A SURVEY OF UKRAINIAN LAW CONCERNING COMMUNITY PHILANTHROPY

As of May 2006, several legislative acts came into effect that directly relate to charitable activities, in particular, on the community level.  The Civil Code, tax laws, and so called special laws on charity have the most influence. However, one must point out the fact that “philanthropy” is not limited to activities identified by special laws such as, charity.

Basic Definitions

Ukrainian law does not contain a special definition of “philanthropy” and in particular, for community philanthropy.  Moreover there are no exclusive legislative acts on community development foundations, sponsorships, etc.

The basic definition of charity, which seems somewhat narrower than the definition for philanthropy, is listed in article 1 of the law “About Charity and Charitable”. Charity is a voluntary and benevolent donation by a “physical or legal person” of either monetary or non-material aid to a person or entity. State organs and organs of self-government, state and municipal enterprises, and budgetary institutions of charity or philanthropy cannot engage in charity according to law and cannot establish charity organizations. It is deemed that state organs as well other public officials only provide social or some other type of assistance based on the reason of law and not voluntarily since their “benevolence” is paid with tax money, which is defined by the law as payments for administrative, social, or other public services. Also, measures that are directed at protecting the rights and interests of the individual charity giver are not deemed as philanthropy.

Subjects of Philanthropy: individual and institutional

In order to develop community philanthropy one must divide its subjects into institutional and non-institutional ones. For example, any “physical person” or private enterprise could open a bank account to collect funds to pay for a relative’s medical treatment, for a one-time donation or systematically give money and other resources for charitable goals et al, as well as to use tax credits for charitable donations and gifts. Grants as a form of charitable donations could be issued to any “legal individual” even without any special instructions written on its institutional documents. Local government organs could also make a once-only donation to a needy person.

Yet legislation separately regulates the activity of institutional subjects of philanthropy.  Those being organizations registered as charitable or civic (in particular, for the purpose of engaging in educational, cultural, scientific, or other charitable activity as well as supporting amateur sports).

One must  include endowment owners to the list of institutional subjects, which are separate savings accounts at financial institutions, derived income (dividends or interest earned from money, stocks, securities) that are used for charitable purposes for up to a 12-month period. Specific institutional subjects of philanthropy could also be individuals who in their wills endow their property and/or possessions on a continuous basis for charitable purposes (including a charitable foundation or other private institutions).

Types and Areas of Philanthropy

A list of charitable activity areas is defined in article 4 of the law on charity organizations.  Charity givers (philanthropists) have the right to only choose an area of a charitable activity. However in article 16 of this law, the list of the types of charitable activities (financial assistance, free service deliverables, the right to use the charity giver’s property/possessions, the conduct of charity events as well as other measures) is open-ended.

A variety of different kinds of contractual agreements could be used for philanthropic purposes, which are either directly stated in the Civil Code or which do not contradict any of its clauses.  In particular, the following are listed:

-         Donation and gift making contracts (items 717-730),

-         Rent (items 731-743),

-         Life allowance (items 744-758),

-         Property loan (items 827-836),

-         Interest free loan (items 1046-1052),

-         Free services delivery (items 904),

-         Free maintenance of property (items 946-947),

-         Power of attorney without pay (items 1000-1010),

-         Wills and inheritance contracts (items 1302-1308 of the Civil Code).

In addition, the law provides for the possible use of third-party contracts, mixed contracts (that involve a mixture of consulting (studying or advising) and other services), (item 628 ЦК), and also non-contract obligations such as, charity events or competitions.

Sponsorship and Patronage are identified as special forms of philanthropy that are aimed at advertising the name or trademark of a philanthropist, that is, disposal of intellectual property.

Features of Taxation

As experience shows in many countries, tax deductions or other fiscal incentives as themselves rarely promote philanthropy, in fact; commonly, philanthropists shall have their personal motivation not limited to fiscal privileges. However, tax systems often impede philanthropic growth due to excessive – when comparing them to the intentions of charity givers – additional expenses or financial risks. 

The Laws of Ukraine place a number of deductions/exemptions on profit tax for enterprises, individual income tax, value added tax, advertisements, concert tour sales, land tax, and other types of taxes and mandatory fees if the corresponding resources are used for philanthropic purposes. For example, the tax credit amount for individuals who provided assistance to charitable or other non-profit organizations stands at 2-5% of their taxable income; enterprises have the right to include in their gross expenses any non-returnable financial or other monetary equivalent assistance to such organizations between 2-5% of the previous fiscal year’s profit. In addition, non-assigned donations (under a special formula based on the minimum wage) and assigned donations for charitable purposes, like health care, education and research (unlimited sums of money) is not taxed as income for the receiver of the funds.

Reporting Guidelines

Non-Institutional subjects of community philanthropy report on their activities voluntarily; “physical persons” and enterprises are not obligated to report on their philanthropic activity, with the exception of when they turn to tax organs to re-calculate mandatory tax payments.  However, institutional subjects of philanthropy and beneficiaries of charity are obligated by law to not only report to tax organs but also to their donors. In cases when assigned donations are given, charity organizations and other philanthropists have the right to receive reports on how the resources were used/spent even without a special request (article 20 of the law on charity organizations).

Means of Rights Protection

The Civil Code and procedural codes of Ukraine provide charity givers with considerable guarantees of right protection.  For example, if a philanthropist gave money or property for any of the above mentioned purposes or to a third party and the receiver of the donation does not report back or does not allow any control over the proper use of the gift, then the benefactor has the right to have the money/property returned to him or in the monetary equivalent (article 730 Civil Code). In addition, according to legislation on philanthropy, contracts could be annulled or rendered invalid if they are not being carried out properly.  This helps define rights more precisely in philanthropy and helps leverage against risks, which any human affair can never fully eliminate.

Prepared by:

Oleksandr Vynnykov

UCAN Legal Advisor

Addendum 1

Catalogue

Fundamental normative-legal documents, which regulate community philanthropy in Ukraine

I. Constitution of Ukraine

1.

Constitution of Ukraine (articles 3,16, 51-52 and others)

28.06.1996

254

ІІ. Codes of Ukraine

1.	Civil Code	16.01.2003	435
2.	Civil-Procedural Code	18.03.2004	1618
3.	Commercial Code	16.01.2003	436
4	Budgetary Code	21.06.2001	2542
5.	Code of Laws on Labor	10.12.1971	322
6.	Code of Administrative Legal Proceedings	06.07.2005	2747
7.	Customs Code	11.07.2002	92

IІІ. Laws of Ukraine

1.	On Charity and Charitable Organizations	16.09.1997	531
2.	On Professional Tours in Ukraine	10.07.2003	1115
3.	On Humanitarian Aid	22.10.1999	1192
4.	On Profit Tax of Enterprises	28.12.1994	334
5.	On Individual Income Tax	22.05.2003	889
6.	On Value Added Tax	03.04.1997	168
7.	On Land Tax	03.07.1992	2535
8.	On the Basics of Social Securities of Invalids in Ukraine	21.03.1991	875
9.	On Pension Security	05.11.1991	1778
10.	Basics of Legislation on Culture	14.02.1992	2117
11.	On Information	02.10.1992	2657
12.	On Physical Culture and Sport	24.12.1993	3808
13.	On Fighting Corruption	05.10.1995	356
14.	On Local Self-Government	21.05.1997	280
15.	On Bookkeeping and Financial Reporting in Ukraine	16.09.1999	996
16.	On State Social Standards and State Social Guarantees	05.10.2000	2017
17.	About Tax Exemptions of Monetary Costs that are Used for the Conduct of New Year Celebrations for Children and the Procurement of Holiday Gifts for Children	30.11.2000	2117
18.	On Social Work with Children and Youth	21.06.2001	2558
19.	On Social Services	19.06.2003	966
20.	On Ensuring Equal Opportunities for Men and Women	08.09.2005	2866

ІV. Decisions of the Cabinet of Ministers

1.	On State Duties	21.01.1993	7
2.	On the Confirmation of the Decision on the Procedure of State Registration of Charitable Organizations	30.03.1998	382
3.	On Local Taxes and Fees	20.03.1993	56
4.	On Confirming the Procedure of Receiving Charitable (voluntary) payments and donation from “legal” and “Physical” persons to budgetary institutions, educational, healthcare, culture, and athletic institutions	04.08.2000	1222
5.	On Confirming the Procedure of Registration of Receivers of Humanitarian Aid	22.03.2000	543
6.	On the Procedure for Providing Paid Social Services and Confirming their Enumeration	14.01.2004	12
7.	On the Procedure of Providing One-Time Monetary Assistance to Unemployed and Poverty Stricken Persons	11.02.2004	147
8.	On the Confirmation of the Procedure of Designating and Paying Out Compensation to “Physical” Persons who Deliver Social Services	29.04.2004	558

V. Acts of other Central Organs of the Executive Government

1.	Decision on the Non-Profit Institution and Organization Register (Order of the State Tax Administration of Ukraine)	11.07.1997	232
2.	Procedure of Defining Structural Indicators of Non-Profit Institutions (Order of the State Tax Administration of Ukraine)	03.07.2000	355
3.	Procedure of Drafting a Tax Report on how Non-Profit Institutions and Organizations use Money/Expenses (Order of the State Tax Administration of Ukraine)	03.04.2003	153
4.	On the Confirming Instructions on Tax Credit (Order of the State Tax Administration of Ukraine)	22.09.2003	442

Source: http://zakon1.rada.gov.ua/cgi-bin/laws/main.cgi