The International Journal
of Not-for-Profit Law

Country Reports: Central and Eastern Europe

Regional

“Taxation, Partnerships, and the Model Public Benefit Organizations Law”

An ICNL Regional Conference

On May 18 – 21 a group of NGO leaders, government officials, judges, and parliamentarians concerned with the development of the legal regime for the not-for-profit sector in Central and Eastern Europe met in Bistritsa (Sofia) Bulgaria to discuss topics related to taxation, NGO-government partnerships, and the development of a model law on public benefit for the region. The conference was designed to provide maximum participation by the invitees on the topics discussed, and it achieved a number of significant and measurable outcomes.

The opening plenary session involved an overview of the discussion topics for the conference, with presentations by Stephan Kyutchukov, a Bulgarian lawyer and international expert on NGO legislation, a presentation of the “Model Public Benefit Law” by Pitor Gajewski, its principal drafter, and a panel of experts on various approaches to NGO legislation in the region (Gabor Posch from Hungary; Kuba Wygnanski from Poland; Mariana Stoica, MP, from Romania; and Ivo Hristov from Bulgaria). The three topics for the conference were then discussed in plenary and in working groups.

Model PBO Law. Piotr Gajewksi led the discussion of the draft law with the help of a panel of regional experts (Justice Artan Hoxha from Albania; Petr Pajas from Czech Republic; Gabor Posch from Hungary; Ilya Trombitski, MP, from Moldova; and Zivka Vasilevska from Serbia). This group and other attendees at the conference had participated in a workshop in Zakopane Poland in December 1999, where the principles for drafting the model were discussed. (For more information about the Zakopane conference, please see Piotr Gajweski's article in IJNL Volume 2, Issue 3) This led to the preparation of draft law by the group of regional experts, which was presented for further development at the May conference.

Participants reached consensus on a number of aspects of the approach taken in the draft law, including:

• The law should include an illustrative list of public benefit activities, including a “catch-all” provision; this would acknowledge that other activities might be recognized as being in the public interest as time goes by.
• The law should accept the value of creating a Public Benefit Commission as an independent body composed of representatives from both the government and the PBO community; the Commission should be tasked with certifying PBOs and overseeing PBO activities. The Public Benefit Commission would be entitled to annual budgetary support, as necessary, from the state. The Commission should also have a role in training PBOS about their legal obligations
• Guidelines for internal governance, including duties of officers and directors, prohibitions against personal benefits, and conflict of interest provisions should be included in legislation affecting PBOs and, more broadly, all NGOs.
• The right of PBOs to engage in economic activities, so long as they are not the primary purpose of the organization, should be recognized.
• The law should contain reporting requirements for activities and finances; these should be made available to the public, to ensure transparency of operations.
• Tax benefits and customs duty exemptions, including tax benefits for donors, should be made available in appropriate legislation.

The drafting team of regional experts is currently incorporating comments and suggestions made at the conference, and a new draft should be available for discussion on ICNL’s website  by the beginning of October.

Taxation. A draft of the tax survey that ICNL has conducted throughout the region was presented at the conference for the discussion by the participants. In addition, there were presentations about rationales for various tax benefits (by Paul Bater of the International Bureau of Fiscal Documentation) and recent developments concerning the “One plus One Percent Law” in Hungary (by Gabor Posch of the State Audit Office and Gyula Hegyi, the Vice Chairman of the Committee for NGO Affairs of the Hungarian Parliament). The tax survey is presently being edited to reflect comments made at the conference and subsequently, and ICNL expects to publish it in September or October.

Partnerships. Two papers were presented on the partnership panel, one of which described a survey of the relationship between NGOs and government that was conducted in Bulgaria by ICNL staff member Radost Toftisova and Marieta Dimitrova. The second paper, by Petr Pajas, concerns the same subject in the entire region. The working groups discussed aspects of partnerships, and their reports confirmed the extreme importance of this area for the development of a sustainable NGO sector in the region.

Educational Initiative. Because of the fact that many of the people teaching NGO law in the region attended the conference, ICNL staff convened a small meeting of professors and lecturers with an interest in NGO law teaching. This informal get-together was a pre-cursor to the Regional Workshop, which will be held in Budapest on September 8 and 9. Information about that workshop and other aspects of ICNL’s educational activities in the region can be accessed by visiting www.ngolaw.org, a special web site devoted to NGO law education.

This conference highlighted the vigor and expertise of the NGO legal network in the region. Regional experts led the conference and reached consensus on key issues relating to public benefit organizations, NGO taxation, and NGO-government partnerships. Moreover, the Model Public Benefit Organization Law is a significant contribution to NGO law reform in the region, and ICNL has learned of several countries that have already incorporated provisions of this model into pending domestic legislation.

Further information about the draft model law for PBOs will be available through the Journal in future issues.

ICNL’s Educational Initiative for Central and Eastern Europe

By Radost Toftisova
Legal Advisor, ICNL Budapest Office

Education in legal matters related to the non-governmental sector should be of significant concern to any society that claims to be true to democratic values, to the rule of law, and to citizen’s rights.

The rapid and widespread development of civil society activities in Central and Eastern Europe over the past decade accompanied the emergence of national, regional and international problems of an economic, political and social nature. It came as a natural result of the introduction of new freedoms and rights that those societies began to enjoy – or, if we look at it from another perspective, that societies had to confront. The new civil society values did not arise from a vacuum; they were established in certain systems that preserved legal and political traditions, and it was by finding the most efficient way to integrate those values that a society proved its maturity.

ICNL has always envisaged legal education as one of the primary means for achieving its objective – the establishment of an enabling legal environment for non-governmental organizations (NGOs) to be created and function in accordance with their lawful purposes. One of the basic factors to enhance the accomplishment of such a result is a sufficient knowledge of legal issues affecting NGOs both by the public authorities and by the non-governmental sector, so that good laws can be enacted and properly implemented.

In 1998 ICNL began to focus some of its educational activities on university-level education, starting with the teaching of comparative NGO law courses at Central European University (CEU) in Budapest. This gradually has grown into a program that includes two-courses and internship, which allows CEU students to develop practical as well as theoretical skills through simulated clinics and internships. ICNL also began to encourage the development of NGO law courses at other universities in the region.

In 1999, ICNL took a more concrete look at legal education -- particularly education at the university level -- as a special objective of its program in Central and Eastern Europe. This new approach reflects the growing awareness of the need to develop greater legal expertise throughout the region through the process of educating, in particular, lawyers capable of dealing with the challenges of recent developments. Good laws are often drafted by lawyers, they are implemented by lawyers, and again, lawyers handle any legal problems and disputes that arise in the area of NGO activity. Re-educating already qualified lawyers is necessary but not half as efficient as creating competent young lawyers in the process of their qualification as professionals. That is why ICNL has focused efforts over the past few months to launch its “Educational Initiative for Central and Eastern Europe” (CEE) as a project aiming at encouraging the teaching of “NGO Law” at universities in the region.

The first stage of the project included the creation and launching of a new web site that is expected to contribute substantially to the information flow among various universities and academicians throughout CEE. The web site is accessible through the ICNL main web site, www.icnl.org and also directly accessible at www.ngolaw.org. In the short period following its launch, the web site has already attracted a good number of visitors.

The content of the site includes short articles and presentations, a chart of currently existing NGO law courses throughout the region, teaching materials, contact information, and other relevant data. ICNL has been in contact with university professors with varying experience in teaching the subject. Some of them have been successfully teaching NGO law, while others have demonstrated an interest in doing so. The exchange of experiences and approaches will be, we believe, of immense value to all members of this network. Links are also available to courses on related subjects, such as NGO management (where law is necessarily relevant) and to information about special NGO law curricula, such as the materials ICNL developed for the CEELI Judicial Training Institute.

Teaching NGO law at the university level presents a number of challenges both to the students and to the professors. First, it inevitably reflects the system of teaching that exists in the given country. For example, a clinical course on NGO law has been successfully functioning at Columbia University in New York since 1986. The first and as yet only existing clinic on NGO law in CEE was launched by ICNL as a pilot project in April 2000 at Plovdiv University, Bulgaria. This example only proves that despite certain traditionalistic trends, new approaches are capable of making their way into academic education in CEE.

Second, the subject itself does not require one particular teaching methodology. The research done by ICNL identified a great diversity of methods for teaching NGO law: as regular/overview courses – mandatory or optional --, as legal clinics, as interdisciplinary courses, and as comparative courses. Each method can offer advantages and is capable of being transformed into another, more comprehensive curriculum. For example, ICNL started teaching an NGO law course as a simulation clinic in 1998, and has expanded the offering by adding an introductory course. The University of Veliko Tarnovo in Bulgaria is considering the inclusion of a “regular” NGO law course in its academic curriculum, but has expressed an interest in the specific features of clinical legal education as well. And the Faculty of Law, Political Science in Skopje, Macedonia, is developing an interdisciplinary course in its curriculum to reach the students enrolled, which may add clinical components. It is at this stage – when courses are being developed -- that establishing an active network among professors and experts can be a vital influence and can serve as an accelerator for the development of new and more various forms of teaching the subject.

To support this process, and within its Educational Initiative, ICNL is organizing a workshop on the instruction of NGO law for university professors. The workshop will take place in Budapest in September 2000. It will bring together academicians with a demonstrated expertise and/or interest in NGO law as a university subject and will provide them with a forum for discussing issues of concern related to curricula, syllabi, teaching methodology, and other related topics. It is expected that one of the major outcomes of the workshop will be that each participant will leave for his/her home university with more information and a commitment to the development of legal education regarding NGOs.

The benefits of this initiative are not limited only to increasing interest in NGO law courses throughout CEE and, as a result, establishing an efficient network of law professors. The Educational Initiative also strives to establish the groundwork for extensive university cooperation within the region. The process may start by creating a core group of university teachers teaching NGO law, but it has the potential to grow into greater cooperation, with more comprehensive country-specific and regional implications. As will be discussed at the September workshop as one of its major topics, university cooperation is not limited to the exchange of data and experience. It also involves the joint development of concepts and programs and the creation of a more united community throughout CEE, sharing common views and values with regard to civil society. The countries in the region have a lot in common both with regard to recent legislative developments and concepts, and with regard to problematic issues and their solutions – this provides a good basis for multifaceted cooperation.

The process of cooperation may also be extended beyond the inter-university relationships and relate to the place of law schools in NGO communities. Thus, universities are capable of and should develop close links to NGO communities in their respective countries. They may also establish links to international third sector organizations, in particular those focused on research and training. As generators of future legal experts on NGO issues, universities have much to contribute to and to benefit from such relationships. These connections can also help preserve and fully utilize the practical connection between universities and “real life” clients, even when clinical education is not the chosen method of teaching.

The September workshop would not produce maximum results if it remained an isolated event. This is why ICNL intends to follow up the workshop by promoting an active and efficient network of knowledgeable academicians. Regular updates of the education web site are but one of the planned future steps in this respect. Other steps include establishing online communications opportunities, such as chat groups and bulletin board discussions. The continuing publishing of new teaching materials and/or articles will also be an important resource for new ideas and helpful data. Thus, ICNL plans to play a supporting role in the region as an intermediary facilitating the exchange of information on NGO law courses, and as a database provider.

The effects of ICNL’s Educational Initiative should be perceivable within a very short period of time. After a year, there should be a successfully functioning network throughout CEE of academicians and law experts who represent the main driving force of NGO law academic initiatives in their respective countries. In a couple of years, the first generation of young lawyers specifically trained to help with local legal reform efforts and to engage in government service and private law practice affecting NGOs will graduate. ICNL's contribution to this process will be a rewarding achievement, whether they will be actively involved in third sector activities or will simply have benefited by widening their professional background.

For more information about the Educational Initiative, please go to the web site www.ngolaw.org.  

Central and Eastern Europe Tax Survey

By Catherine M. Shea
Program Director, ICNL

The International Center for Not-for-Profit Law (ICNL) recently commissioned a survey of tax laws and regulations affecting non-governmental organizations in thirteen countries in Central and Eastern Europe. Experienced lawyers from each of the surveyed countries compiled information relating exemptions of NGOs income and profits taxes, special regimes for VAT, and tax benefits for donors to NGOs. ICNL distributed a draft paper summarizing the survey results at its recent regional conference in Bistritsa (Sofia), Bulgaria. Comments are currently being compiled and revisions made. The final survey results are expected to be published in the fall.

Preliminary findings of the survey include:

• All countries surveyed permit at least some types of NGOs to claim exemptions from income or profits taxes for at least some sources of income. Approximately half the countries permit both public benefit organizations (those that are organized and operated to serve public interests) and mutual benefit organizations (those that provide benefits to a more limited group, e.g., members) to claim tax exemptions. Others permit only public benefit organizations to claim exemptions, while a few grant exemptions or reduced tax rates only for very limited categories of income.
• Income from grants, donations, and membership dues is exempt in almost every country.
• NGOs are permitted to engage in business activities to earn money to support their primary purposes in most countries in the region, although a few still prohibit economic activity by NGOs. Several countries, including Bulgaria and Croatia, continue to tax the business income of NGOs in full. Most countries in the region, however, permit NGOs to seek exemption for income from economic activities under at least some circumstances.
• NGOs may make passive investments in virtually all countries surveyed; however, a substantial number tax the income from such investments in full.
• The countries surveyed employ a variety of tax practices with respect to application of VAT to NGOs. The most common approach used is to exempt from VAT transactions in certain types of goods or services, a number of which are customarily provided by NGOs. Other approaches include exempting certain NGOs from VAT, or affording zero or preferential rates to certain goods and services.
• All countries surveyed permit legal entities to claim tax benefits for contributions to certain types of NGOs, and all but three allow such benefits for individual contributions. In many countries, however, the law provides for relatively limited tax credits or deductions. The Hungarian “One Plus One Percent” Law, which allows a rebate of taxes by the designating individual directly to an NGO (or church), is being viewed with interest throughout the region.

ICNL’s work on the survey was funded by the United States Agency for International Development.

Bulgaria

Survey of the Current Legislative Framework for NPOs to Perform Social Services in Bulgaria*

By Marieta Dimitrova
partner in AM & Partners Law Firm, Sofia, Bulgaria

December 1999

Introduction

In recent years significant changes and reforms have taken place in Bulgaria which have quite naturally affected the social sphere as well. A number of statutory acts were adopted whose underlying feature is the new approach toward the citizens' needs for social services and the role of Non-Profit Organizations (NPOs) as an dynamic component of civil society.

The purpose of the present document is to analyze the legislative provisions and the existing legal possibilities for the NPOs to provide social services in Bulgaria.

Part One of the present analysis outlines the legal background existing in Bulgaria for providing social services. In this part, we define the concept of "social service" in the context of the current legislation, and the statutory acts governing this matter are explicated. Part Two of the present analysis examines the different types of social services, the possibilities for these services to be rendered by NPOs, and the functions and powers of the coordinating bodies in this area. Parts Three, Four and Five examine and comment on the legal requirements with which the NPOs wishing to render social services should comply, the licensing procedure, and the mechanisms for funding of the activity of rendering social services. And finally, Part Six expresses the views and the opinion of the author of the report about the possible changes in the current legislation with the purpose of expanding the partnership between the state and the local bodies and the NPOs in the area of social services. Part Seven offers some practical guidelines for NGOs willing to engage in social services. The specific documents which the NPOs wishing to provide social services should fill in and submit are indicated. The paper contains also information about the individual institutions authorized to participate in the activity of funding, licensing and rendering social services.

I. Analysis of the Current Legislation/Laws, Rules and Regulations/Regulating the Matter of Social Services. Social Services Providers

The Constitution of the Republic of Bulgaria does not stipulate explicit provisions concerning the social services in Bulgaria and the role of the NPOs in that area. However, considering that social services are an indivisible part of social assistance it should be noted that chapter two of the Constitution stipulates the basic rights and obligations of Bulgarian citizens. Art. 51 provides that the citizens are entitled to public insurance and social assistance. We can conclude in this respect that the Constitution, as the basic law of the country, guarantees the right of the citizens to benefit from social services rendered in the sphere of social assistance. This right is backed up by the obligation of the state to provide an effective system for rendering social services through the generation of up-to-date social legislation.

The issues related to the performance of social services are governed by the Social Assistance Law (promulgated State Gazette, issue 56 dated 1998), the Rules of Implementation of the Social Assistance Law (promulgated State Gazette, issue 133 dated 11.11.1998, amended issue 38 dated 1999, amended and supplemented issue 42 date 1999), Regulation No. 4 dated 16 March 1999 on the conditions and procedures for delivery of Social Services (promulgated State Gazette, issue 29 dated 30 March 1998, amended issue 54 dated 1999). Other statutory acts also refer to the separate types of social services which will be examined in Part Two of the present report.

Pursuant to art. 16 of the Social Assistance Law, social services are defined as activities designated to support persons and families facing difficulties or unable to meet essential living demands. In art. 18 par.1 of the Social Assistance Law it is stipulated that social services are performed by the state and the municipalities, and by legal and natural persons. According to the current legislation, NPOs are registered as legal persons and possess the same rights as the other legal persons working in the social services domain. Individual providers which in the meaning of the law render social services may enter into contracts between themselves for the purpose of organizing and providing social services with joint participation. No preferences or limitations are stipulated with respect to the activity of the separate providers, including NPOs .

NPOs may perform all kind of activities in the social services domain if they comply with the Social Assistance Law and the statutory acts. The legislation in force does not stipulate any explicit limitations or special provisions concerning the activity of foreign NPOs in connection with rendering social services. But taking into account the conditions and procedure for granting a license for performing social services and the requirement that applicants submit a document for tax registration in the country, as well as a document for entry into the register of the relevant court, it can be concluded that for a foreign NPO should be effective, i.e. to be licensed for rendering social services, it should be registered in accordance with the Bulgarian legislation. This should not be interpreted as a limitation which does not allow a foreign NPOs, registered in another country, to provide social services in Bulgaria. Such foreign organization can incorporate a local legal person (NPO) in accordance with the requirements of the Bulgarian law and provide social services on its behalf.

II. Types of Social Services and Institutions for Social Services. Bodies. Interaction Among the NPOs, the State and the Municipalities

Considering the provisions of art. 36, par. 1 of the Rules of Implementation of Social Assistance Law and art. 3, par.1 and par.3 of Regulations No. 4 on the conditions and procedures for delivery of Social Services, the different types of social services may be divided into two major groups depending on the place of their performance. These include: social services provided in the usual home environment and social services provided outside the usual home environment. Depending on the time during which the social services are provided, they may be day-care or year-round services. Social services are rendered through a social service institution. The National Agency for Social Assistance (National ASA) ratifies the minimum statutory requirements for the organization of the activity of the social services institutions. The ratified statutory requirements are mandatory for institutions opened by natural and legal persons, including NPOs.

1 .Types of Social Services Delivered in the Usual Home Environment

These are stated in detail in art. 5-art.10 of Regulations No. 4 on the conditions and procedures for delivery of Social Services and include:

1. day-care homes - which create conditions for the day care of persons with mental impairments, persons over 18 years of age with physical impairments with certified first or second group disability and of persons over 60 years of age;
2. home social patronage - it provides services to persons over 60 years of age, persons with certified first or second group disability, and disabled children. Home social patronage includes the delivery of food, maintenance of the personal hygiene and the hygiene of the premises, inhabited by the person attended, providing necessary assistance in case of disability or serious illness, assistance in the communication and the maintenance of social contacts, and rendering various everyday services;
3. social services bureaus - which provide social and legal consultations on problems related to social assistance, engage in activities for the distribution of humanitarian aid, perform social work with disadvantaged children, persons and families, offer consultations and assistance in finding jobs, caring for babies, elderly and sick people, consult and assist persons and families who want to adopt a child;
4. centers for social rehabilitation and integration - which render social services to children with slow development, to children and adults with sensory impairments, to children with difficult behavior, children and adults with physical impairments, persons with mental impairments, disadvantaged children and adults, abused children and women, alcohol addicts, drug addicts, former prisoners, persons prostituting, and beggars. The centers provide rehabilitation, social and legal consultations, orientation to social services institutions, programs for social integration and re-socialization, education and vocational orientation, and training in professional skills of persons with mental impairments;
5. dining centers - providing food for the needy;
6. clubs for disabled persons - organizing social contacts and possibilities for active life for persons with a certified group of disability;

Before examining the social services provided outside the usual home environment we will explore the specific day-care social services delivered to the disabled, stipulated in art. 44 of the Law on the Protection, Rehabilitation and Social Integration of the Disabled (promulgated State Gazette, issue 115 dated 1995). Part of these services constitute a special case of the day-care homes: the centers for social rehabilitation and integration, the dining centers and the clubs of the disabled due to which they will not be commented explicitly upon in the present account. Together with them, however, other possible day-care social services for the disabled are provided for in this law and namely: residential care for the disabled at their homes, opening of specialized shops, rendering of everyday and communal services, as well as administrative, legal and intermediary services tailored to the individual needs of the disabled. All social services in the meaning of the Law on the Protection, Rehabilitation and Social Integration of the Disabled can be performed by natural and legal persons, NPOs and religious communities, after receiving permission from the Ministry of Labor and Social Policy.

2. Types of Social Services Provided Outside the Usual Home Environment

They are stipulated in art. 11-art.18 of Regulations No. 4 on the conditions and procedures for delivery of Social Services, and are rendered in the following institutions and include:

1. homes for children or adults with physical impairments. Those render social services to children and young persons of 7-25 years of age with heavy physical impairments that prevent them from attending ordinary and special schools within the system of the Ministry of Education and Science, persons under 18 years of age with heavy physical impairments of the limbs with first or second group certified disability, and blind persons over 18 years of age;
2. homes for children or adults with mental impairments which provide social services to children and young persons from 3 to 18 years of age with a different degree of mental impairments, children or adults with sensory impairments (blind, deaf), persons over 18 years of age with different degree of mental impairments, persons over 18 years of age with mental illnesses, and persons over 18 suffering from dementia;
3. social vocational centers which provide professional qualifications and new qualifications to persons from 14 to 35 years of age which have a certified group of disability, with slight intellectual retardation and with sensory impairments, as well as to children over 14 years of age coming from disadvantaged families;
4. children's villages which provide conditions for short-term recreation for children and young persons from 7 to 18 years of age who are orphans or with one living parent, children of divorced parents or of single mothers, children from families eligible for social assistance or from disadvantaged families, children from social services institutions, and children from refugees' families;
5. homes for elderly persons which provide social services to persons over 60 years of age, as well as to persons with impaired mobility or bedridden patients of the same age;
6. homes for temporary accommodation in which social services for homeless persons over 18 years of age are rendered. The period of accommodation in these homes can extend up to three months within one calendar yea. Article 16, par. 3 of Regulations No. 4 provides an exception with regards to orphans who have completed social vocational institutions or other institutions and who can be accommodated in the homes for temporary accommodation for a term of one year;
7. orphanages in which social services are rendered to children and young persons who are under 18 years of age and left without parental or foster care. The activity of the orphanages is stipulated in the Rules on the organization and the activity of the homes for abandoned children, issued by the Ministry of Labor and Social Policy (promulgated State Gazette, issue 29 dated 1999);
8. seasonal homes, which provide conditions for recreation for a period of up to three months to persons over 60 years of age, persons over 16 years of age with a certified group of disability able to attend to themselves and persons and families with children under 18 years of age who are eligible to receive social assistance.

Pursuant to art. 21 of the Social Assistance Law, NPOs may perform all the activities in the social services, provided they comply with the current legislation. Considering the other statutory acts in the domain of social assistance, it can positively be concluded that there are no social services in Bulgaria that under the law or other statutory act are confined solely to the area of operation of the state or the municipalities. The provision that gives green light to the NPOs for working in the social sphere is permanently provided in the legislation. The question is not whether there is a legal possibility for the NPOs to render social services but rather whether favorable conditions for the practical realization of this possibility are being created. The problem will be analyzed when expounding on the interaction between the different social services providers and more specifically on the possibilities for interaction between the NPOs, the state and the municipalities, as well as in the part considering the possible changes in the statutory acts which guarantee and expand the role of the NPOs in the social services domain.

3. Bodies

The state and the municipalities render social services by virtue of the law, and state and municipal bodies have the managing, coordinating and controlling functions in the area of social assistance and services. For NPOs working in the domain of social services, it is important to be familiar with the structure, functions, and powers of these bodies.

State policy in the area of social assistance is determined by the Council of Ministers. The Ministry of Labor and Social Policy is the specialized body of the Council Of Ministers that is responsible for the management, coordination, and control in the domain of social policy and hence in the domain of the social services. Pursuant to Epistle No. 485 of the Council of Ministers dated 22 Dec. 1997 (promulgated State Gazette, issue 125 dated 1997) defining the main functions and objectives of the Ministry of Labor and Social Policy in the domain of social assistance, the Ministry:

• develops programs for resolving social problems and for diminishing the consequences of privation;
• regulates the activities of the institutions in the domain of social assistance;
• encourages and assists the charitable and humanitarian activity;
• encourages and controls the rendering of social services and the development of a network of social institutions by the profit and non-profit organizations; and
• organizes and participates in the work of the specialized body in the area of social services.

The activities in the domain of social services are performed by the Ministry of Labor and Social Policy in cooperation with the municipalities and NPOs pursuing charitable and other philanthropic goals. To achieve this cooperation the Social Assistance Law provides for the formation of a Council of Social Assistance as a public consultative body at the Ministry of Labor and Social Policy. Representatives of the different Ministries, the National Association of the Municipalities of the Republic of Bulgaria, representatives of the organizations of the employers and the employees, represented on national level, as well as representatives of the NPOs participate in the Council of Social Assistance. The organization and activity of the Council of Social Assistance shall be regulated by a decree of the Minister of Labor and Social Policy. At the time of the compiling of the present report no such decree has been issued.

The specialized body of the Ministry of Labor and Social Policy in the area of social assistance is the National Agency for Social Assistance (National ASA), whose structure is approved by the Minister of Labor and Social Policy. National ASA is a legal person with an independent budget. This specialized body prepares and proposes legislative drafts in the domain of social assistance, develops and ratifies legal requirements for the activity in social assistance, gives permissions for the opening and closing of social services institutions, grants licenses for the rendering of social services, and performs other activities connected with the further qualification of the personnel working in the domain of social assistance. Regional Agencies for Social Assistance are created at the National Agency for Social Assistance. They have basically managing and controlling functions regarding the activity of the municipal offices for social assistance.

The maintenance costs of National ASA and the regional agencies are covered by the republican budget.

The municipal office for social assistance is the specialized body for social assistance in the municipality. It is a legal person maintained by the municipality's budget. The institutions rendering social services on the territory of the municipality are also included in the structure of the municipal office. The municipal office for social assistance works in cooperation with the NPOs and other natural and legal persons and encourages their activity in the area of social assistance.

III. Legal Relationship Between the Municipalities and the State, and the NPOs Rendering Social Services

As it was mentioned earlier in this report, social services are provided by the state, the municipalities, by natural and legal persons including NPOs. They can organize and render social services with joint participation on the basis of a contract. In the present section we shall expound on the existing possibilities for the NPOs providing social services to use state or municipally owned real estate property in their activity, and the joint participation, respectively, in rendering social services.

Firstly, we shall examine the possibilities for the NPOs providing social services to enter into contracts for lease of municipal real estate property, to acquire ownership rights on estates constituting municipal property or limited estate rights on them, and the possibility for gratuitous use of municipal real estate property

Pursuant to the Law on Municipal Property (promulgated State Gazette, issue 44 dated 1996), municipal property can be private and public. Under the provisions of art. 12, par.3 of the same law the real estates and the chattels which are public municipal property cannot be leased, remised or used jointly with third parties. Public property is the real estate intended for the accomplishment of the functions of the local authorities and administration, as well as the real estate designated to satisfy the public needs of municipal importance and the cultural sites. All other municipal estates and chattels, not included in the scope of public property, are private municipal property. Therefore NPOs, on the grounds of their activity, can negotiate the use and the acquisition of rights only on sites constituting private municipal property. The municipal council of the respective town or village organizes the care for, the management and the disposition with the municipal property by a special decree on the procedures for the acquisition, care for, the management of and the disposition with municipal property. It should be noted that every municipal council adopts such a decree and although it is based on the law it is possible that certain differences might exist for the different municipalities.

NPOs rendering social services have the possibility, under the provisions or art. 14, par. 2 of the Law on Municipal Property, to lease premises in private property of the municipality for the performance of social activities. The lease is based on a writ of the municipality mayor under the terms and procedures of the above decree of the respective municipal council. The term of the lease cannot extend to more than 3 years. Thus the ensuing lease-hold legal relations may be terminated on the part of the municipality before the end of the term if a pressing municipal need arises. In that case the lessee is obliged to vacate the premises within a period of three months from the service of the notice. In addition, NPOs may acquire the right of ownership on a real estate - private municipal property, or limited property right of construction on municipal land under the general procedure upon the holding of auction. A contract is signed on the grounds of the results of the auction.

The Law on Municipal Property does not provide for preferences for NPOs rendering social services in leasing or acquiring estates constituting private municipal property. A tangible opportunity for efficient cooperation between the NPOs and municipalities in the sphere of social services exists under art. 39 of the Law on Municipal Property. Pursuant to the above-mentioned provisions, there is a legal possibility to constitute a gratuitous right of use to a NPO on a estate which is private municipal property. The gratuitous right of use is constituted with the writ of the municipality mayor for a period not longer than 10 years and only upon the decision of the municipal council. A contract between the municipality and the NPOs is concluded on the grounds of the writ. It should be noted here that the law does not explicitly list or favor the NPOs but since this is a possibility opened to all legal persons, the NPOs rendering social services are implicitly included. The requirement for the writ of the mayor to be based on the decision of the municipal council presupposes the preparation of a motivated project for rendering social services on part of the organization. The project is considered by the municipal council before the decision is taken.

The Law on State -Owned Property (promulgated State Gazette, issue 44 dated 1996) provides also the possibility for use of real estate - private state-owned property for the performance of social activities. Similarly to the Law on Municipal Property, the Law on State-Owned Property distinguishes between state-owned public and state-owned private property. Public state-owned property includes the sites constituting exclusive state-owned property under the provisions of the Constitution of the Republic of Bulgaria, real estate remised to the government institutions, real estate to meet public needs of national importance, as well as cultural sites. The public state-owned real estates can not be expropriated, encumbered with estate rights and acquired because of prescriptive rights. Therefore with respect to sites owned by the state, NPOs rendering social services might use only estates constituting private state-owned property. Basically, private state-owned property sites are leased by auction or with a tender. But art. 19, par. 2 of the Law on State-Owned Property provides through National ASA the legal means for interaction with the state for NPOs rendering social services. According to this decree, real estate may be leased without auction or tender for the health, educational and humanitarian activities for satisfaction of the respective social needs of the population. The leasing is done by the respective local executive or the head of the government institution at prices fixed by the Council of Ministers. The term of lease of such premises cannot be extended for more than 3 years, except with the approval of the Minister of Regional Development and Urbanization. The Law on State-Owned Property does not permit the leased premises to be sub-leased, to be remised or used jointly with third parties under a contract.

In view of the aforesaid, it can be concluded that no preferences for NPOs rendering social services are established in the law that regulates the management of the municipal and state-owned property. They are treated equally with the other legal persons. There is no obligation for municipalities or the state to assist NPOs providing social services by renting them premises or other material assets. Rendering social services with the joint participation of the state and the municipalities on the one hand and the NPOs on the other presupposes a contract under which the state, respectively the municipality, undertakes certain obligations in relation to the rendering of social services. The very limited legal possibilities for gratuitous use of premises which are municipal or state-owned property, restrict and do not encourage providing state-owned or municipal property for use of management by NPOs.

IV. Licensing . Licensing Procedure Under Special Laws

Unlike the state and municipalities, the natural and legal persons, including NPOs, need to be granted a license to receive funding from the Social Assistance Act for rendering social services. The rules for licensing of natural and legal persons and NPOs that provide social services is provided at a legislative level - in the Social Assistance Law. Provisions to this effect are also contained in the Law on the Protection, Rehabilitation and Social Integration of the Disabled. The terms and procedures for granting licenses are stipulated in a statutory act - The Rules of Implementation of the Social Assistance Law.

Licenses for rendering social services are granted by the National ASA. Pursuant to art. 42 of the Rules of Implementation of the Social Assistance Law, the applicants wishing to be licensed and receive funding from "Social Assistance" fund for rendering social services, including NPOs, submit at the National ASA the following documents for issuing of a license:

1. application;
2. description of the planned activities;
3. copies of the certificates of registration at the relevant court and copy of the statutory or administrative act of their incorporation;
4. evidence of tax registration for the tax-liable persons;
5. a receipt for paid application fee. On issuing or renewal of a license the applicant pays a fee of 10 levs. The fee is deposited in the "Social Assistance" fund.

Legislation does not provide for specific requirements for the foreign NPOs. The provisions of art. 42 of the Rules of Implementation of the Social Assistance Law, however, implicitly stipulate the requirement that foreign NPOs can apply and be granted license for rendering social services only if they are registered as NPOs under Bulgarian law.

The applications for license granting are considered by a commission consisting of five members chosen under rules established by the Director of the National ASA. The commission considers applications in the order of their filing and if necessary, may ask for the opinion of other experts about the social effect of the activities for which license is intended. The commission has the right to require the applicants to submit additional documentation. If inaccuracy or incompleteness is established in the application documents, the commission notifies the applicant within 3 days and gives instructions for their correction. Within 14 days from the submission of the documents, the commission makes its recommendation to the director of the National ASA for the granting or refusal of a license. In case of recommended refusal, the commission presents its reasoning in writing. Within 14 days of the submission of the commission's proposal the head of the National ASA issues the license. The refusal of the director of the National ASA to issue a license is subject to appeal under the procedure of the Law on Administrative Legal Proceedings, before the Supreme Administrative Court. The term of the granted license for rendering social services is 5 years. Upon the expiration of this period, the owner of the license may submit a new application for its renewal together with the required documents.

The documents submitted by the applicants are kept at the National ASA in accordance with the Law on the State Archives Fund and are available to all persons holding a legal interest. If malpractice are established the head of National ASA issues a motivated ordinance for revoking of the license. The persons concerned are notified to this effect within 7 days from the issuance of the ordinance. The ordinance with which the license is revoked may be appealed under the procedure of the Law on Administrative Legal Proceedings before the Supreme Administrative Court. A new license may be granted one year after the revocation of the first license, upon the showing that the requirements of the law have been complied with.

NPOs operating in rehabilitation and social integration area, including social services for the disabled, should be granted a license under the Law on the Rehabilitation and Social Integration of the Disabled. This requirement is stipulated in art. 4 of the Law on the Rehabilitation and Social Integration of the Disabled and is elaborated in details in the Rules governing its application. Persons who wish to be granted a license, including NPOs, must submit an application tot the "Rehabilitation and Social Integration" Fund (RSIF), with a description of the planned activities and copies of the certificates of registration at the relevant court that provide evidence of tax registration. The application with the attached documents is considered by a commission of five members. Within 14 days from the submission of the documents the commission makes its recommendation to the president of the fund for the granting or refusal of a license. Within 14 days of the submission of the commission's proposal, the president of the fund issues the license and in the case of refusal states his/her motives in writing. The refusal for granting a license by the president of RSIF is subject to appeal under the procedure of the Law on Administrative Legal Proceedings. The term of the granted license for rendering social services is 5 years. Upon the expiration of this period, the owner of the license submits a new application for its renewal together with the required documents. The granted licenses are entered in a special register which is kept in the RSIF.

V. Funding and Control

Social services are provided against payment of fees by the persons who use them pursuant to the Law on the Local Taxes and Fees or under agreement between the parties. Pursuant to art. 17 of the Social Assistance Law there are several possibilities for the payment of the fees and more specifically:

• fees paid in full by the persons using the service;
• fees paid partially by the persons and the municipal office for social assistance;
• fees paid in full by the municipal office for social assistance.

Natural and legal persons, including NPOs, may open institutions for the performance of social services by defining the conditions and procedures under which the social services will be rendered in compliance with the minimum normative requirements affirmed by the National ASA. The persons using the services pay fees for the social services rendered by those institutions. These fees, however, are a very inadequate resource for funding of such institutions, since art. 18, par. 1 of the Social Assistance Law stipulates that when NPOs render social services and the proceeds accrued from fees for rendered social services exceed the expenses, according to their annual financial reports, the surplus is deposited in the Social Assistance Fund. Conspicuous is the fact that the Law does not stipulate such an obligation for the other social services providers which puts the NPOs rendering social services at a disadvantage. The cited provision does not take into account the operational and administrative expenses of the NPOs in connection with the rendering of social services. In fact, the provision contravenes the established legal opportunities for a NPO which quite naturally does not make profits, to make profits with non-commercial purpose but rather for the funding of its activity.

For the purposes of funding social assistance activities, the law provides for the institution of a Social Assistance Fund at the Ministry of Labor and Social Policy.

The Social Assistance Law opens up the possibility for licensed NPOs operating in the social services domain to apply to the Social Assistance Fund for funding after providing adequate justification for a project. The current legislation, however, does not provide for a procedure for application and allocation of funds from the "Social Assistance" Fund, neither there are distinct criteria for applying or a term for the pronouncement of the competent authority. In that case, without appropriate guarantees and obligations of the state this possibility could turn into empty rhetoric without actual utilization. The NPOs apply for resources from the fund on equal footing with the other licensed legal and natural persons.

The Social Assistance Law binds the NPOs which have received funding from the "Social Assistance" fund to submit annual general and financial reports to the National ASA on their activity in the area of social services. Such obligation is not stipulated for the other licensed legal and natural persons which have used financial resources from the fund. This distinction in treatment clearly discriminates NPOs in contrast with the other social services providers.

Another, specific possibility for the NPOs to apply for funding by the state exists under the Law on the Protection, Rehabilitation and Social Integration of the Disabled. Under the provisions of art. 48 of the same law the Rehabilitation and Social Integration Fund is instituted at the Council of Ministers. The fund is a legal person with a non-budget income debit and credit account and registered office in Sofia. The resources of the "Rehabilitation and Social Integration" Fund are used for the support of projects and programs for disability prevention, and for rehabilitation and social integration of, and social assistance to the disabled. The fund is administered by a Management Council which organizes tenders and decides on projects and programs for prevention, rehabilitation, and social integration. NPOs rendering social services for the disabled may apply for funding of projects and programs by the fund. The Managing Council is the decision-making body. In case of refusal for funding the Managing Council must motivate the refusal by specifying the actual and legal reasons for such decision and within 14 days of its pronouncement notify the persons concerned. The refusal of the Managing Council may be appealed under the procedure of the Law on Administrative Legal Proceedings before the Supreme Administrative Court.

The control in connection with the rendering of social services is exercised by the Ministry of Labor and Social Policy. The specialized controlling body is the Inspectorate at the National ASA. In performing their controlling functions the inspectors have the right to visit without limitation the places where social services are rendered, to demand explanations and the presentation of documents, verifications, and information. The inspectors must maintain confidentiality of private and classified information which has become known to them in the course of their inspection as well as to respect the honor and dignity of the aided persons. If infringements of the law are established, including data for committed crime, the inspector immediately notifies the prosecutor's office. If the infringements do not constitute a crime under the Penal Code of the Republic of Bulgaria the inspector has the right to impose the following administrative sanctions:

1. to give mandatory instructions for the elimination of the recognized infringements;
2. to suspend the enactment of the illegal decisions of the social services institutions;
3. to enter into the register of the licensed NPOs the information about the recognized infringements.

Other bodies granted controlling functions are the Public Councils instituted by a decision of the Municipal council. The Public Councils render assistance and cooperate in accomplishing the activities of social assistance, and exercise public control on their performance.

VI. Suggestions for Legislative Changes with View to the Expansion of the Possibilities of NPOs for Rendering Social Services  

The Social Assistance Law provides that the Ministry of Labor and Social Policy performs the activities of social policy in cooperation with the municipalities and the NPOs. The municipal offices for social assistance work in cooperation with the NPOs with charitable and other humanitarian purposes and with natural and legal persons and encourage their activity in the area of social assistance. Similar provisions are stipulated in other laws and regulations which pertain to the social sphere and the rendering of social services. Some of these provisions acknowledge the role of the NPOs. They express the recognition on behalf of the state and the municipalities of the potential of NPOs for solving problems in the social sphere by active participation and cooperation of these organizations and express the new attitude and approach of the lawmaker toward the NPOs. Undoubtedly this is one positive tendency which however needs further development. The possibilities for NPOs to participate in providing social assistance, to render social services and to stimulate their activity with the provision of certain counter-part engagements on behalf of the state should be guaranteed and expanded.

In this respect, specific provisions which guarantee the actual cooperation in the social services area between the state and the municipal bodies, on the one hand, and the NPOs, on the other hand, should be stipulated in the Social Assistance Law and the pertaining rules and regulations.

Under the current legislative provisions the social services are institutionalized, and under the existing system of social services' institutions they are rendered predominantly by the state and the municipalities. The institutionalization of the social services, the fact that the institutions in Bulgaria operate in the conditions of Currency Board, and the interference of still existing but outdated models for delivery of social services affect negatively the quality of social services. The law does not preclude NPOs from providing all kinds of social services while wholly undertaking the responsibility for the financial support of this activity. But the possibilities to look for funding by the state for rendering activities in the sphere of social services are extremely limited and NPOs have to rely on funding predominantly by other sources (e.g. funding by foreign donors still occupies an essential place among those sources).

Therefore, to encourage the activity of rendering social services by NPOs, it is necessary for the law to emphasize the alternative forms of joint delivery of social services which combine the efforts of the state, the local authorities and the NPOs, secured with the respective mechanisms for funding. One such alternative form, for example, is the commissioning of the management of social services institutions, opened by the state or the municipality, to NPOs as well as the joint establishment of such institutions with the division of the obligations and the funding accordingly. Unfortunately, experience has shown that examples of joint rendering of social services on the basis of a contract between the state and/or the municipalities and the NPOs are extremely limited. In most cases the relations are not regulated by a written agreement since there are no legislative provisions to that effect. In that case the general provision acknowledging the role of the NPOs in the sphere of social assistance is not adequate, and remains a “green-light provision” only.

Without the stipulation of a procedure, clear-cut requirements for to the NPOs and the obligations of the state or/and the municipalities regarding the conclusion of contracts for joint delivery of social services with the NPOs, the provision of art. 39 of the Rules on the application of the Social Assistance Law which state that social services may be organized and rendered with the joint participation of the separate providers, remains just wishful thinking and has a rhetorical character. The NPOs should also be given an equal standing as social services providers alongside with the state and should enjoy more expressly stated rights and even preferences in the area.

With respect to the possible changes in the current legislation, the present analysis suggests the following :

First, to introduce regulation by law of the forms of rendering social services jointly by the state/municipality and the NPO as a kind of social mandate, and to adopt the approach of decentralization of the management and funding of the activity provision of social services. The obligations of the state and the municipalities in the area of social assistance should be clearly differentiated. The local authority in the body of the municipalities should receive more freedom and flexibility to manage the activity in delivering social services and to fund jointly with NPOs the rendering of such services. The mechanism of such social mandate includes: the defining of clear-cut criteria for NPOs which are eligible to apply for commissioning, the procedure for commissioning and short terms for the pronouncement of the competent authorities, parameters for the financial involvement of the state/municipality for joint rendering of social services. The relations between the state, municipalities and the NPOs should be settled with a contract regulating the specific possibilities for funding. Another issue to be considered is the establishment of minimum mandatory content of these contracts.

Secondly, if the above stated concept for commissioning the activities of rendering social services on the basis of social mandate and the development of alternative forms for rendering social services, is accepted, it would become necessary to amend the procedures for funding NPOs, consistent with the procedure for commissioning. The existing legislation and the Law on Municipal Budgets in particular should explicitly provide for possibilities and procurement mechanisms for municipalities to fund NPOs in the area of social services. Changes should be also made with regard to the procedure for licensing. The procedures for granting licenses should be accompanied by certain specific rights or privileges for the NPOs rendering social services rather than being simply a formal requirement. This would put an end to the existing practice of NPOs performing activities in the area of social services to work piecemeal, and will encourage the formation of an overall concept about the role of NPOs in this area.

Thirdly, the current tax legislation should also be changed with the purpose of stimulating benefaction and charitable activities, for the facilitation of funding of NPOs from various sources.

Fourthly, certain amendments are recommended in the laws which establish the conditions and procedures for the use of state-owned and municipal property with the view of creating favorable possibilities for the state-owned and municipal estates to be used free of charge by NPOs rendering social services.

And fifthly, alternative forms for rendering and performing social services for the different categories of citizens in need should be developed at the legislative level. Thus, for example, the Child Protection Draft Law, which is to be ratified by the Bulgarian Parliament in the second reading,[1] provides for the possibility for NPOs to open family homes, day-care homes and other alternative forms for the upbringing and education of children in a family-like environment. Such modern approaches toward social services to children could be adopted also toward the rendering of social services to the disabled and other categories of persons and families eligible to such services.

VII. Practical Manual

1. Documents for Applying for Licensing and Allocation of Resources from the State Funds 

NPOs wishing to provide social services and be funded by the Social Assistance Fund should first be granted a license by the National ASA. On applying for such license NPOs have to submit an application in free format with a description of the planned activities. They also have to prove their legitimacy by submitting the relevant documents (Court Decision for registration, certificate of tax registration) attached to the application. At the time of writing of the present report about 30 NPOs have applied for licensing and have been granted a license respectively. A sample form of a license is given in Appendix No.1. Practice, however, shows that this licensing procedure is too formal and few of the licensed organizations have in effect opened institutions for rendering social services. Most licensed organizations work on joint projects with foreign NPOs.

The NPOs which apply for funding by the Social Assistance Fund and the Rehabilitation and Social Integration Fund should be aware that the specific application requirements for applying are developed and determined by the Managing Boards of the funds. These requirements are not stipulated in a statutory act and are subject to change depending on the decisions of the managing bodies of these funds.

It is mandatory for NPOs rendering social services that want to apply for funding by the Social Assistance Fund to have been granted a license by the National ASA.[2] The allocation of funds is possible only after the NPO has provided justification for a project. The documents which the applicants submit before the Fund include documents concerning their registration and legal status as well as information about the project (description of its scope, objectives, activity, strategy, duration, financial information).

NPOs which apply for funding by the Rehabilitation and Social Integration Fund must receive in advance a permission by the President of the fund. On applying they submit:

• documents of court and tax registration, articles of incorporation and operation of the organization,
• minutes from the meeting of the managing body of the organization for ratification of the decision for the accomplishment of the specific project,
• the permission from the president of the fund,
• documents confirming the secured or expected funding for the project from other sources,
• information about the organization’s partners to the project (if applicable),
• professional references about the team which will accomplish the project,
• information on the project with which the NPO applies for funding by submitting a short summary describing the objectives of the project, activities, strategies, persons for whose benefit it is intended, justification of the necessity of the project, expected results, forms of control, scope of the project (national, regional; municipal, local), detailed schedule of the completion of the project and financial information about the project. It should be noted that "Rehabilitation and Social Integration" fund can undertake the funding of maximum 90% of the total cost of the project. The basic aims and activities of the applicants should be within the priorities of the fund. The allocation of funds is conducted by tenders. The criterion for the evaluation of the project is its quality – it must comply with the topic of the tenders and with the aims and the nature of the fund's activity. The expenses preliminarily incurred on the development and realization of a project are not refunded.

2. Fees Paid by the Persons Using the Social Services Pursuant to the Law on the Local Taxes and Administrative Fees.

Article 90 of the Law on the Local Taxes and Administrative Fees (promulgated State Gazette, issue 117 dated 10.Dec.1997) stipulates that persons who are accommodated in private boarding houses or private social patronage pay fees as agreed. The institutions covered by the provision in this particular case include social services institutions opened by private natural or legal persons, including NPOs. When negotiating the amount of the fees NPOs should take into consideration the provisions of art. 18, par.2 of the Social Assistance Law. Under this provision if the financial reports show that the proceeds from the fees exceed the expenses the surplus is deposited in the Social Assistance Fund.

Article 86 of the Law on Local Taxes and Administrative Fees stipulates that persons using homes for social care or other forms of social services pay a monthly fee into the account of the municipal budget to the amount corresponding to the actual sustenance of one person. The law defines the scope of the actual sustenance of one person. It includes monthly expenses for food, bedding and clothing, laundry and hygienic products, transport expenses for the delivery of food, as well as the corresponding part of the common expenses for electricity and heat, water, pluming and garbage, with the exception of the target aids for the use for every-day needs of electricity, fuel, water, laundry and clothing provided by the government and non-government organizations to the institutions for social care and other forms of social care.

The fee due is deducted from the individual income of the person receiving social services. The amount available to those persons for individual expenses should not be less than:

• 20% from the individual income of persons accommodated in homes for mentally impaired persons and in homes for mentally ill;
• 30% of the individual income of persons accommodated in homes for the elderly, in homes for physically impaired persons and in homes for deaf and the blind persons;
• 40% of the individual incomes of the persons who are supported by the system of the home social patronage and the day-care homes;
• 50% of the individual income of the persons over 18 years of age accepted for training in the social vocational centers and for children over 16 years of age, accommodated in institutions for children.

The provision of art. 87, par. 3 of the same law states that if the remaining part of the individual income is insufficient for covering the fee due for the social service, the difference is covered by the budget of the municipality in which the home or the other social care institution is established.

The Law on the Local Taxes and Administrative Fees stipulates in art. 87, par. 4 that for persons who pay alimony to minors, the amounts of the individual expenses and the fee for receiving social service are determined after the deduction of the adjudicated alimony.

The Law on the Local Taxes and Administrative Fees exempts from the payment of fee for the received social services persons who do not have any individual income and savings. Art. 88 of the Law on the Local Taxes and Fees specifies the categories of persons exempt from fees for the social service they receive. These include: children under 16 years of age, accommodated in institutions for social care and in day-care homes and children under 18 years of age trained at social vocational centers; persons temporarily accommodated in distribution centers and orphanages; children with health and social problems accommodated for a short-term recuperative rest in children's villages.

The Law on the Local Taxes and Administrative Fees provides that orphans and children with one living parent under 18 years of age and without individual income who have been accepted for training at the social vocational centers are provided with resources for individual expenses to the amount of 50% of the basic minimal income

In conclusion, a very small number of NPOs work effectively in the sphere of social services in Bulgaria and they rely in their activity primarily on funding form foreign sources (foreign organizations and foreign governments).

Nevertheless, their experience even under current legislation shows that NPOs have extremely high capacity in the social sphere. The existing bond between the nature of the social services and the non-profit objectives in the activities of the NPOs represents a solid basis for delivering efficient, high quality, and low cost social services to citizens in need. The primary task of the new Bulgaria legislation in the social sphere is to develop this idea by providing for and guaranteeing wider rights and possibilities for NPOs to deliver social services.

Appendix No.1

Ministry of Labor and Social Policy

National Agency for Social Assistance

License

No.

for rendering social services

1. …………………………………………………………………………………………………………………………………………

2. …………………………………………………………………………………………………………………………………………

3. …………………………………………………………………………………………………………………………………………

Issued on ……………………………………………………………………

Registered office, address ……………………………………………………………………………

Date of issuance …………………………………………………………………………………………………… Director of the National Agency for Social Assistance:

……………………………………………………

The license expires on: ……………………………………..

The license hereby is issued on the grounds of art. 43, par. 5 of the Rules of Implementation of the Social Assistance Act (Epistle No. 243 of the Council of Ministers dated 1998) and application Ref. No. ………………..dated ………………..19……

Appendix No.2

List of laws, rules and regulations used:

1. Constitution of Republic of Bulgaria of 1991
2. Social Assistance Law of 1998
3. Law on the Protection, Rehabilitation and Social Integration of the
   Disabled of 1999
4. Law on Municipal Property of 1996
5. Law on State Owned Property of 1996
6. Law on Administrative Legal Proceedings of 1979 (last am.1999)
7. Law on the Local Taxes and Administrative Fees of 1997
8. Law on Municipal Budgets of 1998
9. Child Protection Draft Law
10. Rules of implementation of Social Assistance Law of 1999
11. Rules of Implementation of the Law on the Protection, Rehabilitation
    and Social Integration of the Disabled of 1999
12. Regulations No 4 on the conditions and procedures for delivery of
    Social services of 1999
13. Rules on the organization and the activity of the homes for abandoned
    children of 1995
14. Epistle No 485 of the Council of Ministers of 1997

Notes

* This report was made possible through support provided by the ENI/DGSR/CS, ENI, U.S. Agency for International Development, under the terms of Grant No. EE-A-00-98-00015-00. The opinions expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Agency for International Development.

[1] The law for enacted in May 2000.

[2] The question remains as to whether the licensing procedure is necessary and justified, given the small number of NPOs that have applied so far, and the insufficient funds available for distribution by the Social Assistance Fund.

Croatia

New Tax Amendments

By Dragan Golubovic
ICNL

The Croatian government recently introduced amendments to the VAT Regulation, extending custom and tax benefits for NGOs which have received foreign donations. According to the new Regulation (Official Gazette, no. 44/00), the import of goods which are deemed necessary to advance the organization's not only humanitarian, but also cultural, sport, scientific, educational, religious and other seemingly public benefit statutory activities is custom and VAT exempt, if the organization has used a foreign donation for such an import. In kind foreign donations to those organizations are also custom and VAT exempt. Finally, for the same type of NGOs, the purchase of domestic goods and services that are deemed necessary for carrying out the organization’s statutory activities is VAT exempt, if the organization has used a foreign donation for such a purchase. The same custom and tax benefit package applies to local administrative bodies receiving foreign donations. The regulation came into effect on May 4.

The Government also introduced amendments to the VAT Law (Official Gazette, no. 54/00), which provide that deliveries rendered by individual artists and cultural organizations will no longer be subject to VAT. Until now, deliveries that exceeded 85, 000 kuna (app. 10,000$) were subject to VAT.

Czech Republic

Recent Development of the Laws Regulating Not-for-Profit Organizations in the Czech Republic

By Petr Pajas
First Consulting p.b.c., Prague, ICNL Consultant

I. Introduction

In a transition period of ten years, the Czech Republic has moved from a system of suppressed democracy, unlimited power of one party, and totally state owned economy towards a pluralistic democracy based on free elections and market economy. This transition has allowed the Czech Republic to enter the family of countries forming the Atlantic Alliance and apply for membership to the European Union. With regard to the activities of civil society, the Czech Republic also underwent a dramatic change during these ten years. There are now about forty thousand associations and several hundred foundations and other legal entities, which form the third sector, referred to as non-governmental organizations (NGOs). The relatively advanced legal system and specific and in several aspects, unique system of state aid can enable and support the existence of NGOs.

The recent development in the Czech Republic, in both the political ambit, as well as the NGO sector itself, manifests the trends toward a qualitative change. As it appears, the period characterized by the transition towards a democratic and open society is being replaced by a period of consolidation and improvements in which more forms of citizen participation will find expression not only in NGOs increased professional activities, but also in the amendments, broadening of the related laws, and their implementation.

From this point of view, the next several years, specifically the period preceding the desired accession to the European Union, may make the Czech Republic again a country where the special interest of the international NGO community is centered.

This paper aims to summarize the status quo and to discuss recent developments of proposals and other trends in the legal framework of the Czech Republic, which may make the activities of non-governmental, not-for-profit organizations more important and citizen participation in many areas of social life more direct and commonly appreciated.

II. Structure of the Related Legal Framework

The legal system for the NGO sector developed in a specific way. Unlike many other countries in the region, the Czech Republic recognizes two main categories of NGOs: those based on membership and those not based on membership.

In the category of membership-based NGOs, the main legal form is associations of citizens regulated by the Act No. 83/1990. The same law regulates the trade unions and unions of employers, both of which have a more liberal way of establishment compared even to the liberal requirements governing the establishment, registration, activities, governance and internal regulations of associations. Besides these, there are several chambers of professionals, the Czech Red Cross, political parties and political movements and churches and religious congregations, as well as interest associations of legal entities, which may be established and operate under the provisions of specific laws. The very liberal nature of the laws governing all these types of NGOs enabled associations, despite certain basic limits set by the laws on their economic activities, to be an attractive tool for pragmatic entrepreneurship, without the restrictions on assets, registration obligations and any other features required from a commercial legal form. Currently, foreign and international associations also may operate in the Czech Republic with special permission issued by the Czech Ministry of Interior after consulting the Ministry of Foreign Affairs. <![endif]>

The category of non-membership-based NGOs since 1998, include not only foundations, as in other countries, but several other specific legal forms described in the Czech legal system. Specific laws now regulate the establishment, registering, self-governing principles, public reporting and accounting procedures, as well as certain other features of a) foundations with endowment, b) funds without endowment, c) public benefit corporations and d) public or private universities and higher education institutions.

The law requires foundations to possess from their beginning and to maintain through their existence a minimal registered endowment whose yields are fully exempt from corporate income tax. This income must be used for a public benefit purpose. The same law allows for the existence of funds without endowments, but provides less favorable tax benefits and limits more strictly their space for economic profit-generating activities. Foreign foundations and funds may operate their branches in the Czech Republic, and foreigners may become founders of Czech foundations or funds without restrictions.

Specific law regulates the establishment, registration, governing structure and operations of not-for-profit public benefit corporations with the specific purpose of providing under well-defined and non-discriminatory conditions, public benefit services accessible to anyone. These NGOs may engage in more economic activities to generate additional income and they may also apply for a state or local government subsidy.

In the Czech Republic, the national or local government budgets still fully or partially fund many state or municipal not-for-profit organizations. When creating the law on public benefit corporations, the Government apparently intended to use this new legal form as one of the possible ways to privatize budgetary and subsidiary organizations, mainly the universities, high schools, hospitals, theaters, museums, galleries, cinemas, swimming pools and utility services. However, limitations in the way ownership of state or municipal property was transferred to essentially private corporations made these expectations unrealistic. Only several hundred public benefit corporations exist today, and most of these have replaced foundations after the new Act on Foundations and Funds No. 227/1997 has become effective and required the foundations to register either as foundations with endowment, funds without endowment or public benefit corporations.

As a result of this development, the new law on higher education modified specifically the public benefit corporation from any public or private university or higher education institution, adding to their governing apparatus academic governing features and a more sophisticated access to the state subsidy per student, as well as the need for state permission to operate as a university based on accredited curricula.

This example from the field of education created the situation, when also the Ministry of Labor and Social Affairs, the Ministry of Culture and the Ministry of Health consider or even already work on drafting similar laws providing for specific public service providing but private institutions into which the institutions run by the state may be transformed.

In this short overview of the legal system of the Czech Republic, it may be noted briefly that there are specific tax and fiscal laws regulating the corporate profit tax, value added tax, customs regulations, real estate transfer tax, real estate property tax, donation tax, heritage tax, administrative fees etc. In all of these tax laws, specific articles provide certain tax or payment exemptions to not-for-profit legal entities and in several cases to a particular legal form, such as foundations, funds, public benefit corporations or associations.

Specific laws also regulate bookkeeping. In the Czech Republic there are still two procedures for income and expenditure accounting: double-entry accounting and bookkeeping based on the use of a single-entry accounting book.

III. The Three Main Stages of Development and the Three Special Laws

The introduction of Act No. 248/1995 on Public Benefit Corporations started the three stages of development of the Czech legal system with regard to not-for-profit organizations. This law introduced for the first time, the notion of a not-for-profit standard, barring distribution of any profit to the founders, to the members of governing bodies or to the employees. This law also provided for the first time, obligatory annual reporting, including comments on the annual balance of incomes and expenditures. Another important feature of the law was the introduction of the governing structure based on a board of directors, which may not remain unchanged forever and must rotate membership with limited possibility for reappointment of the same person to the board after the second term in office. Besides the board of directors, none of which might be employed by the corporation, there may exist also a separate body – the supervisory board. The supervisory board oversees both the board of directors and the corporation management to determine whether they have fulfilled the requirements set by the law, the founding document and the statute of the corporation. Both these bodies are in the hands of the founders, who appoint their members for a term of three years. Strict regulations address possible conflicts of interest among the members of the two governing bodies. And finally, the law provides for registration of the new legal entity at the commercial court, which maintains the Register of Public Benefit Corporations as a public document, currently available on Internet with the register of commercial legal entities.

The introduction of Act No. 227/197 on Foundations and Funds, replacing the liberal and incomplete provisions on foundations incorporated into the Civil Code since 1992, instigated the second stage of not-for-profit sector development in the Czech legal system. The new law not only defined the two distinct legal forms – foundations and funds – but it introduced the notion of an endowment and its maintenance, distinguishing between donation to the foundation and a grant by a third person. Finally, the law requires that any foundation or fund include in its statute certain limitations on the use of its assets and incomes for administrative expenditures. The law assumes several features from the law on public benefit corporations concerning the composition of the board of directors and supervisory board, but it is more liberal with respect to their self-reelection procedures and it is significantly less restrictive concerning possible conflicts of interest. This law also defines in a more positive way the public benefit categories in which foundations or funds may be established. The registering body is now the court and not the district state administrative office, as it used to be. The Register of Foundations and Funds is a public document available on Internet.

The third stage in the Czech development of the nonprofit sector started with presenting the governmental(?) Bill on Associations, approved already by the Government and currently in discussion at the Chamber of Deputies of the Czech Parliament. This new law is intended to replace the current law on associations of citizens. Its main features are similar to those of the above two laws: it introduces the notion of an association as a legal entity created voluntarily for the purpose of realizing the right to associate, but does not limit that right to citizens, making foreigners and citizens of the Czech Republic equally entitled to establish an association and to apply for its registration as a legal entity. The most important new features introduced by the Bill are: a) the more precise definition of the organizational structure with a definition of the statutory body and its responsibility for legal acts toward third parties; b) more detailed and transparent method of establishing and dissolving subunits with their own legal identity under the umbrella of the association statute; c) the regulation of the dissolution, merging and splitting of associations with liquidation or without liquidation of assets, which was entirely missing in the previous regulations and many times misused in commercial activities; d) registry with the Ministry of the Interior into a public Register of Associations; e) the obligation of reporting similar to that of public benefit corporations or foundations/funds, when the association obtains a substantial subsidy from a public budget or whenever it is engaged in some economic activity; f) the period of time in which existing associations must submit basic data on their statutory organ and other data to be put into the Register, as well as longer period of time for bringing the by-laws of the association into compliance with the Bill’s new requirements.

In each of these three stages of legal development, government drafters exhibit both a better understanding of the needs of NGOs and a more professional approach to drafting. In all three stages, experts of the present First Consulting were involved in advisory or co-drafting positions, making use of their experience gained during long-term co-operation with the International Center for Not-for-Profit Law. 

IV. The Role of Courts in Implementing the New Laws

The new foundation law provided the whole 1998 year, in which the 5400(?) at that time existing foundations had to register with the commercial court as a foundation with endowment, a fund or transform itself into a public benefit corporation. Thus, the courts were chosen as the registering agencies in an effort to make the procedure more transparent and less dependent on any possible political influence.

However, the courts were already registering agencies for commercial legal identities and some judges were suspected to have used their power to postpone registering decisions when not given extra payments from companies’ founders. In order to minimize the risk of corruption, some courts have adopted a special system of allocating registering cases to individual judges, which should eliminate the possibility of the judge dealing directly with the subjects applying for registration.

This situation has been only one of many difficulties encountered by foundations during the re-registering period. Evidently ill-acquainted with either the law on foundations or the law on public benefit corporations, some judges applied procedures of the registration process known to them from commercial companies cases, without acknowledging the basic differences between the commercial and non-commercial subjects. In some cases, the judges used arguments or required additional documentation going far beyond the requirements of the law. Despite these heightened expectations, many applications from foundations were submitted without required documents, incomplete or erroneously completed.

As a result, there remain several hundred former foundations’ re-registration of transformation cases open and awaiting the judgment of the court of appeal, because the commercial courts have denied the registration in the first instance. Thus, in many cases, there are still subjects operating as a foundation according to the previous law and at the same time trying to operate as close as possible to the requirements of the new law on foundation and funds or to the law on public benefit corporations. Unfortunately, important and well-known foundations have chosen to close down rather than wait endlessly for proper registration.

In light of the better practice requirements promoted by the international NGO community, the World Bank and ICNL, this development may be considered a serious failure of the Czech judiciary system. Appropriate instructions to judges and/or making registration an administrative matter more than a case for courts’ decision-making may provide a remedy.

V. Particular Legal Issues Concerning NGOs

There are several specific legal issues, which have or may have particular impact on the NGO sector.

Since 1996, the group of experts from the Conference of NGOs operating in the field of social care and health are involved in drafting laws, which will initiate a radical change of the social care and assistance to handicapped people. The new approach requires subsidies to handicapped people, so that they may order the service needed from any social service provider, be it the state institution or an NGO. The issue is closely related to the need to classify social services that should be made available to people in need and with a scheme of state licensing for providers of such services. The present government supports the idea in its basic premises, but postponed the final legal solution of it by dividing the complex original draft of the Bill on Social Care into several legal norms. Currently, the licensing issue is closest to being implemented; other parts of the series of legal norms (rules?) are still in the drafting process.

The Government and Parliament recently decided to distribute 500 million Czech crowns among nearly 4O Czech foundations as a contribution to their endowment. As a result, problems with courts supposed to register the endowment were further complicated by the issue of efficiently managing the foundations’ endowments. The current law is restrictive as to the way in which the endowment assets might be invested to generate income. It leaves several aspects open and unsolved, which lets judges decide identical cases in completely opposite ways. The situation invites analysis and amendment of current endowment regulations.

The Czech Government distributes annually about 1,6 billion Czech Crowns to associations via the line ministries. Until recently, the distribution process more or less followed the old style of subsidizing some chosen associations, without much opportunity being given to NGOs through some form of competition. In addition, the money comes from the state budget and as such, it must be distributed and used in the same fiscal year. The government(?) is looking for methods by which the procurement for this money may be made more transparent, the chance for equal access provided, as well as accountability through a several year period.

Ever-growing attention is being paid to the legal conditions related to the execution and use of volunteer work. Volunteer work brings certain values to NGOs and some financial experts have already warned NGOs about the risk of being asked to pay the tax on profit, whenever the value of assets produced by the work of volunteers exceeds the related expenditures. In some cases, this may burden NGOs’ budgets. Moreover, nothing in the law protect volunteers against health risks while volunteering, and the question remains open of how, if ever, volunteer work should be evaluated.

Finally, the tax and accounting rules for entrepreneurial and not-for-profit legal entities differ. Demonstrated several times and evident from practical implementation, NGOs may pay a higher tax than a commercial entity involved in the same business even with the 30% deduction of the corporate income tax but separate accounting of every kind of income generating activity. Recently, a motion to the Constitutional Court has been considered as a way to overcome this unequal treatment. Aware of the situation, some government officials are working on the amendment of the tax law and the accounting regulations. Unequal treatment of NPOs and commercial legal entities has been noted recently in accounting and tax procedures – cases where it is better not to make use of any tax exemption.

VI. Do We Need Further Improvements or Change to the Whole System?

Further improvements may be needed for specific laws, but to continue in the series of new laws for any situation does not present a long-term solution. Therefore, there is an acute need for profound analysis of the present legal system in cooperation with the government task force for harmonization of the Czech laws with European Community law, so that a synergy in the government efforts and needs of the NGO sector may be reached to create optimal timing and content for further systematic reform. Several basic reforms are already underway. Recently, the Chamber of Deputies of the Czech Parliament approved the new Commercial Code. Similarly, the Civil Code is being redrafted currently. Also, new laws regulating the use of state property, the new tax system and laws addressing several other legal issues stand high on the present Czech government’s list of priorities.

Both the NGO and public sector may benefit from a law more specifically regulating public benefit activities in general and providing for the existence of an independent agency capable of monitoring the behavior of public benefit organizations. The agency may use the organizations’ reports and conduct non-intrusive, ad hoc checks at NGO premises in order to monitor public benefit behavior. Such an agency could detect misuse of the benefits or other violations of the law and might even provide additional certification to the registered NGO, recognizing its status as a public benefit service or funds provider. This status would then provide a certain degree of priority whenever the certified NGO would apply for a subsidy from public budgets or even from some private sources, like foundations, private sector mercenaries’ donations or sponsors.

VII. Expected Development in the Near Future

In the two years remaining of the present government’s term in office, a new Act on Associations, as described briefly above, and the amended Act on Public Benefit Corporations may be expected. Both laws are already in the legislative process.

The Donors’ Forum, an association of donors and foundations operating in the Czech Republic, has begun preparations for significantly amending the Act on Foundations and Funds and has centered on improving endowment maintenance and use provisions, as well as the registration documentation and process. Soon, the final versions will be enacted of a series of laws regulating the social care and assistance provision and licensing for such services, which would involve NGOs as equal partners with public sector institutions. The government also prepares new state property law and changes to the public procurement laws.

NGO experts from Bohemia Corps have started the work already on a draft of a law regulating volunteer work. There is also a need to work on a sponsorship law. These initiatives may bring results during 2001.

VIII. Need for International Cooperation

Keeping in mind the scope and content of the new legal initiatives already in force and being prepared or considered in the Czech Republic, there is an apparent need for efficient cooperation with the international NGO community. The community might be interested in similar developments and may produce the synergy effects in improving the drafts being prepared, as well as realize necessary corrections or new impulses and ideas about consolidation and improving the quality of the Czech legal system’s development stage concerning NGOs. This is true in the cooperation between the experts of Poland, Hungary, Slovakia, Slovenia and the Czech Republic.

Nevertheless, the assistance and support from the experts of the International Center for Not-for-Profit Law (ICNL) and presumably, from other international organizations as well, such as CIVICUS or the European Center of Foundations, would be not only appreciated, but potentially critical for the process’s success.

ICNL expertise and organizational background provided by its Budapest Office may be especially useful due to its ability to prepare seminars on issues common in the region and to help instruct key persons in the NGO sector and government. ICNL’s staff of internationally experienced lawyers and its contacts with United States government agencies are the organization’s strengths. Likewise, the United States Embassy in Prague hosted informal meetings where experts from the NGO sector met those from the government. The friendly atmosphere of these meetings in addition to the respected position of the Embassy in the political establishment of the country have exercised a positive and facilitating effect in the past and potential for such a role continued into the future.

One of the most urgent issues currently might be to hold an international seminar of experts from Poland, Czech Republic, Slovakia, Slovenia and Hungary organized in Prague in the fall of 2000 that would open a forum for the discovery of new ideas supporting the improvement of the legal system and functioning of the judiciary in all these CEE countries who share similar political and economic environments as well as historical and cultural heritage.

IX. Challenges to the EU Accession 

The EU accession process in the Czech Republic accelerates the reconstruction of the legal system. However, it is also delaying some changes in the legal system that are not directly necessary for harmonizing the Czech laws with the “acquis communautaire” of the EC. Therefore, the success of the consolidation period depends also on the development in the EU – as soon as the EC legislation dealing with EU institutions cooperating with NGOs will be formulated, supporting the future of the NGO sector in accessing countries, including the Czech Republic.

Again, to reach a common understanding of this need, the scope of contacts may be strengthened between NGO experts from EU countries and those in CEE countries. Here also, the European Foundation Center, ICNL and CIVICUS may play an important and even solitary role as proponents and organizers of the exchange of ideas, meetings of experts and presenter of seminars or conferences.

Estonia

Taxation

On 15 December 1999 the parliament passed the new income tax law which took effect from 1 January 2000. The new law radically reforms the corporate income tax system by exempting all undistributed profits of corporate entities. As a consequence of this reform, income tax at the rate of 35% is now imposed on most forms of profit distribution, including:

• gifts and donations to all nonprofit institutions, except those included in a government-approved list;
• gifts and donations to the nonprofit institutions included in the government-approved list to the extent that they exceed 2% of the social tax base for the month in which the payments are made;
• dividends and other profit distributions paid to all nonprofit institutions, except those included in the government-approved list;
• admission and membership fees paid to nonprofit associations if participation in the association is not directly related to the taxpayer's business.

(For the text of the law itself , please click here)

Kosovo

New Legal Development for NGO Sector in Kosova/o: UNMIK Issues Administrative Direction Implementing NGO Regulation

By Gjylieta Mushkolaj
Consultant to ICNL

Strengthening the NGO sector has been a priority of the international community since the establishment of the United Nations Mission in Kosovo (UNMIK). Aware that the quality, capacity, and endurance of the NGO sector depends upon the environment in which NGOs must operate, during the first six months of operation in Kosovo UNMIK issued the Regulation No. 1999/22 on the Registration and Operation of NGOs in Kosovo.

On May 9, 2000, Bernard Kouchner, Special Representative of the UN Secretary General in Kosovo, signed Administrative Direction No. 2000/10 implementing UNMIK Regulation No. 1999/22 on the Registration and Operation of Non-Governmental Organizations in Kosovo. This action is a step forward in developing a legal system that protects the independence and long-term sustainability of the NGO sector in Kosovo.

The Administrative Direction provides detailed guidance to NGOs operating in Kosovo and to the UNMIK NGO Liaison Unit on the legal requirements related to registration, reporting requirements for NGOs with public benefit status, and NGO tax/fiscal benefits.

The Administrative Direction clarifies registration rules, including the right not to register informal groups.  It also establishes a review process for denials of registration. This marks significant progress for Kosovo, because of the bitter experience with the discretionary powers of the governmental bodies in the previous system.

In accordance with Regulation No. 1999/22, the Administrative Direction contains special rules for NGOs that have been granted public benefit status and therefore receive tax and fiscal benefits.  These NGOs must prepare and file an annual financial and activity report. In addition, an interim report is due on September 30, 2000 for activities in Kosovo through June 30, 2000.

In conformity with the international best practice that the public should have a legitimate interest in NGOs that receive tax and fiscal benefits, the Administrative Direction provides that reports filed in accordance with it shall be available to the public. However, the administrative direction does recognize the right of NGOs to protect truly confidential and proprietary information from public disclosure, and determines the procedure for disclosure of such information.

UNMIK has prepared instructions for filing annual reports and a model annual report form that NGOs may use.  ICNL has posted the draft form on its web site, and has strongly encouraged Kosovar NGOs to provide comments on these forms before they are finalized.

The Administrative Direction provides special requirements for larger NGOs. Domestic NGOs with annual income or expenditures over 100.000 DEM and foreign and international NGOs with annual income or expenditures over 250.000 DEM must have their annual reports audited by an independent auditor.

The last section of the Administrative Direction sets forth the framework for tax and fiscal benefits for NGOs with public benefit status.  It details the exemptions from customs duties, excise tax, and sales tax to which public benefit NGOs are entitled.  It also contains specific procedures for receiving customs duties exemptions.

Following the example of cooperation in the drafting of UNMIK Regulation No. 1999/22, a draft of the Administrative Direction was shared with local NGOs in a number of towns and cities, and their comments were incorporated into the final version of the document.  UNMIK also worked closely with the International Center for Not-for-Profit Law (ICNL), which provided technical assistance on the Administrative Direction and model forms.  With the support of the Charles Stewart Mott Foundation, ICNL is working with the Kosovar NGO community and UNMIK to help build a legal framework that fosters the growth of civil society in Kosovo.

Macedonia

Taxation  

The VAT Law was approved by the parliament on 14 July 1999 and applies from 1 January 2000. The law, which was published in the Official Gazette of Macedonia (SVRM 41/1999), repeals the Law on Sales Taxes on Products and Services. In general, the VAT law follows the framework of the EC VAT regime.

The standard rate of 19% applies to all supplies of goods and services not subject to the reduced rate. The reduced rate of 5% applies, inter alia, to medicines, books, newspapers and other publications.

Exemptions include goods imported by international organizations, donations from non-residents, the work of scientists, writers and artists, donations for scientific research at public scientific institutions, including scientific, cultural and educational publications and juridical and archive documents.

Montenegro

Re-Registration Practice

By Dragan Golubovic
ICNL

Recent events in Montenegro prove the notion that securing an enabling legal environment for NGOs will ultimately depend on proper implementation of the law. Last year, the Montenegrin Parliament enacted a fairly liberal Law on Associations and Foundations (Official Gazette, no. 27/1999), which meets international standards and best regional practices on a number of important scores (the review of the Law was published in IJNL, Volume 2, Issue 2). Art. 33 of the Law, inter alia, provides:

Social organizations and citizens’ associations which are entered into the register of social organizations and the register of citizens’ associations shall, within six months from the enactment of this Law, adjust the internal acts to the provisions of this Law and re-register with the Ministry of Justice.

Within the same period, foundations, funds and legacies which are entered into the registry of foundations, funds and legacies shall re-register as non-governmental foundations, in accordance with the provisions of this Law.

On November 9 in Podgorica, ICNL organized a round table in collaboration with the Ministry of Justice and the Center for Democracy and Human Rights on the compliance of the new law with international standards. The participants sought clarification of the re-registration requirement and received assurance from the Ministry of Justice official and other members of the drafting team that re-registration only means that the organization needs to amend its internal documents to the extent necessary to bring it into compliance with the new law and then submit them to the Ministry. Hence, the re-registration requirement does not mean that the organization must re-apply for the status of a legal entity (see Leon Irish and Douglas Rutzen: Re-registration Revisited, published in IJNL, Volume 1, Issue 3).

Unfortunately, in practice, the Ministry departed from its statement on re-registration. First, it required existing NGOs to re-register as new organizations in order to maintain their legal status. In some cases, because the new law specifies a minimum of five founders, the Ministry requested founding documents showing only five members/founders. For example, the association of judges, which has existed for more than 70 years, was entered into the registry as a new organization established by only five judges, while the membership status of other judges appears to be unclear and solely dependent on the good will of the “founders”. This gives rise to a number of other procedural and substantive issues. For example, some “new” associations have disposed of substantial property belonging to the “old” association to the personal benefit of the “new” founders.

As a result of this practice, a number of cases were brought before the Supreme Court. Interestingly, the Supreme Court seems to support the Ministry’s re-registration practice. In one case, the Forum of Women, an association that was registered under the prior law, appealed the Ministry’s decision to allow an association with the same name to be entered into the registry. The plaintiff contended that the person who submitted the documents for re-registration (which is necessary for re-granting the status of a legal person) was not authorized to represent the organization (although she was a member) and that the Ministry should have looked at the Forum’s founding documents that were submitted when the organization was first registered, which state the name of the person designated to represent the organization. However, the Court rejected the appeal (Decision of the Supreme Court, no. 701/99 of January 27, 2000). It held that the registration authority did not have an obligation to look at the plaintiff’s founding documents, as it was dealing with registration of a new organization, rather than with its predecessor. Consequently, the fact that the “new” organization is registered under the same name, which the plaintiff contended was also in violation of Art. 12(1) of the Law,[1] is of no legal relevance, as the registration authority is only obliged to ensure that in the new registry, which it keeps following the provisions of the new Law, two or more organizations are not registered under the same name.

The re-registration practice in Montenegro clearly highlights the importance of providing ongoing training on NGO issues for judges, registration authorities, NGOs and other key stakeholders in the process. It also underscores the importance of providing timely, pertinent literature, such as commentaries to the law and brochures on establishment and registration, which would serve as a reliable guideline to all the parties involved in the implementation of the law.

[1] Art. 12(1) of the Law provides: “The name and the logo of a non-governmental organization must be distinguished from the name and the logo of another organization”.

Romania

Taxation  

Further emergency ord