Charitable and Private Foundations in Ukraine
By Alexander Vinnikov 1
Unlike many countries, Ukraine has no special law on foundations. Indeed, before adoption of the Law
on Charities in 1997, Ukraine had no foundations whatsoever: all Ukrainian nonprofits operated as
associations, with three or more founders, and for the mu tual benefit of their membership. Today,
foundations do exist in two forms: charitable foundations, established under the Law on Charities, and
private foundations, established under the Civil Code. This article will provide an overview of the laws
governi ng foundations and take note of some of their problems and inconsistencies.
Both charitable and private foundations can be created by a sole corporate or individual founder. The
provisions of the Civil Code governing institutions apply to private foundatio ns. The same provisions
apply to charitable foundations (paragraph 4 of article 83 of the Civil Code), though in the event of
conflict between the Civil Code and the Law on Charities, the latter applies to charitable foundations.
The Law on Charities also regulates associations for certain purposes.
The Omnibus Law on Registration of Legal Entities, effective since July 2004, sets forth the procedures
for registering foundations. Whereas private foundations are subject to the same pr ocedure as
business corporations, charitable ones become legal entities after getting the registration certificates
as provided in the Omnibus Law. Article 3 of that law states that special provisions for registering
charities (and some other nonprofits) c an be found in the applicable law, i.e. the Law on Charities. The
result is that charitable foundations are subject to double registration: by the Ministry of Justice,
under the Law on Charities and CMU Decree # 382/98; and then by the public registrar und er the
Omnibus Law. This section will address the provisions applicable to all foundations first, and then the
additional provisions applicable to charitable foundations.
Article 24 of the Omnibus Law on Registration requires the founder(s) or their author ized
representatives to submit the following to the public registrar:
1. a formal application for registration;
2. a notarized copy of the decision to set up the foundation;
3. two notarized copies of the founding act; and
4. the ori ginal receipt for the registration fee.
If the papers are submitted properly, the public registrar in a district or a town shall check whether
there are legal reasons for refusing to register the entity. Such reasons are listed in article 27 of the
Omnibus Law; the most important one is breaching the law. The denial of registration may be
challenged in the administrative court of the local jurisdiction.
The founding act shall be made, signed, and approved in writing by all the founder(s) of the entity,
unle ss another procedure for approval of the founding act is provided for by the applicable law (par. 1,
article 87 of the Civil Code). No oral agreements or obligations of the founder(s) are effective in
Ukraine, unlike many European Union members. Founder(s) also may cancel the founding act until
registration is completed. Under article 88 of the Civil Code, the founding act must specify the
foundation’s goal, the assets to be transferred to it as necessary for achieving its goal, and the
governance structure . If the founding act in the will lacks some of the required provisions, the public
registrar has the authority to add them. The goal or the structure of governance in foundations can be
amended only by approval of the competent court, as provided by artic le 103 of the Civil Code.
Article 90 of the Civil Code requires that the name of a foundation specify the scope of its activities.
Should the foundation change its name, it must announce the change in printed media authorized to
publish registration inform ation and notify all its contractual counterparts.
To reiterate, all types of foundations must follow the forgoing procedure. In addition, charitable
foundations are subject to an additional registration procedure, which they must complete first. We
turn n ow to that.
Under article 8 of the Law on Charities, the Ministry of Justice or its local agency considers the
foundation’s application. A charitable foundation’s founder(s) or authorized representatives must
submit the following:
1. an application for regist ration (a form approved by Ministry of Justice and not compatible
with application form under the Omnibus Law);
2. the minutes of the founders’ meeting or the notarized decision by the founder;
3. two notarized copies of the founding act;
4. personal data on the fo under and the members of the governance bodies;
5. the data on local branches of the charitable foundations (plus their minutes) and/or
representatives in other jurisdictions; and
6. the original receipt for the registration fee.
The authority must grant a registration certificate before the organization can register with a public
The most problematic implications for charitable foundations arise from outdated regulations
concerning the territorial status of a charitable foundation. Article 7 of the Law on Charities stipulates
that charities shall have local, national (“pan -Ukrainian”), or international status. The applicable
regulations restrict setting up offices and branches outside of the foundation’s residence jurisd iction,
because a charitable foundation seeking national or international status must have representatives or
branches in 14 or more Ukrainian oblasts.
Another serious drawback for charitable foundations is that the registration procedure takes two
months, whereas registering a private foundation takes just three working days.
Registration fees are a small disparity favoring charitable foundations: 17 Ukrainian hryvnias (UAH) or
$3.50 to register a local charity; 34 UAH ($7) for a national one, and 51 UAH ( $10) for a charity of
international status. By contrast, the uniform fee is currently 170 UAH ($35) for registering any legal
entity, including a private foundation, by the public registrar – and a charitable foundation registered
previously by the Ministr y of Justice is exempt from paying this fee. In sum, a charitable foundation
can register for between 17 and 51 UAH, whereas a private foundation must pay 170 UAH to register.
Any foundation, whether private or charitable, must have a board and a supervisory committee
appointed by the founder under article 99 of the Civil Code or articles 5 and 17 of the Law on
Charities, respectively. Any decisions by the board require approval by a majority vote of the
attending members, unless otherwise provid ed for by the founding act. Any decisions on amending the
founding act, disposing of 50% or more the foundation’s property, or liquidating the foundation
require a supermajority vote: three -fourths of the board members in attendance (articles 98 and 99 of
the Civil Code).
Paragraph 3, article 92 of the Civil Code imposes liabilities on the members of governance bodies of
any legal entity. They must act in the best interests of the entity, in a prudent and reasonable
manner, and without exceeding their statu tory powers. Limitations on acting on behalf of the entity
are null and void as for the third parties, unless the third party was to be aware of such limitations. All
provisions on conflict of interest, except transactions with affiliated persons, must be specified in the
founding act or bylaws of a foundation.
The Civil Code imposes more severe liabilities on board members. They can be dismissed at any time,
unless the founding act specifies otherwise (paragraph 3, article 99 of the Civil Code). Any decisi ons
by the general meeting and/or the board may be claimed by the founder(s) or members at court
(paragraph 5, article 98 of the Civil Code).
Minimum capital and investments
Ukrainian law does not require the founder(s) to transfer any minimum capital or s pecific types of
assets, in cash or in kind, to establish a charitable or private foundation. However, the founding act
should specify some assets assigned for statutory purposes. Under article 102 of the Civil Code, the
actual transfer should be done afte r registration is completed. Article 96 of the Civil Code indicates
that the founder(s) shall not bear any other liabilities for the obligations of the foundation and vice –
versa, except ones made before registration is completed.
Charitable foundations may not take loans or pledge their assets, under article 19 of the Law on
Charities. Further, maintenance costs (rent, salaries, etc.) must not exceed 20% of the total income of
a charitable foundation within a fiscal year (article 20 of the Law on Charities) . Private foundations are
not subject to such a restriction.
Investments in business companies (except banks and some other financial institutions) are allowed
for all types of Ukrainian nonprofits. Ukrainian law does not provide any regulations on investm ents
The Civil Code provides that foundations and non -business corporations must not pursue profits and
redistribute them among founder(s) and members. Under the Law on Charities, further, charitable
foundations must spend all income from their corpor ate activities on either programmatic activities or
on reinvestments (article 22).
Charitable foundations enjoy substantially more generous tax exemptions than private foundations,
though the deductibility for donors is the same for both types of foundation.
Pertinent rules are set forth in paragraph 7.11 of the Law on Corporate Income Tax, # 334/94, and
the National Tax Administration Decree on the Registration of Tax -Exempt Organizations, # 355/00.
All registered charitable foundations can get ta x-exempt code 0005; private ones are eligible for code
Paragraph 7.11.3 of the Law on Corporate Income Tax exempts charitable foundations from paying
tax on the following:
1. non -assigned and/or assigned donations from any residents of Ukraine (includin g
proceeds from fundraising events, such as auctions, charitable concerts, or festivals,
under article 19 of the Law on Charities);
2. investment income (interest, dividends, royalties, and insurance premiums);
3. subsidies from the national and local budgets, a nd public development funds;
4. income from related business activities; and
5. non -assigned and/or assigned donations from any nonresidents, including humanitarian
and technical assistance under the international treaties and the laws of Ukraine.
Charitable foundations also enjoy another significant exemption, from Value Added Tax (its flat rate is
20% in Ukraine). Thus, donations in kind assigned for beneficiaries or for other charitable, non –
business activities are exempt in full (paragraphs 3.2. 5 and 5.1.21 of the Law on Value Added Tax, #
Private foundations, under paragraph 7.11.5 of the Law on Corporate Income Tax, are not exempt
from paying taxes on non -assigned donations from residents of Ukraine. Legally, a private foundation
is no t entitled to any VAT -exempt donations of in kind and/or humanitarian assistance. In addition,
private foundations are the only type of nonprofits subject to taxation of retained income (paragraph
7.11.9 of the law on Law on Corporate Income Tax).
As for d eductibility, since April 2005, donations to both charitable and private foundations are
deductible for corporate donors, if they amount to 2 -5% of the company’s taxable income (profit)
declared in the previous fiscal year (paragraph 5.2.2 of the Law on Co rporate Income Tax). Similar
deductions are provided for individual donors: their tax credit may amount to 2 -5% of their year
taxable income, if donated to any nonprofit registered in Ukraine (paragraphs 5.3.2 – 5.3.4 of the Law
on Individual Income Tax # 889/03).
The rules here are the same for both types of foundation. The court may make a legal resolution on
liquidating a foundation as provided for by article 38 of the Omnibus Law. The legal grounds for
liquidation by the court are as follows :
1. breaching in certain respects the law for setting up the foundation;
2. systematic activities prohibited by the law and/or the founding act;
3. failure to submit tax and financial reports pursuant with the applicable law over a year;
4. filing a notice on the absence of the foundation at its registered office into the Uniform
A special law on foundations is not a top priority in Ukraine, with the new Civil Code is in effect.
However, the Law on Charities needs a number of amendments to comp ort with the Civil Code and the
Omnibus Law on Registration of Legal Entities.
1 Alexander Vinnikov is Legal Advisor, UCAN -ISC Project, Kyiv, Ukraine.