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Recently, Ukrainian tax legislation has been undergoing constant changes. Nonprofit organizations, whose re-registration deadline expires on 01.01.2017, have not been spared.
Recently, Ukrainian tax legislation has been undergoing constant changes. Nonprofit organizations, whose re-registration deadline expires on 01.01.2017, have not been spared.
“If you wish to order the service for Changes to the Statute of nonprofit organizations – we will be happy to fulfill the order. Changes to the Statute.”
Recently, Ukrainian tax legislation has been undergoing constant changes. Nonprofit organizations, whose re-registration deadline expires on 01.01.2017, have not been spared. For many, re-registration is a rather unclear procedure that contains many important points. These should be taken into account by the majority of public organizations if they still wish to remain on the register of nonprofit organizations after the New Year holidays.
About the new Draft Order of the Ministry of Finance of Ukraine and the deadline for making changes
The deadline for making changes runs until January 1, 2017 inclusive. It is by this date that all nonprofit organizations have the opportunity to review their founding documents, draw conclusions about their improvement, make some edits in accordance with current legislation if necessary, and re-register. If the organization fails to do this, it will be excluded from the register of nonprofit organizations.
It should be noted again that registration is not something new for nonprofit organizations. But those companies and enterprises that do not know how and what to do should definitely familiarize themselves with the necessary information. First of all, you should contact the relevant registration authority once all changes have been made to the founding documents. If the organization cannot do this, the State Fiscal Service authority will be forced to exclude it from the register.
On this matter, the DFS website already contains a Draft Order of the Ministry of Finance of Ukraine “On Approval of the Regulation on the Register of Nonprofit Organizations“. It has not yet been adopted, but when it is, any organization that has not made the required changes and has not re-registered will increase its chances of being removed from the register of nonprofit organizations retroactively, i.e., from January 1, 2015.
It is also interesting that the new draft does not state that an organization will have the right to be re-included in the register. Presumably, some procedure will still exist. But then for the period from 01.01.2015 to 01.01.2017, i.e., two years, the organization will be considered a payer of profit tax. Such a statement should already alarm the owners and members of nonprofit organizations and institutions.
Another feature of this draft is that inspections should be carried out only for those organizations and institutions that were entered in the register up to and including January 1, 2015. That is, organizations that were entered in the register after that date will not be subject to inspection because they were already registered in accordance with the new requirements of the current Tax Code.
Summing up everything said above, it should be noted that according to the new Draft Order of the Ministry of Finance of Ukraine, any nonprofit organization that wants to remain in the register must meet certain requirements by January 1, 2017. The specific requirements imposed on organizations will be discussed below.
Owners of nonprofit public organizations have less than 3 months left to review their founding documents. Even now our company “Nakaz” notices during audit checks that most organizations still do not meet the requirements of the Tax Code of Ukraine.
Main requirements for nonprofit organizations
that the first changes to the Tax Code of Ukraine affecting nonprofit organizations came into effect in 2015.
Regarding the changes that took place in the Tax Code of Ukraine, it should be said that they affect public organizations, charitable organizations and creative unions engaged in various activities on the territory of Ukraine. According to these amendments, all organizations must review and verify their founding documents for compliance with the requirements, and also make changes to their statutes by January 1, 2017 inclusive.
In Art. 133, which was supplemented with certain clauses on January 1, 2015, it is stated who is exempt from obligations to pay profit tax. Such legal entities are all nonprofit companies, enterprises, organizations, associations and charities that meet the requirements of this article.
Thus, first of all, any public organization that wants to be exempt from paying profit tax must meet certain requirements according to the Tax Code of Ukraine, namely:
- The registration of any organization must be carried out in accordance with the Laws of Ukraine “On Public Associations” of 22.03.12 and “On Charitable Organizations” of 05.07.12, depending on its type. This requirement should already have been met at the initial stage during registration.
- The founding document must necessarily contain clauses prohibiting the distribution of the organization’s profits and income among owners, members, employees and other participants. The only exceptions are employee salaries and the single social contribution (SSC) which are accrued in accordance with current legislation. This requirement is stated in the statute and other documents.
- In the event of termination of the organization’s activities (liquidation, merger, transformation, accession, division), the statute must provide for the complete transfer of assets to another nonprofit organization or organizations of the corresponding type, or the transfer of assets to the state budget.
Every nonprofit organization’s statute must state the prohibition of distributing received profits. Today it is quite common to find nonprofit companies or enterprises that do not comply with this. Therefore, if you are the owner or a member of such an institution, pay attention to this requirement or notify the authorized person about it.
Transfer of assets
The third requirement is to specify the transfer of assets to one or several organizations in the founding document. At the same time, the other nonprofit organization to which the assets are transferred after liquidation must necessarily be of the corresponding type.
Therefore, if a nonprofit organization for some reason decides to cease its activities, according to the provision in the founding document, it will be able to transfer all its income to another nonprofit organization. This should be familiar to the owners of such companies or enterprises, because the clause about the transfer of assets was previously added to the Tax Code. But today the clause has been expanded, and now asset transfer is possible not only during liquidation, but also in the case of absorption, accession and transformation.
When the tax legislation changed, the list of cases when organizations must transfer their assets also changed. This should also be taken into account in accordance with the third point of Art. 133.4.1 of the Law of Ukraine. It should be noted that this point in no way applies to associations and unions of co-owners of residential premises, i.e., condominium associations (OSBB).
When the nonprofit organization complies with the requirement to transfer assets, as well as the first two requirements (the registration procedure and the prohibition on the distribution of received profits) mentioned above, only then will the controlling authorities be able to include it in the corresponding register.
What else should be reviewed?
In addition to the above, attention should be paid to clause 133.4.2 of the Law “On Amendments to the Tax Code of Ukraine regarding the taxation of nonprofit organizations”. According to this clause, each nonprofit organization must have specific tasks, goals and objectives to which its funds will be directed. In addition, the founding documents must also reflect specific sources of funding.
When Article 157 of the Tax Code of Ukraine was still in force, everyone clearly knew which income was taxable and which was not. Today, with that article removed and in view of clause 133.4.2, many are confused about taxation. Therefore, when reviewing statutory documents, special attention should be paid to clauses that specify the purpose, goals and set tasks and how they correspond to the main sources of funding. After all, sources of funding are the organization’s incomes (revenues). And these incomes must be spent only on statutory areas of activity.
Summing up, any nonprofit organization must review its goals, purpose and set tasks, because it works not so much for the development of its members as for the development of society as a whole. This especially concerns public organizations. In the past, when the old law “On Associations of Citizens” was in force, any public organization worked only for the development of its members and the realization of their rights and freedoms, whereas the new laws allow expanding the scope of activities. Therefore, when reviewing founding documents, more attention should be paid to the purpose and goals that are written. If the purpose of creating the organization was only the development of its members, and the goal was the protection of their interests, then such an organization should no longer take on projects that are not aimed at the development of its members. Such a situation can be remedied, for example, by adding to the purpose clause that the organization works not only to satisfy certain needs of its members but also to meet the needs of society.
It is additionally recommended to review clauses in the founding documents that relate to governing bodies. Such clauses should also be brought into a form that corresponds to international standards.
It should be noted that there is no perfect model of a statute. Each document must be approached individually, since each organization has its own areas of activity, its own purpose, goals and tasks. Therefore, if any problems or difficulties arise with making changes to the founding documents, you should immediately seek help from experienced specialists who can perform a quality audit and appropriately revise and amend the statute so that it complies with the current legislation of Ukraine.
Instructions for re-registration
When carrying out checks of organizations, employees of the legal company “Nakaz” can say for sure that about 70-80% have still not re-registered. Perhaps some organizations are experiencing certain difficulties in the re-registration process. Perhaps some do not quite understand how re-registration should be carried out at all. So, so that our readers have fewer questions, we will explain how re-registration should be carried out and how it proceeds.
Instructions for self re-registration:
1. We check the organization’s statute for compliance with the norms of current legislation.
- For public organizations, public associations – Art. 11 of the Law of Ukraine “On Public Associations” and the law as a whole.
- For a charitable fund – compliance in general with the Law of Ukraine “On Charitable Activities and Charitable Organizations”.
- For cooperatives – compliance in general with the Law of Ukraine “On Cooperation”.
- For trade unions – compliance in general with the Law of Ukraine “On Trade Unions, Their Rights and Guarantees of Activity”.
- For other nonprofit organizations – generally the Civil Code and Commercial Code (especially provisions concerning rules of representation at meetings, quorum norms).
2. We check the statute for clauses on nonprofit status.
- No types or areas of activity intended to generate profit.
- Compliance with Clause 7 of CMU Resolution No. 440 of 13.07.2016.
3. If the statute lacks a large number of mandatory requirements, we change everything, preserving only the structure of the organization (names, powers, composition of governing bodies).
4. We form the document package:
- Text of the statute with edits.
- Protocol of the governing body and register of attendees.
- Protocol of the supreme body and register of attendees.
- Power of attorney for the person who will submit the documents.
5.
6. Submission to the Ministry of Justice – Main Department of Kyiv City, Department of State Registration (15 Yevhena Sverstiuka St., 7th floor, Livoberezhna).
7. Monitoring registration of changes – up to 4-5 working days.
8. Positive result at the Ministry of Justice.
9. Submission of documents to the fiscal service:
- A certified copy of the newly registered statute.
- Form 1-RN to the fiscal service.
10. Consideration of documents by the tax office – 14 working days.
Control – call the tax office on the 5th day after submission.
11. Positive decision of the tax office – a decision to include in the register of nonprofit organizations.
It should be noted that during registration and re-registration it will not be necessary to pay administrative or any other fees. Exceptions are only isolated cases.