New NGO in Ukraine: accounting and reporting in the first year

Does a new NGO need accounting before any money arrives

Yes. A public association in Ukraine keeps accounting records and files reports from the day of state registration, even if its bank account is empty and nothing has happened yet. In the first month it should be entered in the Register of Non-Profit Institutions and Organisations, open a bank account, adopt an accounting policy by order of the head and decide who keeps the books. During the first year the main things to watch are that money is spent only on statutory purposes and that every transaction has a supporting document.

Below are the steps for a newly registered NGO, the reports it files and the mistakes we see most often in an organisation’s first year.

The first month after registration

Non-profit status. The application for entry in the Register of Non-Profit Institutions and Organisations can be filed together with the registration documents or separately with the tax authority. The charter must expressly prohibit distributing income among founders, members and employees and must provide that on liquidation the assets pass to another non-profit organisation or to the budget. Without these clauses the State Tax Service will refuse. More on how to obtain and keep non-profit status.
Bank account. The bank will ask for the charter, an extract from the state register, the head’s documents and information on the organisation’s structure. A separate account is needed from the very first hryvnia: founders’ personal cards are not a place for the organisation’s money.
Who signs. Signing authority is set by the charter and by a decision of the governing body. The head and the bookkeeper will need a qualified electronic signature for the bank, the taxpayer’s online cabinet and electronic filing.
Accounting policy. Adopted by order of the head. It sets the working chart of accounts, how membership fees, donations and grants are recorded, analytics by funding source, and who prepares and signs the reports.
Who keeps the books. The Law on Accounting allows the head to keep the books personally, to appoint a staff bookkeeper, or to contract an accounting firm or a sole proprietor. Either way, the head remains responsible for how accounting is organised.

Which reports a typical NGO files

Annual financial statements. A balance sheet and a statement of financial results, for most new NGOs in the simplified format. Filed after the year end, as a rule by the end of February.
Report on the use of income of a non-profit organisation. Filed with the tax authority once a year within the deadlines for annual tax reporting. It is filed even if there was no income. How to complete it is explained in our article on the report on the use of income of a non-profit.
Tax return for personal income tax and the single social contribution. Required once the organisation pays salaries or pays individuals under civil law contracts. The return is filed quarterly, while taxes and contributions are paid monthly or with each payment.
Statistical reporting. Required if the organisation is included in the State Statistics Service sample. It is worth checking the list of mandatory forms for your organisation at the start of each year.

Once the organisation has even one employee, HR records and military registration are added. This applies to every employer, including a public association.

How to receive the first money correctly

Membership fees. The amount and payment procedure are set by the charter or by a general meeting decision. Fees are paid into the organisation’s account with the payment reference “membership fee” and recorded separately from donations.
Charitable donations. From individuals and companies, with the reference “charitable donation” or a stated purpose. If a donation is earmarked, its use is tracked separately so that the spending can be shown to the donor if needed.
The first grant. First a signed grant agreement and an approved budget, then the money. A separate analytical dimension is opened for the grant: every expense is linked to the project and the budget line from day one. How to set this up is described in our article on grant accounting by project.
A grant in foreign currency. It arrives in a foreign currency account and is recorded at the National Bank of Ukraine rate on the transaction date. The rate the donor uses to accept the financial report may differ from the accounting rate, so the conversion method should be agreed with the donor and fixed in the accounting policy.

How to pay people

There are three main options. An employment contract: the person is on staff, the organisation withholds personal income tax and military levy, accrues the single social contribution and keeps HR records. A civil law contract with an individual: payment for a specific piece of work or service against a signed act, with taxes withheld as on salary and the social contribution accrued as well. A contract with a sole proprietor (FOP): the contractor pays their own taxes, and the organisation pays against an invoice and an act.

For a non-profit, the risk is that a payment may look like a distribution of income. Paying employees for their work is allowed. But inflated fees to founders, board members or their relatives, especially through sole proprietor contracts with no real output, may be treated by the tax authority as a distribution of income. The consequence is exclusion from the Register and corporate income tax. Every payment should relate to statutory activity, be in line with the market and be supported by the result of the work.

Property received free of charge

Laptops from a donor, furniture from a partner, humanitarian goods. All of it is taken on the books on the basis of a transfer act or a delivery note with a stated value. For non-current assets, income is recognised gradually, in step with depreciation. Property received under a grant is recorded separately by project: when the project ends, the donor may require it to be transferred to another organisation or approve its further use.

Common mistakes in the first year

No bookkeeper “because there are only a few transactions”. The books are then rebuilt before the first grant or an inspection, and some documents can no longer be found.
Spending outside the charter. Paying for something not covered by the statutory purposes, even once, may lead to exclusion from the Register and to corporate income tax on that amount.
Personal and organisation money mixed. Donations sent to the chair’s card, the organisation’s expenses paid from a personal card without an expense report.
Missed zero reports. Financial statements and the report on the use of income are filed even with no transactions. Missing them means fines and unnecessary questions from the tax authority.
Cash without documents. Cash advances with no expense report, purchases without receipts or delivery notes.

These mistakes are rarely visible straight away. They surface later: during a tax inspection, when the State Tax Service decides to exclude the organisation from the Register, or during the first donor audit, when the auditor cannot verify expenses and the donor asks for funds to be returned.

First-year checklist

Check that the charter meets the requirements of clause 133.4 of the Tax Code.
Obtain the decision on entry in the Register of Non-Profit Institutions and Organisations.
Open a bank account, get qualified electronic signatures for the head and the bookkeeper, connect the taxpayer’s online cabinet.
Adopt an accounting policy and decide who keeps the books.
Set up analytics by source: membership fees, donations, each grant separately.
Prepare HR documents and military registration once there are employees.
Collect source documents and reconcile the bank statement every month.
File the quarterly personal income tax and social contribution return if individuals were paid.
After the year end, file the financial statements and the report on the use of income, even if they are zero.
Before the first donor report, check that every expense has a document and a link to the budget.

Frequently asked questions

Accounting in an NGO: what to read

Does an NGO have to file reports if it received no money

Yes. The annual financial statements and the report on the use of income of a non-profit organisation are filed whether or not there were transactions. A zero report takes a few minutes to prepare, while missing it leads to a fine and may draw the tax authority’s attention.

Can the head of an NGO keep the books personally

Yes, the law allows it. In practice it works while there are only a few transactions a month and no grants. The first grant brings a budget, project analytics and donor reports, and without a bookkeeper mistakes build up quickly.

What happens if money arrives before entry in the Register

Until the State Tax Service decides, the organisation does not have non-profit status, so such receipts may be taxed under the general rules. That is why it is better to file the application together with the registration documents and to plan the first receipts after the tax authority’s decision.

Can an NGO pay a salary to its head

Yes, if the head works under an employment contract and this is provided for by the charter or a decision of the governing body. Paying for work is not a distribution of income. The risk arises when the amount does not match the volume of work or the market level.

Does a new NGO need an audit

As a rule, the law does not require a small public association to have a statutory audit of its financial statements. An audit comes in when the grant agreement provides for it, and the donor then checks exactly the documents and analytics that should have been set up from day one.

If you need support from day one

Since 2000 we have kept the books of public associations and audited grant-funded projects. For a newly registered organisation, accounting support for an NGO usually starts with the accounting policy and analytics for the first grant. Tell us how many funding sources you plan and whether you will have employees. We send a proposal once we have seen the task.