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Since 2022, humanitarian aid has become one of the main sources of inflows for Ukrainian charitable foundations and civil society organisations. It has also brought new risks: an incorrectly documented shipment, missing distribution lists or a late report can lead to loss of non-profit status, additional tax assessments and, in some cases, criminal liability.<\/p>\n
In this article the MK Audit team explains how humanitarian aid differs from charitable aid, which documents are required at each stage, how to record the transactions in the books, how to prepare the reports and which mistakes we see most often when auditing non-profit organisations.<\/p>\n
These two concepts are often confused, although they are governed by different laws and require different documents.<\/p>\n
The humanitarian aid chain has three roles: the donor (who provides the aid), the recipient (the organisation that imports and distributes it) and the beneficiary (who receives the aid for consumption or use). It is the recipient who is responsible for accounting and reporting, and it is the recipient who gets inspected.<\/p>\n
Tip: open a separate file for each shipment holding every document from the donor letter to the last distribution list. Auditors and tax inspectors check precisely the “received, recorded, distributed” chain for each consignment.<\/p>\n
Misuse of aid or lack of evidence of distribution is the most common claim raised against organisations. The minimum set of documents is:<\/p>\n
For food and medicines, monitor expiry dates separately: writing off expired goods requires a separate act and an explanation of why they were not distributed in time.<\/p>\n
For a non-profit organisation, humanitarian and charitable aid in kind is targeted financing. Goods received are recorded in inventory accounts at fair value, and income is recognised when the aid is used for its intended purpose, that is, when it is handed over to beneficiaries. The basic entries under the Ukrainian chart of accounts are:<\/p>\n
| Transaction<\/th>\n | Debit<\/th>\n | Credit<\/th>\n<\/tr>\n<\/thead>\n |
|---|---|---|
| Humanitarian aid goods received<\/td>\n | 20, 22, 28 (inventories)<\/td>\n | 48 (targeted financing)<\/td>\n<\/tr>\n |
| Fixed assets received (generator, vehicle)<\/td>\n | 15, then 10<\/td>\n | 48<\/td>\n<\/tr>\n |
| Cash received as targeted financing<\/td>\n | 311, 312<\/td>\n | 48<\/td>\n<\/tr>\n |
| Goods handed over to beneficiaries<\/td>\n | 949 (other expenses)<\/td>\n | 20, 22, 28<\/td>\n<\/tr>\n |
| Income from targeted financing recognised at the same time<\/td>\n | 48<\/td>\n | 718 (other operating income)<\/td>\n<\/tr>\n |
| Depreciation of donated fixed assets<\/td>\n | 949<\/td>\n | 131<\/td>\n<\/tr>\n |
| Income recognised in the amount of depreciation<\/td>\n | 48<\/td>\n | 745<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Analytical accounting should be kept by donor and by shipment, and for inventories also by item. Remaining humanitarian aid is subject to a physical count on general terms, at least once a year before the annual financial statements are prepared. If the organisation applies National Accounting Standard 25, the simplified reporting forms do not exempt it from keeping full analytical records.<\/p>\n Reporting by a humanitarian aid recipient<\/h2>\nVAT and corporate income tax<\/h2>\nVAT.<\/strong> Importing goods into Ukraine as humanitarian aid is exempt from VAT under clause 197.11 of the Tax Code, as well as from import duty. For an organisation that is not a VAT payer, distributing aid free of charge has no tax consequences. If the organisation is registered as a VAT payer, the free transfer of goods within charitable activities is exempt under sub-clause 197.1.15 of the Tax Code, provided the labelling and documentation requirements are met. Selling humanitarian aid is prohibited, except in cases expressly provided for by law.<\/p>\n Corporate income tax.<\/strong> For an organisation with non-profit status, the value of aid received is not taxed if it is used in accordance with its intended purpose and the charter. Misuse, in particular sale, transfer to related persons or use for the organisation’s own needs outside its statutory activities, is a breach of clause 133.4 of the Tax Code. The consequence is an obligation to pay tax on the amount misused and removal from the Register of Non-Profit Organisations.<\/p>\n Personal income tax for beneficiaries.<\/strong> As a general rule, humanitarian and charitable aid received by individuals is not included in their taxable income, subject to the conditions set out in Articles 165 and 170 of the Tax Code, in particular for persons affected by the armed aggression. In certain cases, however, the organisation must report such payments as a tax agent, so distribution lists must contain sufficient identification data.<\/p>\n Liability.<\/strong> Since 2022 the Criminal Code of Ukraine has contained Article 201-2, which establishes liability for the unlawful use of humanitarian aid, charitable donations or free assistance for profit, in particular for sale in significant amounts. This is one more argument for documenting every consignment carefully.<\/p>\n Each of these mistakes can be corrected if identified in time. During audits of grants and donor-funded projects<\/a> we check the document chain for each shipment and recommend how to complete it. For organisations that receive aid regularly, we offer accounting services for non-profit organisations<\/a> with humanitarian aid accounting already set up.<\/p>\n |