What Managers and Accountants of NGOs Have to Know about Accounting, Taxes and Tax Reporting in Ukraine

Managers and accountants of NGOs often refer to our experts to enquire about the reports NGOs have to submit to government agencies, and the deadlines. Other issues concern whether accounting is mandatory, how to open a bank account, what the procedures of hiring and firing employees are, what taxes are paid on wages and salaries, whether it is possible to conclude civil law contracts with individuals (physical persons). We value your time, so the purpose of this article is to provide the information on tax reporting NGOs have to submit. Other matters, such as: 

• Accounting in NGOs 
• How to open bank (settlement) account 
• How to hire and fire employees 
• How and when to charge/calculate the advance and salary, sick-leave, vacation, mobilization payments and what taxes to pay
• Whether NGOs can conclude civil law contracts including car rent, etc., will be discussed in our further articles. 

 We appreciate your time, therefore, we proceed to the disclosure of our topic. We emphasize that the information is relevant for 08 August, 2023. 

While on the subject, we provide services for NGOs on audit, accounting, financial accounting, personnel administration (HR management) and payroll, all types of reports preparation, including tax reporting. Click here. 

Peculiarities of NGOs Functioning Due to the Form of Registration

Prior to giving clarification on the types of reports NGOs have to submit to government agencies, the main registration forms of NGOs will be defined: 

1. Public organization, founders are only individuals (physical persons), the number of founders cannot be less than two persons. Requirements – mandatory accounting.
2. Public union, founders – legal person (legal entity), public organization, individuals (physical persons), the number of founders cannot be less than two persons.  Requirements – mandatory accounting.
3. NGOs of other countries without legal entity status, founders – foreign NGOs solely. Features – accounting is not directly required by law, they are not registered in Register of Non-Governmental Organisations and Unified State Register.
4. Charitable organisation, founders - individuals (physical persons) and/or legal person (legal entity), except for state authorities, local authorities, other legal entities created by state authorities. Requirements – administrative expenses cannot exceed 20 % of the total income of this organization during a calendar year.
5. Charitable foundation, founders   - individuals (physical persons) and/or legal person (legal entity), except for state authorities, local authorities, other legal entities created by state authorities. Requirements – administrative expenses cannot exceed 20 % of the total income of this organization during a calendar year. Mandatory accounting.
6. Charitable society, founders   - individuals (physical persons) and/or legal person (legal entity), except for state authorities, local authorities, other legal entities created by state authorities. The number of founders cannot be less than two persons. Requirements – administrative expenses cannot exceed 20 % of the total income of this organization during a calendar year. Mandatory accounting.

As you see, there are some common and some differential features due to registration forms of NGOs that have to be taken into account by managers and accountants while planning budgets, resources, etc.  

Tax Statutes for NGOs   

All aforementioned registration forms of NGOs are exempt from 18% income tax, but they may register as VAT payers on voluntary basis. NGOs cannot be single tax payers. However, under certain circumstances NGOs are obliged to pay income tax. It should be noted that rate of 18% is applicable to the overall amount of such income, not the difference between the income and expenses of NGOs. 

Let’s state the reasons: if the NGO is not registered in Register of Non-Governmental Organisations and/or carries out the activities not provided by its foundation documents. 

Types of Reports NGOs Have to Submit to Government Agencies   

The key issue is the types of reports NGOs have to submit to government agencies. If an NGO is registered in Register of Non-Governmental Organisations, it has the status of legal entity and is obliged to submit financial, statistical and other mandatory reporting: 

• Report on the use of income (profit) of NGOs, annual, the submission period is 60 days after the end of a calendar year 
• Financial reporting (balance sheet and statement of financial results), quarterly/annual, the submission period is 30/60 days after the end of the reporting quarter/calendar year 
• VAT declaration (if registered as VAT payer), monthly, the submission period is 20 calendar days after the end of reporting month 
• Tax calculation of income amounts accrued (paid) in favour of taxpayers - individuals (physical persons), and the amounts of tax withheld from them, as well as the amounts of the accrued single contribution; quarterly, the submission period is 40 calendar days after the end of the reporting quarter 
• Statistical reporting (check at the register following the link).

Public Report: Whether NGOs have to submit one 

It should be noted that there exists a procedure of Public Report submission. Generally, such report is prepared for a calendar year or after the project completion. The main purpose of such a report is to present the results of project fulfillment, transparent presentation of information on the activity and spending of the money of benefactors (donors). For greater credibility of the report, a financial or project audit is conducted. 

Therefore, Public Report is not mandatory but voluntary, but publication of such Report is an effective tool to confirm capability, success, efficiency and openness of the NGO and consequently, it contributes to a positive reputation. 

Conclusions 

To sum up, all NGOs are obliged to submit reports. Preparation of reports calls for special expertise and skills, so we recommend consulting experts. 

References to the Legislation of Ukraine used in the text, and abbreviations 

• Law of Ukraine on Charitable activities and charitable organizations of 05.07.2012 № 5073-VI 
• Law of Ukraine on Public Associations of 22.03.2012 4572-VI 
• Law of Ukraine on Accounting and Financial Reporting in Ukraine of 16 July 1999 № 996-XIV 
• Tax Code of Ukraine  
• NGO - Non-governmental organization, or non-state organization or public organization or civic organization or public association or charitable institution or charity society or civic association.

Article authors

Natalya Litvinenko  
Project manager        

Volodymyr Jyvun   
Expert