Ukrainian CSO Legal Ukrainian CSO Legal EnvironmentEnvironment, 200, 2007 – 7 –

Financial SustainabilityFinancial Sustainability

Progress in CSO legal reformProgress in CSO legal reform

Since 2005, tax exempts for CSOs Since 2005, tax exempts for CSOs have not been suspendedhave not been suspended

Tax deductions for domestic donors Tax deductions for domestic donors (e.g., ones in new law on individual (e.g., ones in new law on individual income tax of 2004) contributed to income tax of 2004) contributed to decreasing dependency of Ukrainian decreasing dependency of Ukrainian CSOs from foreign donorsCSOs from foreign donors

Law on social services was formally Law on social services was formally adopted in 2003adopted in 2003

Remaining ChallengesRemaining Challenges Government funding of CSOs is extremely Government funding of CSOs is extremely

scarce (2-2.5% of total reported CSOs income scarce (2-2.5% of total reported CSOs income yearly) and complicated due to poor budgeting yearly) and complicated due to poor budgeting proceduresprocedures

Discretionary decisions by tax authorities due Discretionary decisions by tax authorities due to the blank regulations in the taxation laws to the blank regulations in the taxation laws (e.g., granting tax exempt or public benefit (e.g., granting tax exempt or public benefit status under the law on corporate income tax status under the law on corporate income tax of 1997)of 1997)

Ukraine has the worst tax reporting system in Ukraine has the worst tax reporting system in Europe under the World Bank estimation 2006, Europe under the World Bank estimation 2006, and CSOs are also subject to these regulationsand CSOs are also subject to these regulations

Remaining challengesRemaining challenges

CSOs face major legal obstacles in CSOs face major legal obstacles in service delivery (including social service delivery (including social services and participation in public services and participation in public procurement procedures)procurement procedures)

No law on foundations is in effect No law on foundations is in effect yet, thus, CSOs’ access to yet, thus, CSOs’ access to investments and loans is limitedinvestments and loans is limited

CSOs legal status, not activities, are CSOs legal status, not activities, are crucial for their VAT taxation crucial for their VAT taxation

Key areas for donors’ future Key areas for donors’ future engagementengagement

Incorporation of CSOs financial Incorporation of CSOs financial sustainability agenda into treaties (e.g., sustainability agenda into treaties (e.g., Ukraine/WB agreements)Ukraine/WB agreements)

Assistance to amending legislation on Assistance to amending legislation on social services and public procurementsocial services and public procurement

Systematic harmonizing of VAT taxation Systematic harmonizing of VAT taxation with EU standards with EU standards

Ensuring more flexible and transparent Ensuring more flexible and transparent procedures for CSOs public funding (e.g., procedures for CSOs public funding (e.g., new Budget code)new Budget code)