Esteemed Colleagues!

Following lengthy deliberation by members of parliament and the President of Ukraine, on June 30, 2005 (printed in the Voice of Ukraine newspaper, № 117, 06.30.2005) the national law “On Amending Several Laws of Ukraine” came into effect -- № 2642 as of 06.03.2005.

Thus, with the exception of clauses pertaining to changes in legislation on the taxation of certain VAT operations, which will become valid on September 1, 2005, the new regulations clauses will apply to non-profit organization in the second quarter of 2005.

In particular, the fourth paragraph, article 1.8 of the Law of Ukraine “About the Income Tax of Physical Persons” № 889 as of 05.22.2003 was expunged. The following was stated in the paragraph that “a self-employed person who pays either the single or fixed tax rate, who delivers a service to another individual (executes work for the benefit of another) within the limits of a civil-legal contract, confers upon himself the same status as the employee with respect to the income he receives as a salary if the conditions of the civil-legal contract foresees the delivery of such services (work) for more than once a month in a given tax (calendar) year”.

Thus the consultant’s fee that a non-profit organization paid to its consultants or to other executing work in the second quarter of 2005 and who pay the single tax rate is not subject to taxation as salary/wages for such entrepreneurs (single tax rate payers are registered as ‘private entrepreneurs”).

Also, as of  05.25.2005, the seventh paragraph, article 4, the final clauses to the Law of Ukraine “On Amending Several Laws of Ukraine”, “On the State Budget of Ukraine for Year 2005” as well as “Other Legislative Acts of Ukraine” № 2505 were excluded.

This clause stipulated that as of July 1, 2005, the simplified tax system, accounting and reporting of small enterprises do not extend to “physical individuals-entrepreneurs, who work in areas of medicinal drug trading, architecture, execute legal consulting, audits, property leasing, and real-estate”.  

Thus, single tax rate payers who work in the above mentioned lines of business do not have to make changes to their tax payer certificates and pay taxes on incomes they received from these types of business activities within the overall tax system.

As in the case with the changes to making payments on the mandatory state pension insurance by entrepreneurs paying the single tax rate this year, we could greet everyone who had the patience not to hastily interpret the laws do their detriment.  Thus, as stated in article four of the Final Clauses, “payments and the placement of money into budgets and state funds of monies derived from the single tax rate for small enterprises will come into effect under the conditions, which were enacted before January 1, 2005. 

Common sense occasionally emerges as the victor even in the chambers of Parliament –indolent experts and journalists were not the only ones to report on the annulment of the fiscally purposeless clauses.   However this victory unlikely was possible without the painstaking work, in particular, by one of the best advocacy professionals – Member of Parliament, advisor to the President of Ukraine, head of the Council of Entrepreneurs within the Cabinet of Ministers of Ukraine, and a longtime partner of the Ukraine Citizen Action Network – Ms. Kseniya Lyapina.

Instead of the traditional questions for discussion – our applause.

Following lengthy deliberation by members of parliament and the President of Ukraine, on June 30, 2005 (printed in the Voice of Ukraine newspaper, № 117, 06.30.2005) the national law “On Amending Several Laws of Ukraine” came into effect -- № 2642 as of 06.03.2005.

Thus, with the exception of clauses pertaining to changes in legislation on the taxation of certain VAT operations, which will become valid on September 1, 2005, the new regulations clauses will apply to non-profit organization in the second quarter of 2005.

In particular, the fourth paragraph, article 1.8 of the Law of Ukraine “About the Income Tax of Physical Persons” № 889 as of 05.22.2003 was expunged. The following was stated in the paragraph that “a self-employed person who pays either the single or fixed tax rate, who delivers a service to another individual (executes work for the benefit of another) within the limits of a civil-legal contract, confers upon himself the same status as the employee with respect to the income he receives as a salary if the conditions of the civil-legal contract foresees the delivery of such services (work) for more than once a month in a given tax (calendar) year”.

Thus the consultant’s fee that a non-profit organization paid to its consultants or to other executing work in the second quarter of 2005 and who pay the single tax rate is not subject to taxation as salary/wages for such entrepreneurs (single tax rate payers are registered as ‘private entrepreneurs”).

Also, as of  05.25.2005, the seventh paragraph, article 4, the final clauses to the Law of Ukraine “On Amending Several Laws of Ukraine”, “On the State Budget of Ukraine for Year 2005” as well as “Other Legislative Acts of Ukraine” № 2505 were excluded.

This clause stipulated that as of July 1, 2005, the simplified tax system, accounting and reporting of small enterprises do not extend to “physical individuals-entrepreneurs, who work in areas of medicinal drug trading, architecture, execute legal consulting, audits, property leasing, and real-estate”.  

Thus, single tax rate payers who work in the above mentioned lines of business do not have to make changes to their tax payer certificates and pay taxes on incomes they received from these types of business activities within the overall tax system.

As in the case with the changes to making payments on the mandatory state pension insurance by entrepreneurs paying the single tax rate this year, we could greet everyone who had the patience not to hastily interpret the laws do their detriment.  Thus, as stated in article four of the Final Clauses, “payments and the placement of money into budgets and state funds of monies derived from the single tax rate for small enterprises will come into effect under the conditions, which were enacted before January 1, 2005. 

Common sense occasionally emerges as the victor even in the chambers of Parliament –indolent experts and journalists were not the only ones to report on the annulment of the fiscally purposeless clauses.   However this victory unlikely was possible without the painstaking work, in particular, by one of the best advocacy professionals – Member of Parliament, advisor to the President of Ukraine, head of the Council of Entrepreneurs within the Cabinet of Ministers of Ukraine, and a longtime partner of the Ukraine Citizen Action Network – Ms. Kseniya Lyapina.

Instead of the traditional questions for discussion – our applause.

LEGISLATIVE NEWS – SECOND PUBLIC DISCUSSION OF THE DRAFT LAW “ON CIVIC ASSOCIATIONS”

On April 19, 2006 a second public discussion was held at the Justice Ministry of Ukraine on the version of the law “On Civic Associations”.

In accordance with the Ukraine-European Union Action Plan – as a priority partner country within the European Neighborhood Policy as of February 12, 2005 -- the Cabinet of Ministers must submit a draft law “On  Civic Associations” to Parliament by the end of this year. Thus once the law “On Political Parties” went into effect, the current law pertains only to civic associations – the  largest number of civil society organization groups in Ukraine – that require specialized regulation.

Justice Ministry deputy, Lidiya Horbunova presented a new version of the bill, which underwent drastic changes based on comments and suggestions made during the first public discussion held in February of this year. Individual gratitude was shown to UCAN partners, the International Center for Not-for-Profit Law (ICNL), (USA), and the Civil Society Institute (Ukraine).

Several UCAN partner grantees also took an active part in the discussion, in particular, the Institute for a Competitive Society, the Ukrainian Independent Center of Political Research, the Center for Political and Legal Reform (Kyiv), Peace, Beauty, Culture (Kherson), as well as the   Municipal Government Academy, which last year, together with ICNL, introduced the first course on the rights of non-profit organizations in Ukraine.

In comparison with the current law, as of April 2006 the bill contains the following important clauses.

Firstly, in accordance with the Civil Code, CSOs were classified as non-for-profit organizations (that is, they do not make and distribute profits among their members) since they make it a point to achieve common statutory goals and satisfy the non-monetary interests of its members.

The rights of legal entities to be founders and members of civic organizations was recognized, however, collective memberships of whole labor groups was repealed since it was decided that such (mandatory) memberships contradict the principle of volunteering.

The rights of civic groups to independently carry out non-profit, economic activity was also recognized (that is, without the intention of making and distributing profits).

The main difference between the two versions is the omission of (the clause) that makes it obligatory to confirm an organization’s status, that is, of having a branch located in the majority of the regions if it registers as an all-Ukrainian organization and the right to operate countrywide from the moment the civic organization receives certification.  

The opinion of many discussion participants and other non-government organizations has it that the draft law for the most part requires editing.   But then several clauses gave rise to heavy discussion among the participants themselves.

Thus, the government organ that registers organizations, and the scope and forms of control it has over civic organizations, the grounds and procedures for sanctioning these organizations, and  preserving an international status for organizations working beyond Ukrainian borders are not entirely in line with the constitutional standards regarding CSOs being equal under the law and with the conditions of international agreements Ukraine has signed, in particular, bringing Ukrainian legislation in line with EU legislation.

Therefore, the Justice Ministry recognizes the absolute necessity of receiving additional suggestions and proposals from non-government organizations and experts regarding the draft law so that it is effectively introduced in Parliament and henceforth the statutes of the law are further applied in judicial and administrative practice in Ukraine.

Additional information regarding the progress of drafting the bill could be found on the Justice Ministry’s website at www.minjust.gov.ua

Comments and suggestions on making any corrections/modifications to the draft law by civic organization or other interested parties could be sent to the following address:

Kyiv, 12 M. Kotsiubynskoho Street, Apt. 302, The Center of Legal Reform and Draft Law Work within the Ministry of Justice of Ukraine. Telephone: (044) 234-61-73, 234-84-90 (tel/fax), E-mail: cprmj@inbox.ru

Kyiv, 10 Rylskoho St., Department of Constitutional and Administrative Rights, Telephone: (044) 271-16-25, 271-17-91 (tel/fax), E-mail: const@minjust.gov.ua

Naturally, following the submission of the draft law to Parliament, non-government organization will have the chance to submit additional comments and suggestions through Parliamentary committees and members of Parliament. However, the impact of submitting a well prepared draft law on the part of non-government organizations will significantly increase if principled remarks are inserted and discussed in advance and transparently.