August 15, 2001


Catherine Shea

A recently completed survey of tax laws affecting NGOs in 14 Central and Eastern European countries suggests that these countries are mostly ready to consider reform of their tax laws in order to improve the financial sustainability of NGOs.[1]

This article highlights several of the survey's more significant findings.

Tax exemptions for income earned from economic activities While most CEE countries allow NGOs to engage directly in economic activities (only two do not), several tax any profits in full. This inevitably hampers NGOs' financial sustainability. Laws relating to NGOs' economic activities must contain some safeguards to ensure that NGOs are not formed primarily to conduct business, but this can be achieved by limiting tax exemptions to NGOs that meet an appropriate test. A number of countries in the region have adopted such tests already.

Transparency and accountability Granting additional tax benefits to NGOs will inevitably mean consideration of whether NGOs are sufficiently accountable to the public for their use. Countries will need to develop reporting systems that balance the need of the government and the public for accountability with sensitivity to the burdens such systems may place on NGOs.

VAT The laws regarding application of VAT and similar taxes to NGOs contain a patchwork of exemptions and reduced rates. A uniform approach applicable to a greater number of NGO transactions would be both simpler and more effective.

Tax incentives for donations Most CEE countries allow tax deductions to individuals and businesses that make donations to NGOs. In all cases, this is limited to a percentage of taxable income, generally fairly low. Particularly with respect to individual donations, countries could create additional incentives for donations by raising these ceilings.

Catherine Shea is Program Director, International Center for Not-for-Profit Law. She can be contacted by email at

For a copy of Survey of the Tax Laws Affecting NGOs in Central and Eastern Europe, either hard copy or electronic, please contact ICNL by email at

1 The survey was carried out by the International Center for Not-for-Profit Law (ICNL) in conjunction with experts in each of the studied countries.

First published in Alliance, Vol. 6, No. 3, September 2001. See
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