On December 8-11, 1999, a group of regional experts got together in Zakopane Poland at a working seminar entitled “Model Law for Central Europe Regulating Public Benefit Organizations.” The aim of the discussions was to create a set of principles that can lead to the development of the proposed model law. The materials on which the discussions were based are accessible through a special web site hosted by ICNL at www.icnl.org/zakopane .

            Dr. Zsolt Aradsky, Hungary
            Mr. Paul Bater, UK
            Ms. Nilda Bullain, Hungary
            Dr. Lenka Deverova, Czech Republic
            Mr. Piotr Gajewski, US
            Hon. Artan Hoxha, Albania
            Dr. Leon Irish, US
            Ms. Anna Jendrzejewska, Poland
            Mr. Maciej Jusczynski, Poland
            Ms. Diane Juzaitis, Lithuania
            Prof. Josip Kregar, Croatia
            Mr. Piotr Marciniak, Poland
            Ms. Magda Nowakowska, Poland
            Ms. Zuzana Oborna, Slovakia
            Dr. Petr Pajas, Czech Republic
            Dr. Gabor Posch, Hungary
            Mr. Douglas Rutzen, US
            Prof. Karla Simon, US
            Ms. Radost Toftisova, Bulgaria
            Dr. Ilya Trombitsky, Moldova
            Ms. Zivka Vasilevska, Yugoslavia

A smaller drafting group is presently undertaking to write a draft model law, which is based on the principles developed at the meeting.

Dr. Petr Pajas chaired the meeting, and the working group leaders were Piotr Gajewski and Radost Toftisova. Rapporteurs were Nilda Bullain and Maciej Jusczynski.

The issues that were considered included: definition of “public benefit;” what entities can qualify of the status; should political activities be allowed; should economic activities be allowed; what agency should exercise oversight authority and how should it do so; what sorts of reports should be required and by what organizations; what sanctions should be available and when; what rules about internal governance should apply; what sorts of benefits should be available to public benefit organizations and under what circumstances.

Further discussion of the principles adopted at the seminar and the process for writing the model law will be found in the next issue of IJNL.

BOSNIA AND HERZEGOVINA

A number of important initiatives pertinent to the reforms of the NGO legal framework have been launched recently. Thus in the Republic of Srpska (RS), the Ministry of Justice presented the final draft law on associations and foundations to the government for consideration. It is expected that the government will approve the draft and introduce it to the Parliament sometime soon, as the law was listed on the government's legislative agenda for December last year. The final draft contains a number of liberal provisions and largely complies with international standards and best regional practice. For example, at least three natural or legal persons can establish an associations. In addition, the law does not provide for a mandatory registration of an association and place on equal footing domestic and foreign NGOs. Equally important, the law provides that an association which is registered in one entity can freely operate in the other entity, with no further administrative requirements attached. The current legal framework in RS does not provide for such a possibility. ICNL provided in-depth legal and technical assistance to the working group in preparing this law.

In the Federation of Croats and Muslims, the Office of High Representative (OHR) finalized the draft law on associations and foundations. This draft will soon to be presented to the Federation Ministry of Justice for consideration. There does not appear to be any substantial differences between the RS and the OHR draft. Some of the differences include the number of required founders for an association (three in the RS draft, two in the OHR draft), and the period within which existing NGOs must amend their internal documents to comply with the new law (one year in the RS draft, six months in the OHR draft). The specific provision for NGOs performing “public competencies” is unique to the OHR draft, and the OHR draft is more explicit on several issues (the functions of a foundation’s management board and tax exemptions for public benefit associations). The OHR draft only provides for separate registries at the court, while the RS draft also provides for a central registry kept at the Ministry of Jusice. ICNL and other outside members of the drafting team worked closely with OHR in preparing this draft.

At the state level, the OHR has decided to present its state level law on associations and foundations to the Council of Ministers. The current framework in Bosnia and Herzegovina does not provide for a possibility for an association or a foundation to register at the state level and hence operate throughout the whole country. This has been perceived as one of the major obstacles for the development of the third sector. The state level draft bears striking resemblances on the OHR entity level draft. ICNL worked closely with OHR in preparing this draft.

Despite the number of NGOs that has increased rapidly in the last ten years, Kosovar NGOs have never had an opportunity to develop under the restrictive legal framework that existed until now. Civil society had always been considered the “public enemy”; thus, all possible means were used to fight against it, including hostile legislation.

With the recent departure of Serbian troops from Kosovo and the establishment of the European Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) as the new basis for the Kosovar legal system, the floodgates for the development and growth of civil society in Kosovo finally opened. On November 16, 1999, the United Nations Mission in Kosovo (“UNMIK”) enacted the Regulation on the Registration and Operation of NGOs (“regulation”) in Kosovo.

The regulation was formed as a result of a democratic participatory process. Domestic and international NGOs operating in Kosovo worked with UNMIK to draft this regulation. The result was an advantageous regulation that promotes open society in Kosovo. It is understood, however, that law in itself does not create open society; only the meaningful protection of human rights and freedoms forms the bases for its existence. Rooted in the principles of the Convention, the Regulation on the Registration and Operation of NGOs is an essential element toward the development of democracy and protection of civil society in Kosovo.

The regulation fully recognizes the right of individuals to associate and work together for a common interest and public good. If an association wishes to form a legal entity separate from the legal personality of its members, the regulation provides simple procedures to do so. For example, only three persons are required to register an association, whereas one person is needed for a foundation. In addition, UNMIK has very limited powers to deny registration. Reasons for a denial of registration are clearly listed in the regulation. Moreover, the regulation does not require NGOs to register. NGOs need only register if they wish to operate as legal entities. The freedom to register or not register, and the freedom of expression and association reach full meaning in Kosovo.

Another positive feature of the regulation is that both physical and legal persons have the right to form non-governmental organizations (“NGOs”). The regulation also acknowledges the registration of the following groups of organizations: (1) NGOs whose purpose is for public benefit; and (2) NGOs such as professional associations that are formed for the mutual benefit.

With regards to domestic NGOs, the regulation requires that they present two formal documents in order to register: a founding instrument and the statute. The regulation requires that a minimum of provisions necessary for the operation and governance of NGOs be included in the statutes. The requirements for the provisions themselves vary between associations and foundations. For instance, foundations are required to have an additional governing organ since they do not have membership status.

The types of provisions required by the regulation include a statement as to the organization’s purpose, which must follow the regulation, and the basic governance structure. Basically, the statute should determine the highest governing body of the NGO, and state how many times a year it should meet, which cannot be less than once a year. In general, founders have significant freedom to decide on the structure of governance for their organizations.

A notable characteristic of the regulation is that it recognizes and regulates the registration and operation of foreign and international NGOs. For the first time, foreign and international organizations have the right to work in Kosovo as legal persons.

Another advantage under the regulation is that the registration authority, the UNMIK Office for Civil Documentation, is required issue a registration certificate, or a denial of registration together with an explanation, within 60 working days of receiving an application to register.

The regulation gives the right for NGOs to engage in economic activities that support the organization’s goals. NGOs are permitted to generate income from any lawful activity, and to manage their own property in furtherance of their statutory purposes.

In addition, NGOs that were created for the benefit of the public have the right to obtain public benefit status, which releases them from paying tax on custom duties as well as other tax and fiscal obligations.

In sum, the Regulation on the Registration and Operation of NGOs offers extensive opportunities for the development of civil society and the strengthening of the non-governmental sector in Kosovo. This is very important because a healthy non-governmental sector protected by the law in turn supports the development of pluralism and social stability as well as respect for the rule of law—conditions that are essential for the development of democracy.

The International Center for-Not-for-Profit Law (ICNL) served as the primary technical advisor to UNMIK on the draft regulation. ICNL is an international organization that facilitates and supports the development of civil society and the freedom of association. Its purpose is to assist the creation and improvement of laws and regulatory systems that permit, encourage, and regulate voluntary, independent, not-for-profit organizations in countries around the world. ICNL currently provides technical assistance to the UNMIK registration office on implementation issues

ICNL’s work in Kosovo is supported by the Charles Stewart Mott Foundation, with initial funding from the United States Agency for International Development.

By Gjylieta Mushkolaj
Consultant for the International Center for Not-for-Profit Law

-- This article was previously published in “Koha Ditore,” Kosovo Independent Daily, on November 27, 1999.

The New Montenegrin Law on Associations and Foundations

As soon as the Montenegrin Parliament reconvened following cessation of hostilities after the NATO bombing campaign, it passed the draft Law on Associations and Foundations (Official Gazette of the Republic of Montenegro, No. 27, of July 29, 1999). ICNL provided extensive assistance to the Ministry of Justice in preparing this law.

As compared with the first draft, the final draft has been improved and contains a number of liberal provisions. Thus at least five natural and/or legal persons which have a domicile, place of business, or residence in Montenegro can establish an association. By contrast, one or more natural or legal persons can establish a foundation, regardless of their domicile or place of business.

The law distinguishes between membership and public benefit associations, but falls short of providing specific criteria that would draw a line between those two kinds of associations and does not provide a separate set of rules specifically applicable to public benefit associations. A foundation can be established only for advancing public benefit purposes, including humanitarian purposes.

Importantly, foreign NGOs are placed on equal footing with domestic NGOs with respect to registration. Registration is mandatory and for domestic NGOs results in acquiring a status of legal entity. A foreign NGO that seeks to operate in Montenegro needs to submit to the Ministry of Justice (the registration authority) proof of registration in the country in which it is domiciled, the name of the person authorized to represent the organization, the seat of the organization in Montenegro, and the organizational form in which it will operate (branch, office, affiliation, agency).

The Ministry of Justice must decide on registration within ten days after submission of a request for registration. If it fails to meet the prescribed deadline, the organization is presumed registered on the first day following the expiration of the deadline. However, it is not quite clear what the practical implications of this favorable presumption will be. For example, without an actual decision on registration, an NGO will hardly be able to open a bank account, obtain a seal or enter into a lease agreement. Interestingly, the law cites only one reason for denial of registration – an incomplete request for registration. An organization may institute an administrative (non-litigation) procedure against a decision of the Ministry denying registration.

As regards internal governance, the law provides that an association must have a general meeting of members and a management board, while a foundation must have a management board and a supervisory board. However, the law is silent on a number of issues pertinent to internal governance, including conflict of interest rules. This could give rise to abuse in practice, especially given that the law does not specifically provide that the organization’s statute must contain provisions on conflicts of interests.

Both associations and foundations are allowed to engage in economic activities provided that the profit generated from such activities is only used for advancing the organization’s major statutory goals. The language of the law seems to indicate that an organization can engage in both related and unrelated economic activities. However, it is not clear whether an organization can engage in related economic activities without having to establish a separate legal entity. An organization may acquire assets through membership fees, donations, grants, passive income, gifts, and through income generated from any lawful activities.

In addition to the requirement for mandatory registration, which is inadequate when compared with international standards, other provisions require further legislative attention. These include the penalty and sanctions provisions. Overall, however, this law can be regarded as a significant step forward toward providing a sound legal framework for NGOs in Montenegro.

SLOVAKIA

The new Law on Income Tax was enacted by the Slovak Parliament on November 24, 1999. The law came into force on January 1, 2000. However, article 48 will not be effective until January 1, 2002.

Article 48 reads:

"Statement of possibility to use paid-in income tax for public benefit purpose

Any person who has received income subject to this law can give a statement to the tax office, in which he states that 1 % of his paid-in income tax will be used in consideration of expenses of education, health care, social care, fitness, sport, protection of environment, culture and reconstruction of cultural monuments; for account of a natural person or legal person stated by him. This statement is obligatory for the tax office."

However, it is very likely that the above provision will be amended before it actually comes into force. Both the NGO sector and the government seem unsatisfied with the version of article 48. They consider its scope of application as too broad, not reflecting the concept of "public benefit", and opening possibilities for abuses. Legal initiatives for further amendment of the Income Tax Law are expected shortly.

Meeting of the Regional Drafting Group in Zakopane, Poland on Regulating Public Benefit Organizations

Legal and Tax Frameworks

The New Montenegrin Law on Associations and Foundations