The Heart of Europe — Government Seeks a New Role In the Emerging Civil Society

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The Heart of Europe — Government Seeks a New Role
In the Emerging Civil Society
By Milton Cerny

Vienna, Austria, November 1998

The floods that devastated parts of Central Europe and the human suffering and
dislocation that has been caused by the war in Bosnia and Kosovo have brought to the attention
of the world the plight of the victims of these natural and human di sasters. The International Red
Cross has highlighted the “silent disasters” occurring in such regions of Russia as Chukota,
where the life expectancy has plummeted to 34 year s since the break up of the Soviet Union.
Government funding of humanitarian assistance is insufficient to meet the compelling needs.
Still, fundamental issues exist regarding the resurgence of the civil society in Central and Eastern
A recent article in The Washington Post of November 27, 1998 entitled “Can Wintry Blast
Melt Cold Parisian Hearts?” described French President Jacques Chirac’s plea to aid the plight of
homeless people who were dying from the frigid cold temperatures that are sweeping across
Europe. He was not pleading for aid from the Fr ench government that provides a web of social
protections but for the people to take charity into their own hands and “do something to make
things better.” France, like other countries in Central Europe, has depended on the state to take
care of the poor, the distressed and charitabl e causes. On average, less than .15 of a
Frenchman’s annual taxable income is devoted to charity. As noted in the article, cynics regard
public support as “private money that is impure and immoral.” They believe that only the state
has “pure money.” Thus, public giving is regard ed as suspect. The problem in France, and in
every other nation of the world, is that the st ate does not have sufficient money to fund the needs
of its people and thus must look to non-government al financial and volunteer resources in the
building of its civil society.

Representatives of the Finance Ministries and the State Tax Agencies of Estonia, Latvia,
Lithuania, Poland, Hungary, Romania, Slovakia and Slovenia met together with Russia, Armenia
and South Africa at the OECD Institute in Vienna to review common issues of tax administration
concerning the new wave of non-governmental or ganizations created after the dissolution of the
Soviet Union and the Warsaw Pact that bound t he Central Eastern European countries into a
state managed economy and common defense structure.
i[1] I had the honor of leading the
discussions on tax exempt organizations with Susan Himes of the OECD, Al Short of the
Canadian Revenue and Bulent Tas of t he Finance Ministry of Turkey.

While the majority of the nations of West ern Europe prospered under principles of free
enterprise and trade, Central and Eastern Europe — on the other hand — tied to state controlled
economies, could not compete and had to depend on regional trade and a barter system with
their major trading partners to survive. As Western Europe recovered from the devastating
Second World War, Central and Eastern Europe languished and became a closed society. Was
this only due to the closed markets, a woefully inadequate monetary structure, a judiciary and
legal system dependent on the whim of individuals rather than the rule of law? Or was it
something deeper in the culture of these nations that was lacking — a robust Civil Society.

Before we review what is happening today in the non-profit sector, it is important that we
understand what happened during and after the perio d of Soviet domination when the Soviet
system collapsed and these countries gained fre edom of expression and action as they faced a
new complex world.

The voluntary sector of Central and Eastern Eu rope is not a product of the revolution that
occurred in 1989, even though there is no quest ion that its growth and impetus comes from the
new freedoms granted to individuals and their right to free association guaranteed by new
constitutional rights. Foundations and associations have had a long and lasting history in this

region. In the Czech Republic, Hungary and Poland, as well as the Baltic States, the history of
these organizations dates back to the 13 th century. Prior to World War II, voluntary organizations
played an important role in the establishment of these countries. In Poland, for example, pre-
World War II voluntary organizations assisted gover nment to deliver social assistance, education,
health and other humanitarian services. In Hungary they were important in the cultural and
political life of the country. The First Republic of Czechoslovakia in 1918 codified the rights of
free association and speech, which closely paralleled the United States Constitution.

During the Second World War and the subs equent years of communist government
domination, these entities’ activities were stri ctly controlled and limited to only one purpose — to
serve the state. Voluntary organizations were in reality quasi-nongovernmental agencies that
lacked political and legal opportunity for independent civic initiatives. Thus, in the 1950’s their
activities became heavily polarized, their primar y role was a political one and any provision of
services was merely secondary. This permitt ed the state to proclaim citizen involvement in
addressing public issues, but at the same time the state controlled their activities and the citizen’s

The extent to which organizations were allowed to operate depended on how secure the
government was in exercising its own power over the people. In Romania, for example, the
Ceausescu government banned even quasi-governm ental professional associations. On the
other hand, in Poland and Hungary self help networks and other circles of voluntary groupings
were allowed to exist. The renaissance of vol untary organizations after 1989 is in large measure
due to the deterioration of the Soviet welfare st ate and the collapse of economies from poorly
functioning monetary policies that made it impossible for this system to compete with free market

Thus, our review must take into consideration not only the past but also the political and
economic realities that exist today before we can examine the emerging role played by the non-
profit sector. The increasing role that no n-governmental organizations (“NGOs”) are assuming
creates a tension and challenge to the governments who still view them with suspicion and
uncertainty as to whether the tax benefits that they grant actually are used to promote public
benefit and democratic principles and not privat e enrichment. However, there is a growing
awareness of the vital role these organizations mu st play to stabilize the society in which they
function. The high profile support for non-gov ernmental organizations was exhibited when the
heads of state of Austria, Czech Republic, Germany, Poland, Hungary, Slovakia, Slovenia, Italy,
Bulgaria, Romania and the Ukraine gathered at Levoce Slovakia this past January to voice
support for the “Civil Society — the Hope for a United Europe.”

The design choice faced by these nations in reforming their NGO laws is whether to
exempt qualifying “taxpayers” or qualifying ty pes of income. The Basic World Tax Code
(“BWTC”) and reform statutes generally follow the design of exempting qualifying income, which
potentially results in the taxation of NGO income to a profits tax. The basic strategy is to exempt
the related income of the NGO and tax the comm ercial unrelated business income — similar to
the United States’ approach. The BWTC recognizes exemption of “public benefit” organizations,
i.e., organizations that are organized and operated for specific charitable community benefit, no
part of the assets or earnings of which is used to benefit private individuals. These organizations
receive some sort of direct government subsidy in the way of distributions from state budgets or
through charitable deductions and value added tax exemption. Mutual organizations operate for
the collective benefit of individuals and generally without any state subsidy. The third category of
NGOs includes government- sponsored organization s or instrumentalities that perform essential
governmental functions.

The BWTC requires that each entity must be treated as a separate juridical person,
register with the appropriate government authority, provide a process of appeal to the Courts in
the event of denial of tax exemption, provide a sy stem of administrative tax penalties for failure to
comply with the law on tax exemption, require ments for reporting to the tax officials through

annual reports and finally a system of taxation of unrelated business activity and recognition of
the deductibility of contributions for individuals and businesses. Some of the countries allow
commercial activities by their nonprofit sector but apply a “destination of income” approach that
does not tax profits if used for exempt purpose s. Others, like Lithuania, tax all commercial
activities of charities whether the profits are used for charitable purposes or not. Finally, some of
the countries tax commercial activities, but permit the income producing activities to be conducted
in taxable subsidiaries which then can receive a tax deduction for donations to the charity. Then
there are the value added taxes (“VAT”) which provided a whole series of other issues.

One of the most interesting areas concerne d the tax deductions of contributions by
corporate and individual donors. There was no uniform approach by the various countries in
either granting the tax benefit or the percentage dedu ction allowed. We will review this issue as
we examine each country.


“ The grand vision of the European Enlightenment was one of all humans as potentially
capable of full humanity, regardless of race or creed, even the wretched of the earth capable of
making their own decisions and sharing in the core of the common weal. Against the Hobbesian
vision of humans as intrinsically egotistic, having to be restrained in their greed by a sovereign, it
was the vision of humans capable of voluntarily subordinating their private ends to a common
good and the law of reason. The communists had long and stridently appealed to idealistic
motives. The reality we saw behind the façade was wholly different: the crass corruption in
business and the exploitation of women in the lo west-paid menial jobs. Over the years, all
idealism became suspect and we learned to trust only the crassest egotistic motives.”
iii[3] ***


Estonia has experienced broad economic growth since 1993. Bolstered by a strong
national desire to reintegrate into Western Euro pe, Estonia has adhered to a disciplined fiscal and
financial policy that has led the other former Soviet Union countries in pursuing economic reform.
Its economic engine has gained steam from a low 2% inflation rate and a gross domestic product
(“GDP”) growth of 3% beginning in 1995-96. Sm all and medium privatization is nearly complete
and large-scale privatization of state energy, te lephone and oil enterprises are on pace. Estonia
has reoriented its trade to the West, with two-thirds of its exports now sent to Western markets.
Free trade policies are the cornerstone of its po licies, which have gained the approval of the
European Union. However, lingering concerns re late to current account deficits, the slow
implementation of rules and regulations to facilitate the transfer of real property and the
privatization of housing and agriculture.

Estonians have a long history of democrati c ideals. NGOs are credited with the
establishment of organized society. From 1870 to 1917, they helped build a strong basis for
statehood. One of the first tasks of the Sovi et occupation powers in 1940 and 1944 was to
prohibit NGOs from existing. Strong cultural and religious influences developed over centuries
during German and Scandinavian colonization and settlement. Estonians are highly literate
(100% of the population age 15 and over can read and write) and they have a strong religious
culture (most Estonians belong to the Evangelical Lutheran Church with a sizable minority of
Russian Orthodox adherents). Approximately 5,000 to 8,000 NGOs exist in Estonia today. They
tend to be very small with a staff of 4-5 people.

The Estonian Constitution, adopted June 28, 1992, serves as the basis of the regulation
of the NGO sector.
iv[4] While it granted freedom of associat ion, it contained broad restrictions
enforced by the government. In 1994, the Law on General Principles of the Civil Code (LGPCC)
amended this law and guaranteed the right of associations to have their own regulations with
general norms established by the LGPCC. Separate laws for foundations and non-profit

associations were provided for with regulation under the Commercial Code. The Law on
Foundations and the Law on Non-profit Associations entered into force on October 1, 1996. Tax
matters are regulated through the tax laws.

There are four kinds of non-profit organizational structures:

h Non-profit associations — Voluntary associations of persons both physical
and legal.
h Foundations — No members, governed according to the articles of association.
h Non-profit partnerships — Agreements between two or more persons to
carry on a non-profit purpose. They are not registered and lack the status
of a legal personality.
h Public law non-profit organizations — Created by an act of parliament (i.e., Cultural Endowment of Estonia).

It should be noted that Estonian civil law does not distinguish between an NGO serving
public benefit interests from those NGOs that are mutual benefit organizations. The definition of
“public benefit” in general use in Europe is defined as those activities that are directed to the
betterment of society generally and commonly referred to as “charitable”. “Mutual organizations”
are those directed at improvement of their member s’ benefit as a class. However, the tax law
generally recognizes that only public benefit organizations are entitled to tax benefits. The law on
foundations and non-profit associations provides specific regulations for churches, religious
confessions, trade unions, apartment associations and political parties.

The not for profit associations and found ations have the following common features:
• The Constitution does not limit the purpose of any organization, except that it prohibits
those purposes that are direct ed at changing the constitutional order by force or that are
in conflict with criminal restrictions.
v[5] • The organization is created by the founding agr eement. Its purposes must be declared in
the agreement when founded. It must be founded by at least two persons.
vi[6] • Control and administration of NGO activities is under the jurisdiction of the interior
vii[7] • Registration is made at city departments and local courts.
• Registration requires:
• • Founding agreement
• • articles of association
• • bank statement of funds
• • names and addresses of board members viii [8] • The public is made aware of the existence of not for profit associations and foundations
through public disclosure of registry cards. An electronic central register is currently
being created.
• Rejection of registration can be appealed to a court of law.
• Compulsory management structures include management boards that control the
operations of not-for-profit associations. Supervisory boards plan the activities
and approve the actions of management boards.

• Not-for-profit organizations can engage in economic activities but must use any earned
income only for their NGO objectives.

• Dissolution — voluntary and involuntary. Pr ovides for payment of creditors, transfer of
remaining assets for NGO purposes or to the state for public purposes. No assets may
be distributed to the members of the asso ciation or the creator of the foundation.
ix[9] • No restrictions on making investments abroad.
• Special act on political parties.

• Tax exemption from income on membership fees and interest for all registered non-profit
associations and foundations.

• Only donations to associations and foundations and national public charities in the fields
of education, culture, science and environm ent, health, sports, welfare and religion listed
by the Ministry of Finance are deductible from tax. Businesses are permitted to deduct
10% of AGI but individuals cannot deduct c haritable contributions from their personal
income tax.

• UBIT — Unrelated business income can be engaged into up to the primary activity but
such income is taxable at the business rate.

• Copies of annual financial reports must be audited and approved by the general meeting
of the non-profit association and if a foundation by the superv isory board. A copy of the
approved report must is submitted to the registrar of non-profit organizations.

• Government funding for the non-profit sector through tax revenues.
• Compliance — There is no obvious trend to use not for profit organization as a tax dodger
or for personal political activiti es. The administrative issues are:

• Government foundations are governed by two compulsory boards.
• The Supervisory Board plans the programs of the foundation and organizes its
management. The Management Board supervis es the day-to-day activities of the

Nonprofit organizations in Estonia concentrate on educational and social benefit projects
including the reform of higher education and seco ndary curricula implementation of regional
preschool programs. Active Learning in Action are NGO funded programs that teach students
how to run businesses and compete in free market economies. Other programs support 300
schools and 450 teachers in producing innovative teacher training using modern computer and
telecommunications-based techniques. Internet programs provide distant learning opportunities,
hookups with libraries, educational institutions, and hospitals. A major concern for the
government and for the NGO community is the int egration of ethnic Russians and other minorities
into the social, political and economic life of the country.

Estonia law is one of the most comprehens ive in the Central European region. It has
developed a traditional civil law structure for it s nonprofit organizations. It has permitted related
business activities by its foundations. However, its annual registration procedure, its narrow list
of organizations that receive deductible busin ess contributions and the nondeductibility of
individual charitable contributions will limit the growth of the sector. New legislation under
discussion will alleviate these problems.


Hungary was the first Central European country to make the transition to democracy
under the controlled Soviet system. On the fall of the Soviet domination in 1989, Hungarian
transition continued rapidly until 1994 when the priv atization of state firms ground to a halt.
Budget and current account deficits were at an unhealthy 8-10% of GDP. A renewed privatization
effort began in 1994-96. In 1996, unemployment was reduced at 11% and inflation to 20%.
Hungary had a 3% GDP growth in 1997 and projected growth of 5% in 1998. The restructuring of
pension benefits, health care, taxation and higher education has produced a decreasing role of
government. These developments resulted from a shift away from a state managed economic
policy that secured international monetary s upport from a standby agreement. The OECD and
NATO have now welcomed Hungary as a partner.

Hungary is a civil law country based on the common law tradition that guarantees the
right of association, opinion and religion in whic h people are free to form voluntary organizations
for any purpose that does not c ontradict fundamental human rights or seek the overthrow of the

constitutional order by force. x[10] In 1987, the Civil Code guaranteed associations broad
freedoms. The preamble to the Code reflected the strong government support of NGOs when it
stated that “voluntary associatio ns provide the basis for self-organization of society and their
presence is necessary to a healthy development and functioning of any community at the local or
national level.” Foundations also received gover nment approval for “the role they are expected to
play in the deregulation of the Hungarian economy.” This law was amended in 1993 to permit the
creation of Public Benefit Companies, Public Chambers, and Public Foundations. In 1997,
Hungary adopted Act CLVI that allowed five types of organizations to register as Public Benefit
Organizations under certain conditions.
xi[11] If they met these conditions, they received
preferential tax treatment. The fi ve types of organizations are:

h Voluntary associations — organized by at least ten natural persons, they
include societies, clubs, self-help groups, federations, unions, chambers
of commerce, trade unions, mass organizations and social organizations.
They cannot be formed for the primary purpose of economic activity or
any criminal, military or unlawful purposes.

h Foundations — Foundations are established under a “letter of establishment” by
either natural or legal person or business partnerships for public interest
purposes. They must have endowments and be operated by an organizational
trustee. Founders have only limited power over the foundation. Foundations can
be either grant making or operating foundations. Foundations are generally
classified as:

h supporting foundations—which conduct fundraising for public institutions
h fundraising for specific projects
h grant making
h corporate foundations

Foundations must pass a public benefit test before the Court grants registration.
They must demonstrate to the Court 1) a durable public purpose; 2) a founding
statute; and 3) an endowment large eno ugh to pursue their goals. Foundations
must also have governance procedur es and rules for their operations.

h Public Benefit Company — These organizations were primarily
established to facilitate the privatization of government public services
through an established not for profit organization. They are regulated
under the limited liability company rules for businesses. This type of legal
form applies to nonprofit service providers that cannot meet the
requirements of a foundation or association.

h Public Chamber Body — Created by the parliament which delegates
specific activities and public responsibilities to facilitate formerly state run
functions through:

h Public Law Association (Academy of Sciences, Chamber of
Commerce, Associations of Doctors, Lawyers and Accountants).
Because of its quasi-governmental nature, the government has
broad authority over the association.
h Public Law Foundation (Assumed activities from the government in the field of education, health care, and public safety). These entities are
financially accountable to the State Comptroller’s office.

The following factors are inherent features of the laws as they apply to the respective
• • Registration – Must be registered with the national or local
governments. If not registered, the organization can’t engage in the
ownership of property and other transactions, including entering into
contracts or receiving direct or indirect state support.
• • Voluntary Associations – Must have a set of articles describing
activities, purposes, charitable and business activities, and a
statement that it is not engaging in political activity or that it
distributes profits.
• • Must have a statutory meeting place where articles of
association and minutes are kept.
• • Court cannot refuse registration or order liquidation unless the
association’s activities are unlawful or infringe on personal rights or
• • Dissolution – Distribution must be made to an association with
similar purposes or to the State for public purposes.
• • Foundations
• • Public purpose.
• • Founding document is a Letter of Establishment.
• • Must have an endowment to support goals.
• • Individual names a trustee or the court will select the
• • Founder may reclaim assets he or she has donated. If
Letter of Establishment does not specify, court will transfer
assets to a similar foundation.
xii [12] • • Tax Treatment
• • Voluntary Associations
• • Exemption from corporate income tax for
scientific, technical, research, cultural, environmental,
sports, health care, and social help for youth and
• • Income from unrelated businesses limited to 10% of
gross income or to $10 million Hungarian forints.
xiii [13] • • Donations generally are not tax deductible unless
specifically held so by the ta x authority on a case by case
basis. Membership fees are not tax deductible. A new “one
percent legislation” permit s individual taxpayers to
designate a registered public benefit organization to receive
1% of their income tax payment.
• • Foundations
• • Tax exemption of corporate income is the
same as for associations with a limitation on
unrelated business income of 10% and a cap of $10
million Hungarian forints.
• • Individuals may contribute and deduct up to
30% of their personal tax liability if the recipient is
engaged in the fields of culture, education, research,
social care, preventive medicine, sports, public
benefit human rights, assistance to the poor aged,
refugees and Hungarian minorities in foreign

countries. xiv [14] Donors may not receive any direct
or indirect compensation for the contribution.
• • Corporate donors can deduct up to 10% of
taxable income.
• • Public Foundations – Limits on individual donor deductions are
subject to the same limits as apply to private foundations.
Corporations can deduct the full amount of contributions to culture,
education, social care, health care, religion, environment, sports, and
care of children or youth.
• • Contributions to Hungarian organizations operating
outside of Hungary for purposes deregulated for domestic
organizations operating in Hungary are similarly deductible.
• • Political Activities – No restrictions unless it is a public benefit
organization and then the organization must state that it is not
engaged in political activities.

Private Benefit and Financial Reporting. The laws provide for conflict of interest rules
that require founders to act in an independent and fiduciary manner toward foundation activities
and its endowment. While there is a requirement for preparing financial accounts, there is no
requirement to submit the audited financial statement to the government authorities or make them
available to the public.

By far the largest foundation condu cting activity in Hungary is the Soros Foundation
Hungary , expending in excess of $20 million a year, the foundation supported programs to help
restructure higher education. In this regard t he World Bank has granted $60 million to restructure
the university system in Hungary. The Foundati on has also supported the reform of conventional
teaching structures and programs for teaching democracy. The Fund for Hungarian Higher
Education has been formed to assist Hungarian Universities in the restructuring through the
pooling of funds and activities that strive to bu ild the infrastructure and staffing of a modern
university. The arts and culture in Hungary is in large part supported by NGOs. Efforts have also
been taken to modernize the Hungarian health care system by improving care and services. The
Business Basics Foundation and the Know How Fund of the British government provide
business advice to small and medium-sized business es in Hungary. Possibly the most ambitious
program has been the Central European University . George Soros created this new university
at a cost of $60 million as a m odern educational institution drawing st udents from Central and
Eastern Europe. The university provides t he students a modern curriculum with advanced
computer and distance learning capabilities to prepare students to face the new free market


Hungary continues to make great progress toward the creation of a viable nonprofit
sector. Areas of concern are the concentration of NGO resource s in Budapest and the
sustainability of NGOs in the regi ons if foreign donors withdraw. The question of transparency of
governmental funding of NGOs under the “1%” l egislation needs further clarification. The
restrictive list of public benefit activities provid ed by the Hungarian statutes has created problems
for foundations. One solution might be to give flexibility by granting governmental officials with
the authority to decide what are public benefit activities. Missing from the current list of public
benefit activities are services to the unemplo yed, neighborhood development, and promotion of
entrepreneurship. Government contracting with NGOs raises potential issues of personal
inurement because of political activities and ethical issues regarding salaries and compensation
of Board members. Another weakness is the lack of reporting by NGOs, the overall effectiveness
of their management and their skill in public relations.


Latvians consider themselves “Nordics” because of the strong cultural and religious
influences of German and Scandinavian colonization and settlement. Historically Latvia has also
been strongly influenced culturally and politically by Poland and Russia. A highly literate society,
Latvians place strong emphasis on education and re ligion. Because of the Soviet “Russification
policies” — transfer of a large Russian populati on into Latvia — during the period 1939-89, the
percentage of ethnic Latvians dropp ed from 73% to 52% (33.8% Russian) which, in turn, has
generated a strict draft law on requiring t he speaking of the Latvian language and Latvian
citizenship requirements. Under the Soviet occupation following the Second World War until
1989, Latvia’s industry was integrat ed to serve Soviet internal industrial needs. The centrally
planned economic system was replaced by a system of free market principles. Today over 66%
of those employed and 60% of GDP is found in t he private sector. Over 58,000 private farms
have been established and most cooperatives have b een transformed into joint stock companies.
Riga, the capital, is emerging as a regional financial and commercial center. On the other hand,
privatization of food processing and large indust rial enterprises has been slow. As a result,
foreign investment is below the level of other countries of North-Central Europe.

The legal environment for NGOs in Latvia is complicated by the fact that under present law
neither foundations nor associations can own pr operty and engaging in economic activity is highly
restricted. Two legal forms of nonprofit organiza tions exist under Latvian law — associations and
foundations. The Ministry of Culture is working on a “sponsorship law” for charitable contributions
to listed public associations. Under this law, eighty five percent (85%) of the donations are
deductible from the taxable income of companies up to 10% of their total income.

The law on Public Organizations and their associations enacted in 1992 provides the

• • An organization is required to be founded by either 10 or more
natural persons by mutual association or by a legal entity that has
received approval at congress or convention.
• • An association of public organizations shall be founded by two
or more public organizations by mutual association.
• • Branches of public associations of foreign organizations may be
opened in Latvia if their purposes are consistent with the Constitution.
• • The law excludes broad categories of income from the taxable
xv [15] • • A charter must contain the pu rpose, name, decision-making
procedures, admission requirements and rights of members, procedures for
acquiring and expending financial resource s and a provision for the liquidation of
xvi [16] • • Registration is made at the Ministry of Justice. If registration is denied,
an appeal may be made to the court.
xvii [17] • • Public organizations can acquire property and conduct business.
• • Financial resources may come from membership fees, donations, and
income from businesses.
xviii [18] • • Organizations must submit a report of income and expenditures
to the State Revenue Service. Any member of the public organization
and the mass media has a right to see the report.
• • Voluntary dissolution. Assets may be distributed to similar
• • Involuntary dissolution. Court may terminate the operation and
distribute its proceeds.
• • Political organizations can qualify under the law.

• • Professional associations can also qualify.
• • Organizations of creative professions qualify.
• • Sports organizations, societies and universities also qualify.

The law on charitable foundations is in draft form. It provides:

• • Foundation may be founded by one or several founders. It may
be funded by investment of its founder and third parties.
• • Foundation has no right to engage in unrelated economic
• • Charter must contain the name, legal address, purpose, names
and addresses of founders and the procedures for the management of
the organization and provision for liquidation.
• • Foundation has a council of 3 members to review operations
and a Board with an auditor to conduct its activities.
• • Disclosure of the organization’s founding decision, charter, annual
report, audit report and board’s operational report must be made available to the
• • Financial Reporting – Annual financial statements approved by
the Board are filed with the Enterprise Register within a fixed number of
days following the close of the accounting period.
• • Special rules have been developed that preclude self-dealing between
related persons.
xix [19]

Because of the lack of core funding for non-government organizations, NGOs are being
funded by foreign organizations. Some Latvian organizations have not been funded by grants
and membership fees but have begun to charge fees for their services. Government ministries
are giving grants to accomplish governmental purposes such as the Student Initiative Fund.
Other NGOs have entered the area of tenant rights, rights of disabled and consumer protection.
A pilot program for core funding from matching funds and fundraising has been established.
Minority and human rights activist organizations have held conferences on the development of
the civil society and the role of publications . Education plays a significant role as “Step By Step”
programs are developed for individualized training in pilot schools that provide modern teaching
methods in computers and the internet.


Latvia needs to develop a less complicated process for registration and to enact a law on
private foundations and organization s that own assets. Current law restricts economic activities
so that avenues of potential support are closed to sources of income generating activity. The
government has changes in the registration and r eporting laws currently under consideration.