What non-profit status is
Non-profit status is a status that the tax authority assigns to an organisation after it is entered in the Register of Non-Profit Institutions and Organisations. It exempts civic organisations (NGOs), charitable foundations, religious organisations, condominium associations, trade unions and other non-profits from paying corporate income tax, provided that income is directed exclusively to statutory purposes.
Requirements for the charter (para. 133.4.1 of the Tax Code)
To obtain and keep non-profit status, the constituent documents must simultaneously meet three conditions:
- a ban on distributing the income (profits) received, or a part of it, among founders, members, employees (except for their remuneration), members of governing bodies and other related persons;
- use of income exclusively to finance the organisation’s maintenance costs and the pursuit of its statutory purposes;
- transfer of assets, in the event of liquidation, to one or more non-profit organisations of the relevant type or to the state budget.
Why an organisation loses non-profit status
- distribution of income among founders or members, and payments unrelated to statutory activity;
- use of funds for purposes not envisaged by the charter;
- the charter’s non-compliance with para. 133.4.1 of the Tax Code (for example, the charter was not updated after changes in legislation);
- failure to notify the supervisory authority of changes to the constituent documents;
- systematic failure to file, or late filing of, reports.
The consequence is exclusion from the Register, assessment of corporate income tax and penalties.
What reporting a non-profit organisation files
- Report on the use of income (profits) of a non-profit organisation — once a year, within 60 calendar days after the end of the reporting year;
- financial statements — as an annex to the Report (simplified forms for small organisations);
- reporting on the unified social contribution, personal income tax and military levy — if there are employees or payments under civil-law contracts;
- statistical reporting — depending on the organisation’s activity indicators.
What to do when constituent documents change
If an organisation amends its charter, it must notify the supervisory authority and, where necessary, confirm that the new charter complies with para. 133.4 of the Tax Code. Late notification is one of the most common reasons for losing the status.
How to protect the status: accounting and audit
The most reliable way not to lose non-profit status is correct accounting and periodic independent review. MK Audit provides bookkeeping for non-profit organisations and performs audits of grants and donor projects, during which the targeted use of funds and the compliance of accounting with the law are verified.
Frequently asked questions
Can a non-profit organisation carry out business activity?
Yes, if this is envisaged by the charter and income is directed to statutory purposes rather than distributed among founders or members.
What happens if the Report on the use of income is not filed on time?
A penalty is envisaged (UAH 340 for a first violation and UAH 1,020 for a repeat within a year), and systematic violations can lead to exclusion from the Register of Non-Profit Organisations.
Is it necessary to update the charter after changes in legislation?
Yes. If the requirements for constituent documents have changed, the charter must be brought into compliance, otherwise the organisation risks losing its non-profit status.
Need help with accounting or auditing for an NGO? Call +38 (050) 671-55-67 or write to mkauditsend@gmail.com.
