NGOs and the Law

Country Reports: Central and Eastern Europe

The International Journal
of Not-for-Profit Law

Volume 3, Issue 3, March 2001


Survey of Tax Laws Affecting NGOs in Central and Eastern Europe

ICNL soon hopes to make available its Survey of Tax Laws Affecting NGOs in Central and Eastern Europe. The survey examines current tax laws governing non-governmental organizations (“NGOs”) in fourteen countries in Central and Eastern Europe.  The fourteen countries are: Albania, Bosnia & Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Macedonia, Poland, Romania, Slovakia, and Yugoslavia.  The paper is based on responses to a survey questionnaire regarding tax laws and regulations pertaining to NGOs provided by experienced attorneys in each of the subject countries. The survey questionnaire asks for information about the laws on income or profits taxes for NGOs; exemptions from such taxes available to NGOs; the treatment of income from business and investment activities; the application of, and exemption from, other taxes, such as real estate, gift and inheritance, and value-added taxes; and the availability of tax credits or deductions to individuals and businesses that donate to NGOs. Relevant provisions of the laws of the fourteen countries are summarized in charts appended to the survey.

The survey has two purposes. The first is informational; the survey compiles information regarding the tax laws applicable to NGOs as they currently exist. The second is analytical. The paper seeks to identify those areas in which reform of the tax laws in the region would help to bring those laws into conformity with international good practice, thereby improving the enabling environment for NGOs and enhancing their ability to sustain themselves financially.

The survey reveals that most countries in the region have made some progress towards modernizing their tax laws and creating a fiscal enabling environment for NGOs. Most of the countries, for example, have laws granting tax exemptions to certain NGOs for at least some sources of income. In addition, most have extended tax benefits, usually deductions, to individuals and businesses that donate to certain types of NGOs.

Moreover, several countries have developed innovative practices that can serve as models for the rest of the region, as well as for countries outside of Central and Eastern Europe.

There are a number of areas, however, in which reform of the existing tax laws in the region is necessary in order to ensure the continuing financial sustainability of NGOs. The survey first discusses the tax laws affecting NGOs in the countries of the region. It then analyzes those areas in which reform is most necessary if these countries are to provide a strong fiscal enabling environment for the NGO sector.


The Albanian Parliament enacted a package of new NGO laws on May 3 and 7, 2001. The package consists of the Law on Nonprofit Organizations, the Law on the Registration of Nonprofit Organizations, and accompanying Civil Code amendments. These laws represent the culmination of a four-year effort by NGO leaders and government officials to create a more appropriate legal framework for NGOs in Albania.

There was extensive public participation in the law-drafting process. An NGO-government drafting group worked on the laws, the government published the drafts in leading newspapers, and the government held its first-ever public hearing on the NGO law.

The legislative package contains a number of significant provisions, including the following:

  • It defines organizational forms. Under prior legislation, definitions were unclear, which enabled pyramid schemes to register as foundations
  • It enables all natural and legal persons, including foreigners, to found an NGO.
  • It recognizes the right of individuals to establish informal, unregistered associations.
  • It provides a procedure for international and foreign organizations to obtain legal entity status in Albania.
  • It provides broad discretion to founders to structure the internal governance of organizations, while promoting appropriate internal governance practices (e.g., rules governing conflicts of interest, self-dealing, and dispute resolution).
  • It enables organizations to engage in economic activities, which are essential for the financial sustainability of the Albanian NGO sector.
  • It explicitly recognizes the right of Albanian NGOs to receive grants and donations from any private or public person, Albanian or foreign.
  • It lays the groundwork for public financing of NGOs.
  • It rescinds the provision of existing law giving the state undefined, broad powers to supervise NGO activities.
  • It limits state powers to terminate involuntarily an NGO.

IJNL hopes to carry a more substantive article on these legislative developments in an upcoming issue.


On 11 July 2000 the Seimas (Parliament) adopted two laws, Law VIII-1811 and Law VIII-1812, amending respectively the Law on Charity and Sponsorship and the Law on Profit Tax of Legal Entities. Both laws are effective from 1 January 2001. As revised, the law recognizes 8 classes of charity beneficiaries:

  • disabled people;
  • sick people;
  • orphans;
  • unemployed pensioners with no income other than pensions and state benefits;
  • other unemployed people;
  • individuals with the status of victims under Lithuanian law;
  • families in need; and
  • recognised victims of war, natural disasters, fire and infectious diseases.

The law also lists 8 categories of permitted beneficiaries of sponsorship:

  • charitable and sponsorship funds;
  • budgetary institutions;
  • associations;
  • public organizations;
  • public institutions;
  • religious communities;
  • branches of international public organizations; and
  • other nonprofit legal entities whose activities are governed by special laws.

The revised profits tax law provides that legal entities providing charity and sponsorship in accordance with the Law on Charity and Sponsorship can deduct the expenses incurred up to a limit of 40% of gross taxable profit. Where the support is given in kind, the deductible amount is generally equal to the cost of the goods or services provided. In the case of tangible assets with a long life, the deductible amount of a gift of such an asset is limited to the residual value of the asset; if the asset is merely lent to the beneficiary for a limited period, the deductible amount is equal to the amount of depreciation of the asset applicable during the period of use.