Author: Anatoliy Pashynskyi
Charitable organization – a legal entity whose main objective is charitable work in one or several spheres (education, public healthcare, ecology, promoting the country’s defence capabilities etc.).
There are currently over 27,000 charitable organizations registered in Ukraine.
A charitable organization can be registered in one of the following forms:
1) Charitable foundation – is established by one or more founders and functions in accordance with the foundation’s Charter. The founders are not obliged to transfer any initial assets to the charitable foundation.
2) Charitable society – is practically the same as charitable foundation. However, it requires at least 2 founders to perform the registration.
3) Charitable institution – is set up by a constituent act that lists the assets to be transferred by one or more founders to the institution. Those assets are then spent for charitable purpuses. The founders do not participate in the governance of the institution.
The most popular and efficient form of charitable organizations in Ukraine is a charitable foundation. Therefore, all questions below will concentrate on charitable foundations.
In Ukraine, charitable foundations are governed by two legal acts:
1) Law of Ukraine "On Charitable Activities and Charitable Organizations";
2) Tax Code of Ukraine.
The main internal document that regulates the activities of a charitable foundation is its Charter. The foundation is permitted to perform charitable activities only in the areas stipulated in the Charter. The content of the Charter must comply with all requirements of the law, including provisions re non-profit status (see question 12).
A non-governmental organization (NGO) is a union of individuals and/or legal entities established to promote, protect, uphold rights and satisfy public interests, usually in a particular sphere. NGOs are subdivided into organizations (established by individuals) and unions (established by legal entities). In Ukraine, NGOs are governed by the Law of Ukraine “On Non-Governmental Organizations”.
An NGO and a charitable foundation are similar in many regards: both can be established by individuals and legal entities, both are governed by a Charter, both can obtain non-profit status etc. However, NGOs and foundations are governed by different laws and have different purposes. For a foundation, the main purpose is charitable activity, i.e. raising money and then donating/spending it to help beneficiaries. Meanwhile, the chief goal of an NGO is to unite its members around some common social agenda. An NGO is allowed to do some charity work, but only as its subsidiary goal.
• name of the foundation (see question 6);
• areas of charitable activity (see question 7);
• list of founders (see question 8);
• director (see questions 9-10);
• legal address (see question 11).
In Ukraine, the full name of any legal entity consists of two parts: (1) the legal form and (2) the title of the entity itself. Hence, the full name of a Ukrainian charitable foundation looks like this: Charitable organization “Charitable foundation “[Title]”.
In Ukraine, two entities cannot have identical names. Thus, one should check whether the desired name is free before filing for registration. Registration procedures in Ukraine do not allow to reserve a name for a foundation prior to registration.
The law lists 15 permitted areas of charitable activity:
1) education;
2) public healthcare;
3) ecology, environmental protection and animal welfare;
4) prevention of natural & man-made disasters and elimination of their consequences, assistance to victims of disasters, armed conflicts and accidents, as well as to refugees and people in difficult life circumstances;
5) guardianship and trusteeship, legal representation and legal aid;
6) social protection, social security, social services and poverty alleviation;
7) culture and art, protection of cultural heritage;
8) science and scientific research;
9) sports and physical culture;
10) human & civil rights and fundamental freedoms;
11) development of local communities;
12) development of international cooperation of Ukraine;
13) stimulation of economic growth and development of the economy of Ukraine and its individual regiosn, growth of Ukraine’s competitive capabilities;
14) promotion of state, regional, local and international programs aimed at improving the social & economic situation in Ukraine;
15) promotion of the country’s defense capabilities and mobilization readiness, protection of the population in the event of emergencies and martial law.
Every charitable foundation has to state one or several areas of charitable activity in its Charter. One has to choose wisely and use correct legal wording, because a foundation may spend money only on areas listed in the Charter.
A charitable foundation may be established by legally capable individuals or legal entities, both Ukrainian and foreign. Although the establishment procedure with foreign founders is more complicated, it is absolutely doable.
There is no minimum number of founders for a charitable foundation. It can be established even by one individual or legal entity.
After the foundation is registered, the founders become its members. Other individuals or legal entities may later apply for membership and become members.
Any person regardless of citizenship may become a director of a charitable foundation.
A foreigner will need a work permit to be employed as a director in Ukraine. The issue is that only a foundation which is already registered may apply for a work permit. However, it is impossible to register a foundation without the prior appointment of a director. To break this vicious circle, in practice foundations often appoint an interim Ukrainian director for state registration purposes. Once the foundation is registered, it files a work permit application for a permanent foreign director to replace the interim Ukrainian one.
Although Ukrainian law does not directly demand for a foundation director to be officially employed under labor law, it is advisable. State authorities may classify unemployed directors who provide their services free of charge or as independent contractors as de facto unreported employment. This may lead to fines of up to UAH 80,000 (1,800 EUR) as well subsequent tax-related claims against the foundation.
Hence, we recommend employing a director under labor law at least on a minimum monthly salary of UAH 8,000 (180 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, i.e. proportionate to the director's hourly workload.
When filing for registration, a charitable foundation 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 state registrar with ownership title documents or lease agreements on the property stated as the foundation’s legal address.
A charitable foundation is strongly advised to obtain non-profit status which exempts it from income tax. This is a separate procedure which is usually performed right after state registration as a legal entity. For this, an foundation should apply to the regional tax office for inclusion into the Register of non-profit institutions. For successful registration, the foundation’s Charter must contain carefully worded obligatory "non-profit" clauses from the Tax Code.
Non-profit status means that the foundation may not distribute its income among its founders or members. A foundation may use such income only to achieve its statutory objectives or cover its administrative expenses (e.g. salary of employees, office rent). The amount of administrative (maintenance) expenses must not exceed 20% of the foundation’s income in the current year.
Yes. A charitable foundation can perform business activities without the goal of making a profit, if such activities contribute to the achievement of its statutory objectives. 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, a foundation may print T-shirts with its logo, sell them and use the generated income to fulfill its objectives under the Charter (e.g. donate money to a children’s hospital) or cover its administrative expenses (e.g. pay the director's salary).
A seal is not mandatory for a charitable foundation under Ukrainian law. However, many foundations voluntarily choose to use a seal in their everyday activities. A foundation may order a seal from any seal-manufacturing company; no special permits are required.
A foreign individual must provide:
• a notarized & apostilled copy of his/her national passport;
• a copy of his/her Ukrainian tax identification code;
• a copy of his/her residence permit in Ukraine (if obtained);
• an address of residence in Ukraine or abroad.
A foreign legal entity must provide:
• an up-to-date apostilled excerpt from a commercial, banking, court or other relevant register of its home country;
• information regarding its UBOs (notarized & apostilled copy of national passport, info on Ukrainian tax ID, Ukrainian residence permit (if obtained) and residence address).
State registration of a charitable foundation normally takes 24 hours from the moment of filing all registration documents, which are as follows:
• founders’ documents (see question 15 above);
• application form;
• minutes of the founders’ meeting;
• foundation Charter;
• structure of ownership
Obtaining of non-profit status is a separate procedure performed in the tax office after state registration. It usually takes up to 3 business days.
Once the foundation is registered, it may open a bank account. Usually, the foundation director personally visits a bank office where he/she signs a bank account agreement and some other documents.
The scope of KYC documents requested by the bank varies depending on the particular bank’s compliance policy. We recommend checking KYC requirements in advance with your bank of choice.