provision of services to such member free of charge or below costs.”
167
• “Humanitarian aid” is defined as: “ass ets gratuitously provided by governments
and international, foreign, and local or ganizations to the Government of the
Kyrgyz Republic, local authorities, state, and non-commercial organizations, as
well as to individuals in the form of food, consumer goods, equipment,
appliances, clothing, medical supplies a nd pharmaceuticals, other goods aimed at
the improvement of the conditions of life among the population, [directed
towards] the prevention or elimination of emergency situations of a military,
ecological, or industrial nature, subject to the subsequent consumption and (or)
gratuitous distribution of those assets.”
168
• “Grants” are defined as “assets grat uitously provided by governments and
international, foreign, and local organizat ions to the Government of the Kyrgyz
Republic, local authorities, state and non-commercial organizations (except for
those pursuing political aims).”
169

While these new definitions may appear rigi d, they may also represent an improvement
over prior law by introducing regu larity and transparency into tax treatment of assets
obtained on the gratuitous bases.

In addition, certain types of income traditi onally viewed as “passive” are subject to
exemptions or special treatment, regardless of whether the taxpayer organization is
commercial or non-commercial: (a) dividends re ceived by legal entities that are residents
of Kyrgyzstan are not su bject to the profits tax;
170 (b) interest payable to any person is
taxed at its source, through a withholding of 10 percent, and is not included in gross
166 Section 9 (68) of the TC. 167 Section 9 (69) of the TC. These definitions of “entry” and “membership fees” were apparently
considered necessary in light of other provisions of the Tax Code, as well as problems with tax
enforcement. The tax authorities have indicated that entrepreneurs attempt to use membership fees to hide
commercial relationships between customers and an NCO; an “NCO” provides services in exchange for a
“membership fee” or “entry fee,” even though no actual membership relationship exists.
168 Section 9 (4-3) of the TC. 169 Section 9 (4) (2) of the TC. 170 Section 112 (4) of the TC. Dividends (as well as interest) received by non-residents are taxed at the
source through withholding of 10 percent.
@ 2004 ICNL. All Rights Reserved. 54

annual income upon submission of documentary evidence of withholding. 171 Income
from renting out property is included in gro ss annual income and taxed under the regular
procedure within the gross annual income.
172

4. Moldova

In Moldova, revenues obtained on a gratuitous basis are exempt from income tax for
NCOs, provided that receipt of donations is pr ovided for in the organization’s charter.
There is no precise definition of a grant in Moldovan legislation, but grants are generally
treated as donations and exempt under Section 52 of the Tax Code. The same applies to
membership fees, as long as their paymen t complies with the charter. Although Moldova
does not provide any special exemptions rega rding passive or investment income, such
income would be subjected to the same test which is applied to entrepreneurial income
(namely whether it may be considered relate d to the organization’s statutory purposes),
and therefore may or may not benefit from exemptions, depending upon the particular
factual situation.

5. Tajikistan

Tajikistan does provide exemption from profits tax for gratuitous transfers, membership
fees, and donations received by “organizations”, as this term is defined in the Tax Code.
The term “organization”, includes “public a nd religious organizations (associations),
foundations, institutions, associ ations (unions) of legal entities, and international,
intergovernmental and other organizations carrying out non-economic activities.”
173
The term grant is defined in the Law on Charitable Activity as “property (including
monetary), which is transferred gratuitous ly to natural persons and non-commercial
organizations for their performance of a specified program or project.”
174 Tajikistan
provides exemptions for dividends only when paid from one resident enterprise to
another. Tax on bank interest is withheld at the source at a rate of 12%. All other
income traditionally viewed as “investment income” is fully taxed at the rate of 30
percent.
175

6. Armenia

Armenia provides that assets (including memb ership fees) and services received by non-
commercial organizations on a gratuitous basi s are not considered “income” for taxation
purposes.
176 In addition, all resident organiza tions, regardless of their nature as
commercial or non-commercial, are exempt fr om tax on the following types of income:
dividends, income from privatization certi ficates, residual property received from
171 Section 108 (1) and (3) and Section 93 (1) (3) of the TC. 172 Section 93 (1) (3) of the TC. 173 Section 18(1) of the Tax Code. 174 Article 2 of the Law of Tajikistan on Charitable Activity. 175 Section 40 of the Instruction on Calculation and Payment to the Budget of the Tax on Profits of Legal
Entities #61 as of February 4, 2000.
176 Section 8 of the Profits Tax Law of Armenia.
@ 2004 ICNL. All Rights Reserved. 55

liquidation of a legal entity, and income from investment in foreign currencies and
securities. 177

7. Kazakhstan

In Kazakhstan, NCOs 178 , are exempt from taxation of income “in the form of [. . .] grants, entry and membership fees, charitab le aid, gratuitously transferred property,
subsidies, and donations.”
179 The NCO shall account for such income separately from
taxable income. 180

SSOs 181 are exempt from taxation on the same type s of income (so long as the income is
directed towards exempt activities), with th e exception of entry and membership fees. 182
It is unclear whether the omissi on of entry and membership fees in the list of exemptions
for SSOs was intentional or an oversight.

A “grant,” as defined by the Tax Code, is “p roperty provided on a gratuitous basis by
countries, governments, international or gove rnment organizations, as well as by foreign
non-governmental organizations or foundations (whose activity is of charitable and
international character and does not contradict the Constitution of the Republic of
Kazakhstan and which is included on a lis t established by the Government of the
Republic of Kazakhstan) to the Government of the Republic of Kazakhstan, legal entities,
and natural persons; [and] property provided on a gratuitous basis by foreigners and
stateless persons to the Republic of Kazakhsta n and to the Government of the Republic of
Kazakhstan for attainment of particular goals.”
183

In addition, in Kazakhstan, all NCOs are exem pt from taxation of “premium”, which is
defined as interest earnings from loans, ba nk deposits and debt securities, as well as
financial leasing payments, payments for prope rty transferred into trusts and payments
under certain insurance agreements.
184

D. Treatment of VAT and Humanitarian Aid

1. Ukraine

Ukraine provides the most expansive VAT-relate d benefits to charitable organizations out
of all NIS countries. It is the only NIS c ountry which provides categorical exemptions on
VAT payments to all registered NPOs on the gratuitous transfer (import) of goods and
177 Sections 26, 29, 28 and 8 of the Profits Tax Law, respectively. 178 Section 120 of the Tax Code, 179 Section 80 (2) (14) of the Tax Code. 180 Section 120 (4) of the Tax Code. No sanctions for non-compliance are explicitly imposed by the Tax
Code, though it is likely, that the exemption will not be applied if the organization fails to keep separate
accounting.
181 Section 121 of Kazak Tax Code. 182 Section 121 (3) of the Tax Code. 183 Section 10 (1) (4) of the Tax Code. 184 Section 10(1) (2) of the Tax Code of the Republic of Kazakhstan.
@ 2004 ICNL. All Rights Reserved. 56

services for charitable purposes and on equipment and office supplies for internal use by
NPOs. 185 This exemption does not apply to ex cise goods, securities, intangible assets
and certain goods intended for economic activit y specified by the government. NPOs of
the disabled are exempt from VAT on sales of their goods and services, except excise
goods, gambling services and purchased goods. Such organizations may also claim a
zero-rate VAT and seek a rebate of any i nput VAT (i.e., VAT paid in connection with
purchasing goods and services). As a general ru le, sales or transfer of goods or services
are subject to VAT at their actual value, ev en when these transactions are conducted for
free or below actual cost.
186 However, VAT is not levied on charitable aid or on free-of-
charge transfers of goods or se rvices to charitable organizations or to other organizations
listed in the NPO Registry. In addition, VAT is not levied on the free transfer of goods or
services to beneficiaries of charita ble aid recognized as such by the law.
187
Contributions of assets to the charter capital of a lega l entity, or an organization’s
collection of member ship dues are not VAT taxable transactions.

In addition, the VAT Law establ ishes a list of transactions which are exempt from VAT
regardless of whether they are performed by commercial or non-commercial entities,
including
188 : (1) sale through subscription and de livery of print media; sale of books,
school notebooks, school textbooks and other educational materials produced in Ukraine;
(2) payment of tuition to pr operly accredited educational institutions; (3) sale of
specialized goods for the disabled; (4) h ealthcare services rendered by properly
accredited institutions; and (5) the maintenan ce of homes for the elderly and disabled.

Ukraine also has a separate Law on Humanitarian Aid 189 , which specifies the procedures
for labeling and distributing charitable (humanita rian) aid, as well as for control over the
provision of humanitarian servic es. According to this law, if charitable (humanitarian)
aid is received from a foreign legal or natural person, the re cipient of such aid must be
accredited by the Commission on Humanitarian Aid to receive exemptions from VAT
and other taxes.

2. Russia

In Russia, all organizations, individual entrepreneurs and importers, including non-
commercial organizations, are deemed taxpa yers for the purposes of VAT. Russia
essentially provides no benefits for NCOs or charities with regard to VAT. It does
impose a reduced rate of 10% (compared to the general rate of 20%) on the supply and
import of the following goods (regardless of th e type of legal entity involved):

1. certain foodstuffs, as specified by the Tax Code;
2. certain goods for children, as specified by the Tax Code;
185 Section 5(1) (21) of the Law of Ukraine on VAT. 186 Section 4.2 of the VAT Law. 187 Section 4 of the VAT Law. 188 Section 5 of the VAT Law. 189 The Law of Ukraine on Humanitarian Aid, as of October 22, 1999.
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3. printed periodicals (including the suppl y of related editorial and publishing
services), except for printed periodicals of advertising or erotic character;
4. book products connected with educat ion science and culture; and
5. medical items of domestic and foreign origin.

Additional exemptions for VAT (other than import VAT) which may be significant for
NCOs may be found throughout the Tax Code. Some of the most relevant items for
NCOs are the transfer of capital assets, non-ma terial assets and other property to NCOs
for conduct of their primary statutory activ ities, unconnected with entrepreneurial
activities and inher itance of property
190 ; goods works and services (except for excised
goods and minerals) performed within the framew ork of provision of gratuitous aid to the
Russian Federation under the procedure es tablished by the Law on Gratuitous Aid
191 ;
gratuitous provision of goods, wo rks and services as charity. 192 In addition, Section
150(1) of the Tax Code exempts certain imports from VAT, including goods (except for
excised goods and minerals), imported as gratuitous aid to the Russian Federation.

There is no general registration threshold for VAT and no separate procedure for
registration as a payer of VAT . Any NCO must apply for tax registration in the same
manner as any other legal entity, within ten da ys of obtaining state registration as a legal
entity. An NCO will be exempt from VAT if it elects to be taxed under the “simplified
taxation system.” However, this system does not affect obligations with regard to import
VAT.

3. Kyrgyzstan

Kyrgyzstan does not provide any general VAT exemptions or preferential rates for all
NCOs. However, supplies provided by charitab le organizations for charitable purposes
are subject to a general exemption (as long as they are supplied at or below cost). In
addition, the Tax Code exempts certain othe r socially beneficial supplies from VAT,
upon the condition that such goods and services are supplied at or below cost, and so long
as the supplier is an NCO:

1. supplies of goods, works and services pr ovided by non-commercial organizations
for healthcare, education, science, culture and sports establishments;
2. supplies of goods, works and services pr ovided by non-commercial organizations
for social security or the protection of children or low-income elderly;
3. supplies of services provided by healthcare, education, science, culture and sports
institutions;
4. supplies of religious services by religious organizations;
5. supplies of specialized goods for the disabled; and
190 Section 39(3) of the Tax Code. 191 Section 434 of the Tax Code; Law of the Russian Federation on Gratuitous Aid as of May 4, 1999. 192 Section 149(3): “gratuitous transfer of goods (performance of works, rendering of services) within the
framework of charitable activities on the gratuitous basis pursuant to the Federal Law ‘On Charitable
Activities and Charitable Organizations,’ except for excised goods.”
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6. supplies by charitable organiza tions for charitable purposes. 193

Import of the following goods (which may be of interest to NCOs) is exempt from
VAT 194 :

1. goods provided for rendering assistance when liquidating consequences of natural
calamities, armed conflicts and accidents;
2. goods imported as humanitarian assistance, grants under the procedure established
by the Government of the Kyrgyz Republic;
3. pharmaceuticals in accordance with the list approved by the Government of the
Kyrgyz Republic;
4. educational materials and school accesso ries, scientific publications; and
5. baby food.

4. Moldova

Moldova designates certain limited types of organizations as exempt from VAT
payments on specified items: (1) enterprises of the Associations of the Blind, the Deaf,
the Handicapped, (2) goods and services of educational institutions and goods provided
by cafeterias of educational institutions a nd hospitals, (3) food services for the poor
and/or elderly provided by ch aritable organizations, and (4) rituals and ceremonies
conducted by religious organizations.
195 The following is a se lection of supplies and
imports which may relate to the non-c ommercial sector and are VAT-exempt: 196

1. Import of goods and services which we re manufactured by a taxpayer on the
territory of Moldova;
2. groceries and other goods for children;
3. preschool facilities, clubs, health resort s and other places of social and cultural
value as well as serving a housing or communal purpose which are being
transferred by public authorities to associations, institutions and organizations;
4. services and goods by educational institu tions (as long as all revenues are re-
invested into the educational process);
5. services and actions for which there is a state duty; services related to care for the
sick and elderly; medical services (except for cosmetic procedures; books and
periodicals, except for those relating to a dvertising or of an erotic character;
6. capital assets being transferred to the statutory capital of an entity;
7. goods and services, imported or purchase d on the territory of the Republic of
Moldova or of funds from loans and gran ts granted to the Moldovan Government,
or provided by the government guarantees out of funds from loans of international
finance institutions for specified project s, as well as from grants provided to
budget subsidized institutions according to the list approved by the Government.

193 Section 145 of the Tax Code of Kyrgyzstan. 194 Section 147 of the Tax Code of Kyrgyzstan. 195 Selected entries from Section 103 of the Tax Code. 196 Id.
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The following imported goods (which may also be relevant for non-commercial
organizations) are exempt as long as thei r importation complies with all conditions
stipulated in the a pplicable tax and customs legislation and re gulations: goods for
rendering assistance after natural disasters, ar med conflicts, and other public emergencies
and humanitarian assistance-related goods (d esignated as such by the Government).

5. Tajikistan

Tajikistan does not provide for any decreased ra tes or zero-rating for NCOs or charities.
It does exempt certain enumerated goods a nd services from VAT payment, but these
exempted materials and transactions are quite limited. The only organizations which may
obtain a general exemption from VAT are asso ciations of the disabled, blind and deaf
(which meet the necessary statutory requireme nts), as well as enterprises owned by such
associations are exempt from VAT. Otherw ise, VAT exemptions are based upon the type
of operation or import, rather than the t ype of organization (although some exemptions
may be limited in practice to a particular type of organization)
197 :

1. sale, transfer or lease of real property (subject to certain limitations);
2. provision of religious services by religious organizations;
3. provision of medical services;
4. provision of educational services for ch ildren and teenagers in clubs, workshops
and art studios, as well as childcare serv ices in preschool institutions; and
5. import of goods, performance of works and services as humanitarian assistance,
as well as import of goods to be transferred to state bodies of the Republic of
Tajikistan and public organizations for th e purpose of eliminating consequences
of natural calamities, accidents and catastrophes.

6. Armenia

In Armenia, NCOs may enjoy VAT privileges with regard to goods imported by them
from abroad, or acquired in Armenia, if us ed within the framework of “humanitarian
assistance and charity programs” under the procedure specified in certain governmental
regulations
198 and the budget legislation. U nder these programs, VAT becomes
reimbursable when and only when the governme nt elects to “co-finance” a humanitarian
or charitable program. To receive the reimbursement, an organization must obtain
humanitarian or charitable status by applying to the Central Commission on
Humanitarian Assistance (which provides redu ctions on customs duties and other fees).
Upon approval of a humanitarian or charit able program by the Central Commission and
procurement of government “co-financing”, th e initiator of the program must obtain a
voucher for each transaction (for both import operations or domestic acquisition) from
197 Section 187 of the Tax Code of Tajikistan. 198 Resolution of the Government of Armenia #136 of February 13, 2002 on Humanitarian Assistance and
Charity Programs and the Regulation for the Compensation of the Amounts of the Value Added Tax
subject to payment within the Framework of Humanita rian Assistance or Charitable Programs, endorsed by
the cited Resolution.
@ 2004 ICNL. All Rights Reserved. 60

the Ministry of Finance, which is subsequently tendered to the customs authorities or to
the domestic supplier in lieu of VAT payment. 199

E. Deductions for Donors

Kazakhstan, Tajikistan, Ukraine, Moldova, Ar menia, and Kyrgyzstan all provide for
some tax benefits to donors in return for ch aritable contributions, although few provide
truly substantial benefits. Russia does not provide any benefits for legal entities, and
benefits for individual donors supporting char ities are minimal and it is difficult for
donors to take advantage of even these minimal benefits.

In Ukraine, legal entities may deduct donations made to NPOs in an amount ranging from
two to five percent of taxable income. 200 Ukraine also provides for the possibility of an
additional five percent for deductions made to certain enumerated institutions, such as
money donated to organizations engaged in th e protection of Ukraine’s cultural heritage.
201
Individuals may take a deduction of no more than four percent of taxable income, as long
as the donations are made to an organization which is registered in accordance with the
Law on Charity.
202 In Ukraine, donations made by natural persons in forms other than
monetary donations (such as in the form of purchase of lottery tickets, participation in
fundraising activities, or transfer of assets) are not deductible.

Russia is the only country being discussed he re which does not provide any tax-related
benefits for legal entities that contribute to non-commercial organizations. An individual
taxpayer may take what is known as a “social tax deduction” in order to decrease his or
her income tax base by up to 25 percent, for income transferred by taxpayers for
“charitable purposes in the form of monetary aid to organizations of science, culture,
education, healthcare and social security that are financed in full or in part from the funds
of respective budgets, as well as organizations of physical culture and sports, educational
and preschool institutions for the needs of physical development of citizens and
maintenance of sports teams, as well as donation s transferred to religious organizations”.

In Kyrgyzstan, the tax code provides incentives for charitable donations by legal entities
and individuals in the form of deductions. The relevant tax provisions are as follows:
“Gross annual income of a legal entity shall be decreased by the amount of an asset,
including money and property (at its market value), gratuitously transferred to charitable
and budgetary organizations in the course of the tax year, in an amount not exceeding
five percent of the taxable inco me of the taxpayer, provided th at those assets are not used
199 Section 1(d) of Resolution #136 reads as follows: “In accord with the work plans of the government of
the Republic of Armenia and in the event of humanitarian assistance or charity programs of essential public
significance the government of the Republic of Armenia, in conformity with the law of the Republic of
Armenia on the National Budget, may act as a co-fina ncer, implementing the co-financing in a procedure
stipulated by the law and within the time -frames stipulated by this regulation.”
200 Section 5(2) (2) of the Law of Ukraine on Profits Tax. Although small businesses that are taxed
according to the Law on Simplified Taxation are not eligible to apply for such deductions.
201 Section 5(2) (3) of the Law of Ukraine on Profits Tax. 202 Clause K, Section 5 of the December 26, 1992 Cabinet Decree on Personal Income Tax.
@ 2004 ICNL. All Rights Reserved. 61

to the benefit of the legal entity that transfers them.” 203

“Gross annual income of an individual shall be decreased by the amount of an asset,
including money and property (at its market value), gratuitously transferred to charitable
and budgetary organizations in the course of the tax year, in an amount not exceeding
five percent of the taxable inco me of the taxpayer, provided th at those assets are not used
to the benefit of the indi vidual who transfers them.”
204

In Moldova, resident taxpayers (b oth legal entities and individual) 205 are permitted to
deduct “donations for charitable purposes made during the year, not in excess of ten
percent of the amount of [their] taxable income,” provided that such donations are
substantiated in the manner established by the Government.
206 The Tax Code defines
“donations for charitable purposes” as such “donations or gifts” to:

• public authorities and public institutions financed by the state budget, the budgets
of territorial subdivisions , and/or the state social security budget public;
• NCOs; and
• religious organizations.

In Tajikistan, individuals and legal entities may deduct up to two percent of their taxable
income for payments to “charitable organizations” and for the purpose of carrying out
“charitable activities”.
207 The value of in-kind donations is calculated as the lesser of the
market value of the property or the cost of its production.

In Armenia, under the Profits Tax Law, moneta ry and in-kind contributions and services
rendered to non-commercial orga nizations (and other specified entities) are deductible up
to 0.25% of the donor’s gross income. Unde r the Law of Armenia on Personal Income
Tax, monetary and in-kind contributions as well as services rendered to specified
organizations, including charit able organizations, can be deducted from the individual’s
taxable income for the year , up to a maximum of five percent of taxable income.
208

Kazakhstan permits a deduction from taxable in come of an amount up to two percent of
the taxpayer’s taxable income (for legal en tities only) of the value of any property
gratuitously transferred to a charitable organization.
209 Both legal entities and
individuals may claim deductions for charita ble contributions up to five percent of
taxable income.
210

203 Section 112 (3) of the Tax Code. 204 Section 88 (2) of the Tax Code. 205 Section 36 (1) of the Tax Code. 206 Section 36 (3) of the Tax Code, the Regulation of the Cabinet of Ministers #489 as of May 4, 1998
establishes documentary requirements.
207 Section 133 of the Tax Code. 208 Section 13 of the Law on Income Tax. 209 Section 133 of the Tax Code of Tajikistan; Section 122(1) of the Tax Code of Kazakhstan. 210 Sections 112(3) and 88(2) of the Tax Code of Kyrgyzstan.
@ 2004 ICNL. All Rights Reserved. 62

We are not aware of any provisions granting additional tax deductions or credits to
donors who contribute to charitable organizatio ns via their last will and testament.

F. Endowments

None of the NIS laws contain special rules for taxation of income or investme3nt rules
from endowments. For information as to whether income from endowments is taxable
and investment rules for endowments, see discussion above regardi ng passive/investment
income. As to whether foundations are subject to separate rules because of their
endowments, the general answer is no. There are separate rules governing foundations,
but almost no provisions which relate direc tly to endowments. See the discussion on
Passive/Investment Income, pp. 49-55, for further detail on the general treatment of this
issue.

Only the Law of Moldova on Foundations cont ains provisions which provide for special
rules related to endowments. This provisi on requires that foundations whose property
value or assets exceed 1 million leus must ha ve a trustee council, which shall exercise
oversight of the compliance of foundation activ ities with the relevant legislation, as well
as compliance with ethical norms and accounting requirements.
211

G. Tax-related Reporting

See earlier section on reporting, pp. 39-41, for full discussion of reporting requirements.

H. Special Reporting Rules for Foundations

Of the countries of the NIS with meaningf ul charitable status, only Moldova, Armenia
and Kyrgyzstan impose special reporting requirements on foundations.

The Law of Kyrgyzstan on Non-commercial Or ganizations contains separate provisions
on each legal organizational form (associa tions, foundations and institutions). For
foundations, Kyrgyzstan imposes certain intern al reporting requirements, specifying that
the Board must submit reports to the Supervis ory Council at least every six months, if the
foundation is involved in any produ ction or other business activities, and every year if the
foundation is not involved in such activities.
212 The Board shall also be required to
provide any information upon request of th e Supervisory Council or founders, on the
management or activities of the foundati on. Other than these provisions governing
internal reporting procedures , Kyrgyz foundations are subject to the same rules which
govern associations or institutions.

Moldova has more detailed provisions on this subject than other countries. For example,
Article 22(c) of the Law of Moldova on F oundations requires foundations to submit an
annual report to the Ministry of Justice containing data on the activities of the foundation,
fulfilled programs, sources of funding, total amo unt of funds used during the fiscal year,
211 Article 29(1) of the Law of Moldova on Foundations. 212 Article 26 of the Law of the Kyrgyz Republic on Non-Commercial Organizations.
@ 2004 ICNL. All Rights Reserved. 63

users of foundation funds and services, and amount of administrative costs. This report
must also contain information as to the na mes of Board members and employees of the
foundation, relatives of these par ties within one to three degrees of relationship who used
its funds and services during the reporting pe riod, as well as information on the location
of the foundation and identif ying the head of the foundati on. Failure to submit this
information within two years will result in removal of the foundation from the State
Register of Non-Profit organizations upon d ecision by a court made on the motion of the
Ministry of Justice.

The Law of Moldova on Foundations further speci fies that within six months from the
end of each fiscal year, a foundation must publis h a report on its activities, which must be
made available to the public and must include the following information: the total
amount of finances and materials used for th e achievement of statutory objectives during
the fiscal year, programs implemented by th e foundation, the number and categories of
foundation users, and the amount of the foundation’s income that was used for
administrative expenses.
213

The Law of Armenia on Foundations contai ns the following relevant provisions 214 :

1. The foundation must keep the following docum ents for the terms stipulated by the
law and other legal acts:

1) Certificate of state registration of th e foundation, the charter, additions and
changes made to the charter, the new edition of the charter, the decision
and the agreement on establishment;
2) Documents proving the pr operty rights of the foundation towards the
property indicated in the foundation balance;
3) Internal documents approved by its bodies;
4) Charters of its separated subdivisions and institutions;
5) Annual reports;
6) Accounting balance documents;
7) Financial and statistical reports pres ented to public administration bodies;
8) Protocols of the sess ions of its bodies;
9) Agreements signed by it;
10) Documents dealing with its financial-economic and other activities.

Within 6 months following the end of each fi scal year, all foundations must publish for
the general public (through a mass media outlet) the following information:

1. a report on its activities, including information about the programs accomplished,
sources of funding, the total amount expende d during the fiscal year and the total
amount of administrative-managerial expens es, the usage of property, the first and
last names of the members of the board of trustees, and names of the manager and
213 Article 33 of the Law of Moldova on Foundations. 214 Article 36 of the Law of Armenia on Foundations.
@ 2004 ICNL. All Rights Reserved. 64

persons engaged in the foundation’s staff, if they have used the foundation’s
means and services within the accounting year;
2. an annual financial report; and
3. an auditor’s report, if the value of the foundation’s active capital exceeds 10
million drams. 215

In addition, a foundation is required to notify the Ministry of Justice in writing within 15
days after publishing the repor t required by Article 39. In the event that a foundation
publishes an incomplete report within the sti pulated period, the Ministry of Justice must
send the foundation a written warning requiring the publication of this report within one
month. If the foundation fails to publish the report within the defined time or does not
otherwise fulfill the demands of the warning, th e Ministry of Justice may appeal to the
court with a request to liquidate the foundation.
216

In addition, Armenia specifies certain re porting requirements related to accounting
practices for foundations. 217 For example, foundations must keep a current accounting
balance and financial and statistical repor ts, which are consistent with the Law on
Foundations and other legal acts. It is the Manager of a foundation who bears
responsibility for organizing the maintenan ce of an accounting balance, ensuring its
truthfulness, for timely submission of the annua l, financial and statistical reports to the
pertinent public administration bodies (such as the Ministry of Justice or the tax
authority), as envisaged by the law and other legal acts, as well as for the truthfulness of
information that is presented to the foundati on bodies and other persons. This Law also
requires that accounting of administrative and managerial ex penses of the foundation be
kept separately from other expenses of the foundation.

I. Administrative Expenditures

In Russia, Moldova, Tajikistan, and Armenia, charities are required to demonstrate that
their administrative expenses do not exceed the amount permitted by law, which in most
countries is limited to 20% of the organization’s yearly income.
218 In Kyrgyzstan, no
more than 2% of all funds expended duri ng the financial year may be used for
remuneration of administra tion and management staff.
219 However, these strict
provisions are more relaxed than they appear , as they do not apply to remuneration paid
to persons participating in implementation of charity programs. In addition, laws of many
countries permit a donor to authorize a greater percentage of its donation to be applied to
administrative expenses of the organization.

J. Accounting Requirements

215 Id., Article 39. 216 Article 38 of the Law of Armenia on Foundations. 217 Article 37 of the Law of Armenia on Foundations. 218 Article 10 of the Law of Moldova on Philanthropy and Sponsorship (1995); Section 20 of the Law of
Tajikistan on Charitable Activity; Section 12(3) of th e Law of Armenia on Charity; Article 20(3) of the
Law of Russia on Charitable Activities and Charitable Organizations.
219 Section 9(3) of the Law of Kyrgyzstan on Patronage and Charitable Activity.
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Ukraine permits the scope and format of charity statistical reporting to be determined by
the Cabinet of Ministers, but the format of financial reporting is to be determined by the
central tax authority, to which charities are re quired to submit financial reports on the use
of property and funds in the designated manner.
220 Russia and Armenia require only that
charities keep office and accounting reco rds in the manner prescribed by law. 221 The
Law of Moldova on Charity and Sponsorship re quires that charitable organizations and
their sponsors maintain a strict accounting of the beneficiaries of charitable assistance
and sponsorship by recording the names, amounts and purposes of charitable
contributions and sponsor support, and pr ovide a quarterly report on this to the
government bodies in charge of financia l control of charitable organizations.
222
Tajikistan does not provide any specific accounting requirements for charities, only a
general requirement that public associations must submit financial reports to the tax
administration in the manner determined by that body.

Although not explicitly required by the laws on charity, the Laws of Moldova and
Armenia on foundations do require foundations to keep separate records for
administrative expenditures in order to allow the tax authority to more easily ascertain
whether the organization is complying w ith the limitations on administrative
expenditures.
223 For additional requirements, s ee the discussion above regarding
deductions for donors, pp. 59-61, for descrip tion of special reporting requirements
pertaining to charitable donations, an d passive/investment income, pp. 49-55, for
discussion of recordkeeping requirements pert aining to other types of passive income, for
which there may be requirements for separate a ccounting. Of course, as with other legal
entities, charitable organizations must comply with any relevant laws of their country on
accounting practices for legal entities.

VIII. Compliance

A. General

The charity legislation in the six NIS c ountries being discussed here: Armenia,
Kyrgyzstan, Moldova, Tajikistan, Russia, a nd Ukraine, is relatively simple and
straightforward. Overall, the additional rest rictions and rules for charities do not differ
greatly from those applicable to all non- commercial organizations. There is a notion
throughout the region, however, that there are insufficient incentives for organizations to
registering as charities, because the accompa nying tax incentives are so minimal. We are
not aware of any studies that have been conducted to determine whether charitable
organizations comply with the law.

B. Specific
220 Article 24 of the Law of Ukraine on Charity and Charities. 221 Article 16 of the Law of Armenia on Public Or ganizations; Article 19 of the Law of Russia on
Charitable Activities and Organizations.
222 Article 20 of the Law of Moldova on Charity and Sponsorship. 223 Article 23(3) of the Law of Moldova on Foundations; Article 38 of the Law of Armenia on Foundations.
@ 2004 ICNL. All Rights Reserved. 66

There are negative notions which color the public perception of non-commercial
organizations as a whole. They are seen as “grant-eaters,” organizations which advocate
for their own special interests at the expense of the larger society. However, charitable,
and other types of “social” organizations can manage to avoid such stigma, and are
typically not seen as sham organizations cr eated for the purpose of avoiding payment of
taxes.

However, the governments of several NIS count ries, particularly Russia, Azerbaijan and
Uzbekistan, have recently expressed the notion that non-commercial organizations are
being used for political purposes. Obviously, such a perception is quite damaging to the
sector. It remains to be seen whether such announcements will have any serious practical
effects on the ability of non-commercial organizations to function and prosper.

C. Sanctions

See earlier discussion, pp. 32-36, regarding involuntary termination/dissolution for
discussion of sanctions for failure to comply with legal requirements.

IX. Government Funding

There are no special rules re lating to charitable organizations’ ability to engage in
government contracting, except to the extent that the rules of that country might forbid a
charitable organization from conducting economic activities directly, as in Ukraine or
Armenia.
224 In such cases, a charitable organi zation would be unable to engage in
government contracting without forfeiting its ch aritable status. Otherwise, charitable
organizations generally have the same righ ts as other non-commercial organizations to
compete for government contracts. As with all non-commercial organizations, there are
some contracting rules which can have the unintended effect of preventing or
discouraging NCOs from partic ipating in government tenders. For example, the typical
requirement for bidders to provide a deposit in the amount of some percentage of the
contract can be prohibitive for NCOs, which fr equently have very little spare capital and
therefore cannot sacrific e such an amount in order to secu re the right to compete. There
are no programs or policies designed to ensu re proportional distribution of contracts as
between government-controlled organizati ons, commercial organizations, and NCOs.
Although many NIS countries are starting to beco me more aware of the ability of NCOs
to assist the government in relieving the burden of providing services directly,
government-NCO contracting is still a relatively young phenomenon, and most NIS
countries still refrain from provi ding much state support to NCOs.

X. Privatization

Currently there are no special legal forms or procedures which have been created to
permit or facilitate the privatization of state as sets or programs into the charitable sector.
224 See earlier discussion of economic activities, p. 46-49.
@ 2004 ICNL. All Rights Reserved. 67

XI. Conclusion

With few exceptions, the laws of the NIS on public benefit/charitable status remain
underdeveloped. Meaningful tax benefits for non-commercial organizations are rare, and
even rarer are additional benefits which dist inguish charitable organizations from other
non-commercial organizations in more th an name. As a result, despite some
improvement in countries such as Moldova, charitable organizations often tend to have
the same minimal benefits as other non-co mmercial organizations. Much progress is
needed before the countries of the NIS rec ognize the value of the experience of other
countries in Western Europe in supporting the development of a vibrant charitable sector
through provision of significant tax benefits to charitable organizations and their donors.
@ 2004 ICNL. All Rights Reserved. 68