Legal Mechanisms to Encourage Development Partnerships

Country Reports: Central and Eastern Europe

The International Journal
of Not-for-Profit Law

Volume 1, Issue 1, September 1998

Region; Albania; Bosnia-Herzegovina; Bulgaria; Croatia; Estonia; Hungary; Latvia; Lithuania; Macedonia; Poland; Romania; Slovakia; Yugoslavia


1. General Information about ICNL Programs

On May 1, 1998, USAID awarded ICNL a new three year Cooperative Agreement to continue NGO law reform activities in fourteen countries in Central and Eastern Europe (CEE). Similar to our four-year project that ended on April 30, ICNL’s work under this new Agreement will focus on five specific areas: (1) technical assistance for writing laws and regulations affecting NGOs, (2) promoting appropriate implementation of NGO laws, (3) developing in-country capacity on NGO legal issues, (4) promoting NGO self-regulation, and (5) fostering cross-border linkages. ICNL will also undertake special initiatives (for example, analyzing the legal framework for NGO-government partnerships) and will publish materials on topics of regional significance.

During the next three years, we plan to transform our branch office in Budapest into an indigenous and sustainable regional center on not-for-profit law. This center will serve as a clearinghouse for information, a focal point for regional initiatives, and a provider of technical assistance. ICNL-Washington will provide the center with back-up support and a full library of materials, including materials and NGO laws from more than 100 countries. We welcome your comments and suggestions as we move forward this project.

2. Announcement

The International Center for Not-for-Profit Law is pleased to announce that Dr. Dragan Golubovic joined our Budapest regional office as a Senior Legal Advisor on September 1, 1998. Dr. Golubovic holds a law degree from the University of Novi Sad in Yugoslavia, as well as an S.J.D. summa cum laude and an LL.M. from Central European University in Budapest. Dr. Golubovic previously served as the Executive Director for Central European University’s Human Rights Program. Prior to that, he taught International Business Law for ten years at the University of Novi Sad School of Law. He is also President of the Managing Board of the Center for Multiculturalism in Novi Sad. We welcome Dr. Golubovic’s arrival and know he will be a very valuable addition to our Central and East European legal team.

3. Tax Legislation

For information on a new initiative to reform tax legislation for NGOs inaugurated by the Europhil Trust and the International Bureau of Fiscal Documentation, see the Regional Report for Western Europe.

For a complete listing of Documents ICNL has in its documentation center on the CEE Region, Click Here!



Framework Legislation

There has been significant progress on NGO legislation in Albania. In June 1998, an interministerial government/NGO working group produced an extremely progressive draft Law on Associations and Foundations. The working group held two public hearings on the law in July and published the draft in three leading newspapers—the first time this has happened in Albania. In addition, the draft has been distributed to the ministries for comments and almost all of the ministries approved of the draft. It is expected that the final version of the draft law will be presented to the Parliament this autumn. The situation in the country, however, is in flux. There have been terrorist threats against the US Embassy in Tirana, and Americans have been evacuated from the country. In addition, politicians are concerned that terrorists and smugglers have entered the country as NGO workers, so some have called for a special law to “control” NGOs.

For a complete listing of Documents ICNL has in its documentation center on Albania, Click Here!



Framework Legislation

The Legal Task Force (LTF) of the LEA/LINK Project finished the second draft of the Law on Associations and Foundations in early August. The government liaison strategy will be developed after the October elections. Complicating the situation, the Federation recently enacted a new Law on Foundations and Endowments, and a new Law on Humanitarian Activities and Humanitarian Organizations. In the Republika Srpska, the Ministry of Culture and Sports prepared a draft Law on Associations and Foundations in July. We understand that the Ministry of Justice is reviewing this draft.

For a complete listing of Documents ICNL has in its documentation center on Bosnia-Herzegovina, Click Here!



Framework Legislation

The latest development in NGO legislation includes a new draft Law on Non-Profit Organizations, completed in June. The draft was written by a drafting group comprised of members of the Ministry of Justice, NGO representatives and government officials. The Minister of Justice has appointed a new working group to amend the draft before it is presented to the Council of Ministers in the fall. The government intends to include an NGO draft law on its fall parliamentary calendar. Once the draft law is presented, NGO leaders have planned an extensive grass-roots campaign to encourage members of Parliament to support the legislation.

For a complete listing of Documents ICNL has in its documentation center on Bulgaria, Click Here!



1. Framework Legislation

The primary NGO laws in Croatia are the 1995 Law on Foundations and Funds and the July 1997 Law on Associations. There is also a 1992 law regulating humanitarian aid and a law permitting the establishment of nonprofit “corporations” established as private or governmental initiatives for public benefit purposes, which require ministerial approval and follow registration procedures similar to for-profit companies. Political parties, religious entities and trade unions are regulated under separate laws.

The Law on Associations, which has been often criticized by domestic NGOs and the international community, regulates the creation, structure, legal position, and termination of associations. The 1995 Law on Foundations and Funds regulates foundations, although not many exist. Foundations are registered with the Ministry of Culture and Education.

A draft Law on Public Assembly and Peaceful Protest, previously withdrawn following international criticism, has been re-introduced to the Parliament. This law may have an adverse impact on the ability of NGOs and others to publicly protest government positions or activities. There is also a law regulating humanitarian organizations pending with Parliament that would restrict both those organizations giving humanitarian assistance and the potential beneficiaries of such assistance.

2. Tax Legislation

A VAT law came into effect on January 1, 1998, without any exemptions or reduced rates for NGOs. Only artistic or cultural associations may receive tax deductible contributions. However, NGOs remain generally exempt from taxation on revenues derived from donations and grants.

For a complete listing of Documents ICNL has in its documentation center on Croatia, Click Here!



Framework Legislation

There have been recent changes in the tax treatment of associations and foundations. Specifically, individuals under the Income Tax Law, as amended in March 1998, are entitled to make tax-deductible contributions to public benefit NGOs. However, NGOs must pay 26% income tax on all economic activities. Draft legislation has been prepared that will address this problem. Support for the enactment of this legislation is being organized by the NGO sector.

For a complete listing of Documents ICNL has in its documentation center on Estonia, Click Here!



1. Framework Legislation

Hungary’s legal framework for non-governmental organizations is perhaps the most progressive of the region. The types of organizations are regulated by the Civil Code (Act IV of 1959) and by Act II of 1989 on the Right of Association. NGO registration as well as accounting procedures are set forth in five separate governmental decrees.

The recently adopted Act CLVI of 1997 on Public Benefit Organizations has created a new legal status for organizations pursuing public benefit activities. Within this new status, the Act established a separate category for organizations undertaking state responsibilities. Greater reporting burdens are imposed on public benefit organizations, but greater benefits are also conferred upon them in return. An article on this new law, “Public Benefit Applied: The Hungarian Solution,” by Daniel Csanady with assitance from ICNL, is published in Social Economy and Law (SEAL), Summer 1998, Volume 1, No.1 (pages 12-13).

2. Tax Legislation

The taxation system is favorable to the NGO sector. Private individuals are entitled to designate 1% of their personal income tax liability to certain public benefit organizations, as well as an additional 1% to religious organizations. This provision is unique in the region. A paper describing the “1% Law” can be found on ICNL’s web site.

For a complete listing of Documents ICNL has in its documentation center on Hungary, Click Here!



Framework Legislation

A Parliamentary working group, with NGO support, is preparing amendments to the Law on Public Organizations and their Associations and is drafting a new Law on Foundations. The Law on Public Organizations and their Associations may be revised in time for enactment before the October elections. A government working group, with NGO support, is preparing a new Law on Charities and Sponsorship.

For a complete listing of Documents ICNL has in its documentation center on Latvia, Click Here!



Framework Legislation

After withdrawing earlier draft amendments to the Law on Charities and Sponsorship, a government working group has prepared new amendments, and hopes that these will be presented to Parliament in mid-fall. Parliament is planning hearings on the amendments, and the NGO sector expects to be well-represented at those hearings.

For a complete listing of Documents ICNL has in its documentation center on Lithuania, Click Here!



Framework Legislation

In June, a new Law on Associations and Foundations was enacted. NGO representatives, government officials, academics, interested citizens, and international experts worked together on drafting this law. The drafters circulated the proposed law to almost all active NGOs in the country, organized roundtable discussions, and embarked on a media campaign to publicize the legislative initiative. Government officials noted that the level of public participation in this process was a model of “democratic law making.” The next legislative priority for Macedonia is to improve the tax framework for NGOs.

For a complete listing of Documents ICNL has in its documentation center on Macedonia, Click Here!



Framework Legislation

Poland’s new Constitution guarantees the freedom of association. Since the mid-1980s the Polish law has provided for two legal forms for NGOs — associations (membership organizations) and foundations (non-membership organizations). Both the Law on Foundations and the Law on Associations have undergone significant revision since 1989. The current NGO legal framework in Poland is somewhat complex and confusing yet functional. NGOs can generally be formed without undue delay or expense, and, once formed, can operate quite freely, engaging in advocacy as well as traditional social service provision. Significant tax advantages are provided to both associations and foundations.

Substantial obstacles do exist for foundations, however, with respect to using economic activities to achieve their statutory purposes and in partnering with local government. Associations also face difficulties in working with local governments, for they appear to be subject to the complex procurement procedures designed for for-profit companies. These problems result from defects in existing legislation and restrictive interpretations of the laws by the courts.

This fall the Polish parliament — the Sejm — will consider a “Public Benefit Activities” bill, which is intended to solve these and other problems. This bill was drafted by three legal experts after extensive consultation with the NGO sector and with support from the PHARE Program’s Umbrella Project.

The draft law sets out 13 kinds of public benefit activities: supporting children, assistance to the needy, health, rehabilitation of the handicapped, culture, education, physical education, human rights and self-government, environment, development of small and medium sized enterprises, counteracting unemployment, relief from natural disaster, and research and development related to any of the above.

Public benefit activities can be conducted by associations, foundations, or nonprofit companies, but the law does not apply to political parties, State entities, or entities of the Catholic Church, nor may for-profit companies engage in public benefit activities. Public benefit activities can be conducted free of charge or for a fee, and separate rules apply to each kind of activity. Although a nonprofit entity conducting public benefit activities can also engage in economic activities so long as separate books and records are maintained, it can not do so in an area where it is charging fees for public benefit activities.

The draft law would establish a national Commission on Public Benefit Activities. The Commission would have 10 members representing the State and 10 members representing foundations and associations engaged in public benefit activities. The latter would be chosen by the Prime Minister from nominations made by foundations and associations operating in the areas of social welfare, health, education, self-government, environment, unemployment, natural disaster relief, or research and development relating to any of the above. The Chairman of the Commission is to be a representative of the minister of public administrative affairs, and the Vice-Chairman is to be one of the foundation or association members. Commission decisions would generally be taken by simple majority vote if a quorum of at least half the members is present, but some actions may be taken by panels of three.

The powers of the Commission include the power to determine on a case-by-case basis which organizations are engaged in public benefit activities, to issue regulations with respect to public benefit activities, and to issue opinions on public benefit questions presented by the Prime Minister. Decisions of the Commission are final. Expenses of the Commission would be paid by the state budget.

Under the draft law an organization can apply for a public benefit activity determination only after it has conducted the activity for at least one year. A certification of public benefit activity status by the Commission defines the scope of the activity and cannot be issued unless the organization has made a commitment to maintain a minimal level of non-public resources to cover the expenses of its activities.

The Commission is responsible for financial oversight of public benefit activity organizations and supervises them for compliance with their certificate, relevant rules and laws, and provisions of the organization’s statute. A certificate of public benefit activity may be revoked if the organization is bankrupt, has ceased conducting public benefit activities, or has blatantly violated the terms of the certificate.

The draft law calls for the establishment of a public registry of public benefit activity organizations, and only organizations on the registry may append the term “institution of public benefit” to their name.

Entities that conduct public benefit activities are exempt from corporate and personal income taxes on income from that activity. They are also exempt from real estate taxes on real estate used in their activity and from local taxes and treasury fees. Entities conducting public benefit activities would be zero-rated for purposes of VAT with respect to goods and services related to that activity, and they would be exempt from import duties on goods needed to conduct the activity, so long as the goods are not resold in two years.

Entities conducting public benefit activities could buy land from the state for one quarter of its value or receive indefinite rent-free use of it. For leases with a fixed period, such entities cannot be charged more than 1 percent of the value or a quarter of the market rental value for state property. If the entity becomes bankrupt any such public land may be reclaimed by the state outside of the bankruptcy court.

Organizations conducting public benefit activities may receive contributions from the state or local budgets, and may solicit the public without a permit. On the other hand, costs of generating revenue from fee-based activities for public benefit cannot exceed percentage rates to be set by regulation. The rates may differ for different activities. Organizations conducting public benefit activities must make available to the public annual reports on their finances and operations. The draft law would repeal many inconsistent provisions of existing law.

As can be seen, the draft Polish Public Benefits Activity law is complex. It would represent a major change in the laws affecting NGOs. It would make “public benefit activity” status extremely important, by restricting most benefits available from the state to such public benefit activity organizations and imposing on them significantly higher requirements for accountability and transparency. The proposed Commission on Public Benefit Activities bears many interesting resemblance’s to the Charity Commission for England and Wales, though it would have substantially more representation from the sector.

It is uncertain whether or when this draft law will be enacted. It is probable, though, that significant changes will be made in it before it is adopted.

For a complete listing of Documents ICNL has in its documentation center on Poland, Click Here!



Framework Legislation

Romania’s current law governing NGOs, Law No. 21, dates back to 1924 and is in need of updating. A committee consisting of legal and NGO experts prepared a new draft law which has not yet been introduced to the Parliament, but which would provide significant improvements to the legal framework.

In early 1998, the government passed an ordinance on “Sponsorship and Donations” granting tax benefits for donations made to qualifying organizations. The ordinance was prepared with significant input from the NGO community. The Senate has passed the draft NGO sponsorship law in a similar form to the current ordinance, accepting very few of the proposed revisions. The House of Deputies is expected to consider the bill in the fall.

The Ministry of Labor is currently preparing a law to regulate volunteer activities. A law passed on December 18, 1997 (Law No. 851/97) requires government ministries to consult with NGOs about proposals impacting their activities, and the Ministry has met with NGO representatives. However, the NGO community is divided over the desired scope and provisions of the draft law. The draft law has not yet been completed, but it should address such issues as liability, licensing or certification, compensation for volunteers, and health and accident insurance. This law should be prepared before the end of 1998.

For a complete listing of Documents ICNL has in its documentation center on Romaina, Click Here!



Framework Legislation

Under Slovakia’s continental legal system, NGOs must fall within specific organizational forms. The law allows for four such legal forms: associations, foundations, public-benefit organizations, and non-investment funds. The 1990 Czechoslovak Law on Association of Citizens continues to regulate the majority of NGOs in Slovakia, primarily because it is the most straightforward and easiest with which to comply. It is easier to found and maintain an association than a foundation or public-benefit organization under current regulations.

Foundations are now governed by Law No. 207/1996 on Foundations. This much-criticized law essentially limits foundations to those providing grants. Operational foundations providing services (of which there were many prior to the 1996 law) have either re-registered in a different format or ceased their activities.

Non-investment funds are regulated under Law 147/1997 on Non-investment Funds, passed by the Parliament in May 1997. A non-investment fund is an endowment of at least 2000 SKK, while a foundation requires an endowment of at least1000 SKK.

Public benefit organizations are regulated by Law No. 213/1997 on Non-profit Organizations Providing Public-Benefit Services. Under this law, the maximum amount that may be spent for administrative expenses is limited to 4% of total revenues. As a result of this and other restrictions, most public benefit organizations have chosen to register as associations rather than under the public benefit law.

Donors who are legal persons may deduct donations up to a maximum of 2% from their tax base (minimum 2,000 SKK), and private persons may deduct donations up to 10% of their tax base (minimum 1,000 SKK).

For a complete listing of Documents ICNL has in its documentation center on Slovakia, Click Here!



Framework Legislation

Domestic NGOs are regulated at the federal level by the 1990 Act on Association of Citizens in Associations, Social Organizations and Political Parties to be Established on the Territory of the Socialist Federal Republic of Yugoslavia. Citizens’ associations must have a minimum of ten founding members and register with the federal Ministry of Justice. Foundations or funds must have a defined endowment and register with the federal Ministry of Culture.

The two remaining republics, Serbia and Montenegro, have their own laws regulating NGOs operating in their territories. Neither the republic laws nor the federal law have been harmonized with the 1992 constitution. They are inconsistent with each other as well. The 1982 Act on Social Organizations and Associations of citizens of the Socialist Republic of Serbia requires registration through the Ministry of Interior. The 1990 Act on Association of Citizens of the Republic of Montenegro requires registration with the Montenegran Ministry of Justice. The registration procedures, particularly in Serbia where registration is with the local police, have been inconsistently applied depending upon venue. The Federal and Montenegran Constitutions provide special guarantees regarding the right of association of members of national minorities, including the right to participate in international NGOs, but the Serbian Constitution is silent on this issue.

There is currently no legal way for foreign NGOs to register in Yugoslavia. The Ministry of Justice, with assistance from ICNL, is in the process of revising a draft international NGO law which would permit registration of international or foreign NGOs as branch or representative offices.

For a complete listing of Documents ICNL has in its documentation center on Yugoslavia, Click Here!