The two recognized forms of domestic NGOs are foundations (non-membership organizations) and associations (membership organizations) (Article 5). In addition, foreign NGOs may conduct activities in the territory of Kosovo, provided that they register and substantially meet specified requirements imposed on domestic NGOs (Articles 9(8) and 7, Law on Freedom of Association). Both foreign and domestic NGOs may apply for "public beneficiary status" (Article 17, Law on Freedom of Association).
In this Note, the term non-governmental organization (NGO) refers to foundations and associations. Other not-for-profit legal forms, which are outside the focus of this Note, include political parties, trade unions, and other organizations registered under separate laws or regulations.
B. Tax Laws
NGOs with public benefit status enjoy tax and other fiscal exemptions (Article 7(1)) to the extent their income is used exclusively to further their public benefit purposes (Article 17(1) and Law on Corporate Income Tax 2009-162), including income derived from donations and grants. [1] An NGO is taxed at the rate of 10% on income from commercial or other activities not exclusively related to its public purpose, reduced by deductions directly related to the expense of carrying out such activities and which are allowed by law (Article 33, Law on Corporate Income Tax). NGOs without public benefit status are taxed on their profits in the same manner as other legal entities.
Both legal persons and individuals are allowed to deduct up to 5% of their taxable income for donations for specified public benefit purposes (Article 10(1), Law on Corporate Income Tax; Article 28(1), Law on Personal Income Tax). The donation must be made to an NGO that has received and maintained public benefit status or to “any other non-commercial organizations that directly perform activities in the public interest and are not-for-profit,” including medical, educational, environmental, religious and other specified types of institutions (Article 10(2.2), Law on Corporate Income Tax; Article 28(2.2), Law on Personal Income Tax). Deductions are not allowed if the contribution will directly benefit a person related to the donor (Article 10(3), Law on Corporate Income Tax; Article 28(3), Law on Personal Income Tax).
A value added tax (VAT) is in effect in Kosovo. Exemptions are provided for the sale or import of medicines, medical services, pharmaceutical products, and medical and surgical instruments and apparatus, as well as the provision of public education services (Article 27, Law on Value Added Tax).
II. Applicable Laws
A complete list of Kosovo Laws in English is available at http://www.gazetazytrare.com as well as www.kuvendikosoves.org.
Constitution of the Republic of Kosovo
Law No. 04/ L-057 on Freedom of Association in Non-Governmental Organizations; entered into force in October 2011 (Law on Freedom of Association)
Law No. 04/L-103, on amending and supplementing the Law No. 03/L-162 on Corporate Income Tax; promulgated by Decree No. DL-019-2012 of May 17, 2012
Law No. 03/L-146 on Value Added Tax; in effect since January 1, 2010
Law No. 04/L-104 on amending and supplementing the Law No. 03/L-161 on Personal Income Tax; promulgated by Decree No. DL-020-2012 of May 17, 2012
Law No. 2004/3 The Anti-Discrimination Law
Law No. 03/L-040 on Local Self Government
Law No. 03/L-047 on the Protection and Promotion of the Rights of Communities and Their Members in Kosovo
Law No. 03/L-034 on Citizenship of Kosovo
Law No. 03/L –215 on Access to Public Documents; in effect since October 2010
Law No. 04/L-093 on Banks, Microfinance Institutions and Non Bank Financial Institutions
Regulation 2004/2 on the Deterrence of Money Laundering and Related Criminal Offences
III. Relevant Legal Forms
A. General Legal Forms
Kosovo recognizes two legal forms for domestic NGOs: associations and foundations. [2] Both forms may be established for any lawful public or mutual benefit purpose (Article 5, Law on Freedom of Association).
An association is a membership organization established by at least three domestic or foreign legal or natural persons, at least one of whom has a residence or seat in Kosovo (Article 5(2), Law on Freedom of Association).
A foundation is an organization without members that is established to manage properties and assets. A foundation may be created by one or more legal or natural persons, at least one of whom has a residence or seat in Kosovo (Article 5(3), Law on Freedom of Association). A foundation may also be established by a will, bequest, or legacy (Article 6(2), Law on Freedom of Association).
Foreign NGOs may conduct activities in the territory of Kosovo, provided that they register with the Government of Kosovo and substantially meet specified requirements (Articles 9(8) and 4, Law on Freedom of Association).
B. Public Beneficiary Status
An NGO may apply to the Government of Kosovo for “public beneficiary status,” which, if granted, entitles the organization to certain tax benefits and subjects it to certain reporting requirements (Article 17, Law on Freedom of Association). An NGO organized and operated to undertake one or more of the following as its principal activity may apply for public beneficiary status: humanitarian assistance and relief, support for persons with disabilities, charity, education, health, culture, environmental conservation or protection, economic reconstruction and development, the promotion of human rights, the promotion of democratic practices and civil society, the promotion of gender equality, or any other activity that serves the public beneficiary (Article 17(1), Law on Freedom of Association).
NGO activities are considered to be of public beneficiary only if significant benefits are provided free of charge or at less than fair market value to disadvantaged individuals or groups (Article 17(2), Law on Freedom of Association). An NGO with public beneficiary status must file annual financial and programmatic reports in order to retain that status (Article 18(1), Law on Freedom of Association). The financial reports of all NGOs with annual income or expenditures in Kosovo over roughly €100,000 must be submitted with “an opinion, signed by an independent auditor, as to whether the financial statements present fairly, in all material respects, the organization's financial position for the reporting period” (Article 18(9), Law on Freedom of Association). Public beneficiary status may be suspended should the NGO fail to file a complete annual report or the NGO no longer meets the requirements for public beneficiary status (Article 19, Law on Freedom of Association). If the status is suspended or revoked, the NGO must wait three years to apply again. (Article 19.4, Law on Freedom of Association).
IV. Specific Questions Regarding Local Law
A. Inurement
NGOs are prohibited from distributing any net earnings or profits to any person. An NGO’s assets, earnings, and profits may not be used to provide direct or indirect benefit to any founder, director, officer, member, employee, or donor of the NGO (Article 4, Law on Freedom of Association). NGOs are allowed to pay “reasonable compensation” to such persons for work performed for the organization (Article 4, Law on Freedom of Association).
B. Proprietary Interest
No specific legal provisions address the proprietary interest issue, which is still an evolving area under local law. An NGO may own and manage property and assets for the accomplishment of its not-for-profit purposes (Article 16.5, Law on Freedom of Association).
C. Dissolution
If an NGO receives tax or fiscal benefits, donations from the public, or government grants, then upon the organization's dissolution, any assets remaining after the discharge of liabilities shall be distributed to another NGO with the same or similar purposes, as identified in the organization’s governing documents or through a decision of the organization’s highest governing body. If no NGO is designated by either of these means, then the Government of Kosovo shall determine the NGO entitled to receive these assets (Article 21(3), Law on Freedom of Association).
All other NGOs must distribute assets remaining after satisfying their liabilities “in accordance with the [NGO's] statutes or a decision by the highest governing body” and in accordance with the provision governing private inurement (Article 21(4), Law on Freedom of Association).
Removal of NGO from Register
NGOs are obliged to submit once a year, to the competent authority, a statement confirming that the information they have provided remains valid or to provide relevant changes (Article 12, Paragraph 4, Law on Freedom of Association) If an NGO fails to submit this statement two consecutive years, the competent body may remove the NGO from the NGO register (Article 12.5).
D. Activities
1. General Activities
NGOs in Kosovo may engage in any lawful activities, including economic activities and certain political activities.
2. Economic Activities
An NGO may engage in economic activities, provided that the earnings are intended and used solely to promote the organization’s not-for-profit purposes (Article 16(2), Law on Freedom of Association). Although there are no explicit legal provisions on this matter, in practice the Government of Kosovo generally allows NGOs to engage in economic activities only to the extent they do not constitute the principal activities of the organization.
An NGO Microfinance Institution registers at the CBK as a non-governmental organization if it has a charitable purpose as its mission, and at the Ministry of Public Administration to obtain its tax exempt status. An NGO Microfinance Institution is not permitted to sell or transfer its business or merge or change its structure, nor is it permitted to distribute or in any manner pay out profits, surplus capital, dividends, or any of its assets, except in compliance with the law. In addition, an NGO Microfinance Institution is not permitted to sell or transfer its business or merge, divest, or otherwise change its structure, mission, or ownership (Article 95(1.6), Law on Banks and Microfinance Institutions), nor is it allowed to distribute or in any manner pay out income, profits, surplus or other assets, liabilities or capital, except in compliance with the law and with the written approval of the CBK (Article 95(1.7), Law on Banks and Microfinance Institutions)
E. Political Activities
NGOs may not engage in fundraising or campaigning to support political parties or candidates for political office (Article 15, Law on Freedom of Association). However, this prohibition does not appear to extend to involvement in lobbying or other kinds of political activities.
F. Discrimination
The Constitution of Republic of Kosovo guarantees all persons in Kosovo the right to all fundamental freedoms without discrimination on any grounds and the rights and protections set forth in numerous international conventions and declarations on human rights are incorporated into the Constitution (Article 22). Moreover, the Constitution provides comprehensive rights for members of all ethnic communities as well as guarantees for the protection of the national, linguistic, and religious identity of all communities (Articles 57-62). The Constitution guarantees that no one shall be discriminated against on the grounds of race, color, gender, language, religion, political or other opinion, national or social origin, relation to any community, property, economic and social condition, sexual orientation, birth, disability or other personal status (Article 24). The Constitution confirms that the Republic of Kosovo exercises its authority based on the respect for human rights and freedoms of its citizens and all other individuals within its borders.
The principles set forth in the Constitution are effectuated by the Anti-Discrimination Law. The Law applies to both individuals and legal persons in the public and private sectors, and covers any action or failure to act that affects the rights of a person to access employment or education opportunities, among other things (Article 4, The Anti-Discrimination Law). Recipients of public contracts, loans, grants or other benefits are required to execute a statement that they will act in compliance with the Anti-Discrimination Law and will promote a non-discrimination policy in carrying out their obligations under the public award (Article 6, The Anti-Discrimination Law). The Law authorizes claims as well as sanctions for violation of its provisions (Article 9, The Anti-Discrimination Law).
G. Control of Organization
There are no restrictions on the participation of or management by foreign individuals or entities of NGOs. Foreign persons may found, be members of, and manage an NGO in Kosovo (Article 5, Law on Freedom of Association). Therefore, it is possible that an NGO in Kosovo may be controlled by a for-profit entity or an American grantor charity.
V. Tax Laws
A. Tax Exemptions
Registered NGOs with public benefit status are exempt from the corporate income tax to the extent that the income is used exclusively to further the organization’s public benefit purposes (Article 7(1.1), Law on Corporate Income Tax). This includes income derived from foreign grants and donations. An exemption also applies to income generated from contracts with a non-local contractor for the supply of goods or services to the United Nations or any of its specialized agencies (including UNMIK), foreign governments, their organs and agencies, the European Union, the Specialized Agencies of the European Union; the World Bank, the IMF, and international inter-governmental organizations for the supply of goods or services in support of programs and projects for Kosovo (Article 7(1.6 and 1.7), Law on Corporate Income Tax). Other legal entities pay profit tax at the rate of 10% on taxable profit. NGOs without public benefit status are taxed on their profits in the same manner as other legal entities.
B. Deductibility of Charitable Contributions
Donations by legal entities and individuals made for humanitarian, health, educational, religious, scientific, cultural, environmental protection, and sports purposes may be deducted from income up to a maximum of 5% of taxable income (Article 10(1 and 2), Law on Corporate Income Tax; Article 28, Law on Personal Income Tax). The donation must be made to an NGO that has received and maintained public benefit status or to “any other non-commercial organizations that directly perform activities in the public interest and are not-for-profit,” including medical, educational, and other specified types of institutions (Article 10(2.2, Law on Corporate Income Tax; Article 28(2.2), Law on Personal Income Tax). Deductions are not allowed if the contribution will directly benefit a person related to the donor (Article 10(3), Law on Corporate Income Tax; Article 28(3), Law on Personal Income Tax).
An NGO is prohibited from accepting more than €1000 from a single source in a day unless it receives a written exemption. An NGO is required to include in its annual report disclosure of each contribution in currency if total contributions in currency from that source exceed €5000 per year (Regulation 2004/2 on the Deterrence of Money Laundering and Related Criminal Offences, Sections 4.1, 4.3, and 4.6).
C. Value Added and Turnover Taxes
The standard VAT rate is 16% (Article 26 (1.1), Law on Value Added Tax). In certain circumstances, the Minister of Economy and Finance may issue an act introducing a reduced rate not lower than 5% for designated supplies of goods and services. Subject to the same procedure and as deemed necessary, the Minister may also introduce a temporary higher rate of VAT not higher than 21% to be applied against designated supplies of goods and services (Article 26 (2) Law on Value Added Tax).
A zero rate is applied to exports and imports of goods, the supply of goods and services related to international transport of goods and passengers and irrigation, and other enumerated goods (Article 27, Law on Value Added Tax). Imports of medicines, medical services, and medical instruments are VAT-exempt (Article 30 (1.26), Law on Value Added Tax). The provisions of medicines, medical services, and medical instruments, as well as public education services, are also VAT-exempt (Article 27 (1.2), Law on Value Added Tax).
D. Double Tax Treaties
No tax treaties have been entered into between Kosovo and the United States.
VI. Knowledgeable Contacts
Shqipe Pantina:
Footnotes
[1] The Law on Freedom of Association uses the term "public beneficiary status" while the Income Tax Law and the Corporate Tax Law reference "public benefit status." This Note preserves the language used in the respective laws.
[2] In April 2009, the Constitution of Kosovo entered into force. Article 44 of the Constitution guarantees the freedom of association and the right of everyone to establish an organization without obtaining any permission, to be or not to be a member of any organization, and to participate in the activities of an organization.
In addition, the Constitution provides that the human rights and fundamental freedoms guaranteed by the Constitution shall be interpreted consistent with the court decisions of the European Court of Human Rights (Article 53).
