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What are the most common forms of non-profit organizations in Ukraine?
Three most common legal forms of non-profit organizations in Ukraine are the following:
1) Non-governmental organization (NGO) – a union of individuals and/or legal entities established to promote, protect, and uphold rights and satisfy public interests, usually in a particular sphere. NGOs subdivide into organizations – established by individuals, and unions – established by legal entities. Currently, there are around 95,000 organizations and 2,000 unions in Ukraine.
2) Charitable organization – a union of individuals and legal entities whose main objective is charitable work in a particular sphere, e.g. education, public health, culture, etc. There are about 20,000 charitable organizations registered in Ukraine.
3) Association – an alliance of companies established to coordinate their activities. Approximately 2,500 associations exist in Ukraine.
NGO is the most popular form of a non-profit organization. It has flexible internal governance structure, is not over-regulated by law and may perform a wide range of activities, including charitable work as its subsidiary goal. Therefore, all questions below concentrate on NGOs as the most used form of non-profit organizations in Ukraine.
Which documents govern the activity of an NGO?
In Ukraine, NGOs are governed by the following legal acts:
• the Law of Ukraine "On Non-Governmental Organizations" (2012);
• the Civil Code of Ukraine;
• specific provisions of the Tax Code of Ukraine.
The main internal document that regulates an NGO's activity is its Charter. Its content is essential as an NGO is only allowed to perform activities listed in the Charter. The Charter must also comply with all legal requirements regarding non-profitability to avoid tax issues (see question 12).
What are the first things to consider when setting up an NGO?
- NGO name (see question 4);
- NGO objectives (see question 5);
- number and composition of founders (see question 6);
- a person acting as a director (see questions 7-8);
- legal address (see question 9).
How to name an NGO?
Under Ukrainian law, the full name of an NGO consists of two parts: (1) the legal form and (2) the title of the entity itself. Hence, the full name of a Ukrainian NGO looks like Non-Governmental Organization/Union "Title".
Two Ukrainian NGOs cannot have identical names. Thus, it makes sense to check whether the desired name is free before filing for registration. Registration procedures in Ukraine do not allow to reserve a name for an NGO before its registration.
What can be the objective of an NGO?
Every NGO must outline its objective and spheres of activity in the Charter. It is important to use correct legal wording, because due to its non-profit status an NGO may spend money only on activities listed in the Charter.
Who can be the founder of an NGO?
An NGO in the form of an organization may be established only by individuals over 18 years old, both Ukrainian citizens and foreigners. Foreign citizens should be present in Ukraine on legal grounds to participate in the founders' meeting.
An NGO in the form of a union may be established only by private legal entities, both Ukrainian and foreign ones. After the union is registered, both entities and individuals may further apply for membership and become its members.
The minimum number of founders for both an organization and a union is two.
Who can be the director of an NGO?
Any person, regardless of citizenship, may become a director of an NGO.
A foreigner will need a work permit to be employed as a director in Ukraine. The issue is that only an NGO which is already registered may apply for a work permit. However, it is impossible to register an NGO without the prior appointment of a director. To break this vicious circle, in practice NGOs usually appoint an interim Ukrainian director for state registration purposes. Once the NGO is registered, it files a work permit application for a permanent foreign director to replace the interim one.
Is it obligatory to employ a director under labor law and pay him a salary?
Although Ukrainian law does not directly demand an NGO director to be officially employed, it is advisable. In practice, state authorities tend to classify unemployed directors who provide their services as independent contractors or free of charge as de facto employed people. Such classification threatens with fines of up to UAH 60,000 (approx. 1,800 EUR) with subsequent tax-related claims against the NGO.
Hence, we recommend employing a director under labor law at least on a minimum monthly salary of UAH 6,000 (approx. 190 EUR). A director may be employed either full-time or part-time. In the latter case, the director’s monthly salary may be even lower – proportionate to the director's hourly workload.
Does an NGO need to rent an office to use it as a legal address?
When filing for registration, an NGO must indicate a legal address which will be shown in the public register. This address determines where all official correspondence will be sent, including from state authorities (e.g. tax service).
The law does not require to provide the registrar with title documents or lease agreements on the property stated as the NGO's legal address.
Documents required for NGO registration from a foreign founder
A foreign individual must provide:
• a copy of his/her national passport;
• a copy of his/her residence permit in Ukraine (if obtained);
• a copy of his/her tax identification code in Ukraine (if obtained);
• residence address in Ukraine or abroad.
A foreign legal entity must provide:
• an up-to-date excerpt from a commercial, banking, court or other relevant register (apostilled and translated into Ukrainian);
• information regarding its UBOs (notarized and apostilled copy of national passport, info re Ukrainian residence permit and tax identification code (if obtained), residence address).
Are NGOs obliged to have an official seal?
A seal is not mandatory for an NGO under current Ukrainian law. However, many NGOs voluntarily choose to use a seal in their everyday activities. An NGO may order a seal from any seal-manufacturing company; no special permits are required.
NGO's non-profitability status
An NGO may obtain non-profitability status which exempts from income tax. For this, an NGO should apply to the regional tax office for inclusion into the Register of non-profit institutions. For successful registration, the NGO’s Charter must contain carefully worded obligatory "non-profit" clauses.
Non-profitability status means that the NGO may not distribute its income among its founders or members. An NGO may invest such income only to achieve its statutory objectives or cover its maintenance costs (e.g. office rent, salary of employees).
Can an NGO perform business activities?
Yes. An NGO can perform business activities as its subsidiary goal, provided that the Charter allows those activities, and they are in line with the NGO's general statutory objective. However, income (profit) from such business activities must not be distributed among the founders or members and should be reinvested (see question 12).
For instance, an NGO may print T-shirts with its logo and sell them for a profit that will be further used exclusively for the NGO's statutory objectives (e.g. organizing a peaceful assembly) or covering its maintenance costs (e.g. director's salary).
What is the timeline for NGO registration?
State registration of an NGO usually takes three business days from filing all registration documents, which are as follows:
• NGO Charter;
• founders’ meeting minutes;
• founders’ documents (see question 10);
• application form;
• other minor registration documents (consents, info on governing bodies, structure of ownership, etc).
After the state registration, an NGO can apply for a non-profitability status with the tax office, which usually takes up to three business days.
How to open a bank account for an NGO?
Once the NGO is registered, it may open a bank account. Usually, the NGO director visits a bank office and signs an agreement with the bank and other documents, including a form with sample signatures.
The scope of KYC documents requested by the bank varies depending on a particular bank’s compliance policy. We recommend checking KYC requirements in advance with the bank where the NGO intends to open an account.