The non-profit status of organizations, subject to the fulfillment of certain conditions of the Tax Code of Ukraine (hereinafter – TCU), gives them the title of non-payers of income tax and imposes certain obligations on the use of the received income. Does the non-profit organization have the right to conduct business activity in general?
Yes, if the profit received is used to pursuit its purpose and goals.
Let us support the following by the provision of the Civil Code of Ukraine (hereinafter – CCU): “Non-business associations (cooperatives, except for manufacturing, associations of citizens, etc.) and institutions may, in addition to their main activity, carry on business, unless otherwise provided by law and if such activity is consistent with the purpose for which they were established and contributes to its achievement”(Part 1, Art. 86 of the CCU).
It is important that the profile law prescribed for such non-profit organization does not prohibit the pursuit of entrepreneurial activity, and such entrepreneurship helps to achieve the purpose for which the organization was established. For example, according to the profile law for charitable organizations: “Charitable organizations have the right to carry on business without the purpose of profit, which contributes to the achievement of their statutory goals” (Part 4 of Art. 16 of Law of Ukraine “On Charitable Activities and Charitable Organizations” No. 5073-VI of July 5, 2012).
Of course, it is necessary that the constituent documents do not prohibit business activities. And best of all, that such a possibility is enshrined in the charter.
The controllers also confirm that non-profit organizations can conduct business (economic) activities. Here are some of their explanations for this:
- “A public association with the status of a legal entity has the right to engage in entrepreneurial activity directly, if provided by the statute of the public association, or through legal entities (societies, enterprises) established by the procedure provided by law, if such activity meets the purpose (goals) of the public association and contributes to its achievement. Information on business activities of public associations shall be included in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (Art. 21, paragr. 2 of Law No. 4572)” (Letter of the Ministry of Finance No. 11210-09-5/3214 dated February 6, 2019);
- regarding the creation of a charitable foundation by a commercial company: “… the income that the CF will receive from the activities of the LLC should be used solely for the statutory activity of the CF and cannot be distributed in any way between the founders, participants, employees of the CF, except for their remuneration ) the non-profit organization has the right to be the founder of the LLC” (Letter of the SFSU No. 20300/6/99-99-15-02-02-15 dated September 19, 2016).
It is worth noting that the TCU does not limit the activities that the non-profit organization can generate revenue from, but limits only the areas of its use. The revenues (profits) of the non-profit organization are used solely to finance expenditures for the maintenance of such non-profit organization, the implementation of the purpose (goals, objectives) and activities defined by its constituent documents (subitem 133.4.2 of the TCU). But, of course, they cannot be distributed among the founding members of such an organization.
The generation of the entrepreneurial income does not make the non-profit organization the income tax payer. The main thing is that the received income must be used for statutory purposes.
