Sub-area 2.1. Tax/fiscal treatment for CSOs and their donors
Tax Benefits
LegislationPracticetotal Score 0 – 20 Fully disabling environment 20 – 40 Disabling environment 40 – 60 Partially enabling environment60 – 80 Enabling environment 80 – 100 Fully enabling environment
The legislative and tax framework for CSOs continues to pose challenges for donors, although improvements have been observed in Albania and North Macedonia.
Positive changes in legislation have been observed in Albania and North Macedonia. First, the Albanian Ministry of Finance and Economy issued instructions on VAT refund procedures for funds provided by foreign donors to CSOs. With this regulation in place, all bilateral and multilateral agreements ratified by the Albanian Parliament or grant agreements approved by the Council of Ministers qualify for a VAT refund. Moreover, subject to VAT reimbursement are sub-granting schemes implemented through intermediary organizations. This is seen as a huge step towards improvement of the legal regulation on VAT refund in Albania and reflects the results of the advocacy efforts of the sector to this regard.
In North Macedonia, the Law on Value Added Tax (VAT) was amended and made more amenable for CSOs. In particular, the amendments increased the threshold on VAT registration. CSOs continue to not be governed by the Law on Profit Tax, and the new Law on Personal Income Tax exempts them from paying compensation to volunteers, accommodation, food and transportation costs for attendees of events organized by CSOs, as well as travel expenses. Furthermore, grants and donations from foreign donors are VAT exempt, with a prior project registration procedure as a precondition.
In Montenegro, VAT exemption is calculated on the total contract amount, including European Union and co-funding resources. Non-governmental organizations are also exempt from tax on real estate if the real estate is owned by the organization and used for achieving the goals of the organization. The same exemption grounds apply with regard to tax on real estate turnover. However, CSO representatives stress that CSOs need additional tax benefits since non-profit organizations pay the same taxes as companies or corporations, which affects the volume of services they can provide.
Serbia introduced no changes to its legislative framework. According to the Corporate Profit Tax Law, CSOs are exempt from taxation of grants, donations, membership fees and non-economic sources of income. In Bosnia and Herzegovina, CSOs do not have to pay income tax on donations made from the state budget or other public funds, sponsorships or donations given in cash and tangible assets. No recent changes to the legal framework regarding tax benefits for CSOs have been made in Kosovo either. A number of CSOs funding sources do not undergo taxation, such as grants, donations and subventions.
Legislation in all of the countries offers all CSOs benefits relating to their economic activities.
In Montenegro, the tax base related to taxes for economic activities of CSOs is reduced to 4,000 EUR if the income is used in a way that contributes to achieving the goals of the organization. In Bosnia and Herzegovina, CSOs can generate income by performing economic activities. If they earn up to 50,000 BAM (approx. 25,000 EUR) from service provision, they are exempt from paying VAT. In North Macedonia, pursuant to the Law on Profit Tax, CSOs do not pay profit tax related to economic activities. The income becomes taxable once the total threshold of one million MKD (approx. 16,000 EUR) is exceeded by 1%, which is calculated only against the exceeding amount. In Albania, the revenue derived from economic activities should not exceed 20% of the total annual income of the CSO and is subject to VAT if the amount exceeds the VAT registration limit specified by the Law on Tax Procedures. In Serbia, the law stipulates that the income earned by CSO which is lower than 3.400 EUR is exempt from profit taxation. In the event of taxation, the profit tax rate is 15%, the same as with other legal entities. The legal framework on economic activity remains ambiguous in Kosovo, particularly with regard to economic activities of CSOs without a Public Benefit status. According to the Kosovo Tax Administration, the economic/commercial activities of PBOs are exempt from corporate income tax if the income is used solely for the public benefit and is up to a “reasonable level”. While this provision relates only to PBOs, another provision on commercial activities applying to all registered CSOs reads “commercial or other activity shall be exclusively related to its public purpose up to a reasonable level of income”. This implies that the economic activity of any registered CSO shall be directly linked to its mission and the income should be up to a reasonable level, whereas all other economic activities are subject to income tax. This incoherence causes difficulties in interpretation and implementation.
Incentives for Individual/Corporate Giving
LegislationPracticetotal Score 0 – 20 Fully disabling environment 20 – 40 Disabling environment 40 – 60 Partially enabling environment60 – 80 Enabling environment 80 – 100 Fully enabling environment
Individual and corporate giving is poorly practiced in the region, especially in the civil sector. The table below provides information on the legislative framework for donation tax incentives.
| Country | Legislation regarding individual/corporate tax incentives |
| Albania | The legal framework on individual and corporate giving did not undergo changes during 2019. The only law governing donations is the amended Law no. 7892 on Sponsorship, dated 21.12.1994. The law defines sponsors as “only those entities having the quality of merchants, physical or juridical persons, domestic of foreign, or joint ventures” and the sponsorship amount is considered a deductible expense up to the amount of 3% and 5% for press publishers and literature, scientific and encyclopedic publications, as well as cultural, art and sport-related activities. Individual giving is not accounted for in the Law on Sponsorship or any other law, and therefore subject to any fiscal policy. |
| Bosnia and Herzegovina | Donations by taxpayers to legal entities in Republika Srpska are deductible up to 3% of the total annual income that comes from donations to organizations providing humanitarian, cultural, sport-related and social services, and 2% for sponsorship expenses. In the Federation of BiH, sponsorship expenses are tax-deductible up to 3%, as are costs related to donations made for humanitarian, cultural, educational, scientific and sport-related purposes to legal entities or individuals that have no other income.
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| Kosovo | The Law on Personal Income Tax and the Law on Corporate Income Tax allow 10% deduction of the taxable income of physical persons, corporations and other sources if such donations are made for humanitarian, health, educational, religious, scientific, cultural, ecological and sport-related purposes. Eligible recipients of these donations are CSOs and any other non-commercial organizations operating directly in the above mentioned areas. The provisions of the Law on Corporate Income Tax regarding CSOs remain ambiguous and it is unclear if the exemptions on standard corporate tax apply to all CSOs or only to those with a Public Benefit status. |
| Montenegro | The Law on Corporate Income Tax recognizes expenditures in the area of public interest up to 3.5% of the total income of the taxpayer. Amendments to the 2016 Law addressed some of the key problems in the Act: the concept of public interest was aligned with the provisions of the Law on NGOs (recognizing all 21 areas of public interest, instead of just 5 as stipulated by the previous legislation), specifying that tax benefits shall apply only if expenses were incurred by legal entities registered for performing activities in the areas of public interest defined by law, in line with special regulations, and that not only cash, but also things, rights and services shall be considered expenses. |
| North Macedonia | The Law on Donations and Sponsorships in the Public Activities (LDSPA) provides tax incentives for individual and corporate donations to CSOs. According to LDSPA, an individual making a contribution can deduct the calculated, but not paid personal income tax, or claim a return of the paid income tax determined based on their annual tax return in the amount of the donation, but no more than 20% of the donor’s annual tax debt, or no more than 390 EUR. Enterprises can use tax benefits amounting to 5% for donations and 3% for sponsorships. |
| Serbia | The Corporate Profit Tax Law stipulates that expenditures on health care, cultural, educational, scientific, humanitarian, religious, environmental protection and sport-related purposes shall be recognized as expenditure amounting to not more than 5% of the total revenue. This means that public institutions and CSOs could both receive funds with tax deductible expenses. The law does not stipulate the clear criteria for final determination of the tax-deductible amount for each individual case. The Individual Income Tax Law, on the other hand, does not grant any incentives for individual donations. |
Regarding philanthropic activity, a noteworthy development, in Albania, in 2019, was the initiative for creating a philanthropic fund from contributions made by the private sector (Solidarity Albania) aimed at addressing the problems of people in need, which was announced by the Prime Minister. In 2019, Albania marked a 94% increase in the total value of private donations compared to the previous year, which was mostly prompted by the earthquake that hit Albania in the autumn of 2019. According to the Catalyst Foundation, Serbia saw an increase of almost 61.2% compared to 2018. This growth comes as a result of the increased humanitarian aid donations made by citizens, primarily in the field of health. In contrast, Catalyst Balkans research results for North Macedonia indicate a 13.4% decrease in donations made for charitable purposes, with citizens accounting for the largest part of the donations (46.1%). Most of the donations towards non-profit organizations in Montenegro were also made by individual citizens, making up for 36.5% of the donations.
Despite being legally recognized, corporate social responsibility (CSR) is practiced very poorly in the region.
Serbia and North Macedonia are among the positive examples of how the state could promote CSR. In Serbia, apart from the legal background supporting CSR activities, there is also a Responsible Business Forum dedicated to promoting and advancing the concept of CSR. CSR in North Macedonia is viewed as potentially encouraging of corporate giving, and therefore of interest to the Government. The Ministry of Economy adopted a Mid-term CSR strategy, (2019-2023) aimed at defining and implementing a comprehensive approach to the promotion and advancement of CSR with a focus on businesses. CSOs are listed as implementers of some of the measures/activities in the action plan of the Strategy. Conversely, CSR in Kosovo is neither commonly practiced among private companies, nor it is promoted by the state. Similarly, Bosnia and Herzegovina has an underdeveloped concept of CSR and inadequate legislation to regulate enforcement.
Practice shows that a rather small number of CSOs have a public benefit/interest status (PBO) in Bosnia and Herzegovina, Kosovo, North Macedonia and Montenegro, regardless of the fact that it is permitted by law. To illustrate, only 2.08% of the organizations that participated in an online questionnaire in Montenegro reported having a PBO status, and as few as 4 in North Macedonia. In Kosovo, a PBO status plays no part in receiving tax benefits, which means that the fiscal legislation is inconsistent with the NGO Law with regard to the PBO status.
Sub-area 2.2. State support
Public Funding Availability
LegislationPracticetotal Score 0 – 20 Fully disabling environment 20 – 40 Disabling environment 40 – 60 Partially enabling environment60 – 80 Enabling environment 80 – 100 Fully enabling environment
State funding remains a limited source of income as support to CSOs in the region. The legal framework concerning state support for CSOs has not undergone significant changes and certain issues persist.
Distribution of public funds for CSOs is mostly decentralized and performed by the ministries and other public institutions.
In Kosovo, under the Regulation on Criteria, Standards, and Procedures on Public Financing for CSOs, specific budget lines were to be introduced in the annual state budget to allow for public funds for CSOs. Although mandatory, public institutions have not yet included specific budget lines for CSO support in the annual budget. According to the Annual Report on Public Funds distributed to NGOs in 2018, 24 million EUR were allocated to CSOs from the total annual budget of EUR 1.8 billion. A review of the beneficiary lists (which was conducted by KCSF) showed that only 9 million EUR from the 24 million EUR reported as public financial support were actually allocated to civil society organizations. The rest went out to federations, sports clubs, economic operators, and services provided by CSOs on behalf of state institutions. An average of EUR 9,731.71 was allocated per CSO. The lists of public fund beneficiaries reveal that public institutions categorize the funds allocated for sports clubs, federations, religious institutions, private schools, art ensembles, and city theatres, as support for civil society organizations, which is problematic.
In 2019, in Montenegro, 6,001,249.05 EUR were planned under the current special budget item “Transfers to NGOs”. In North Macedonia, the main budget line for CSOs continues to be 463 – Transfers to Non-Governmental Organizations (NGOs), envisaging (according to the data provided by state institutions) a total of approx. 8.3 million EUR as financial support for NGOs. Nevertheless, the 463 budget item causes confusion since most budget funds under this item are allocated to political parties and sports clubs. Similarly, payments to other legal entities are also made from the 481 – Donations to NGOs budget item. In 2019, 64.431.679,49 EUR were planned under this budget item, but no specific percentage was set out for allocation of these funds.
Channeling a certain percentage of the proceeds from lotteries and other games of chance to CSOs is still possible in the region, with the exception of Serbia. However, this source of income is rather unpredictable due to its limited availability and lack of transparency in the selection procedures.
In general, practice indicates that state funding is not a viable source for CSOs as it is limited in its ability to support the work of CSOs. As an illustration, 67% of the survey respondents in Albania and 70% of the survey respondents in Kosovo say that public funding cannot meet their needs. However, a new and noteworthy positive development in the region is the passing of the Law 39/ 2019 “On Administration of Sequestered and Confiscated Assets” in Albania. Based on this law, the Agency for Administration of Sequestered and Confiscates Assets may, with the approval of the Ministry of Finance and Economy, set up a special fund which would be allocated and distributed to CSOs and other entities. In 2019, the Agency for Administration of Sequestered and Confiscated Assets planned a total fund of 95 million ALL (approx. 754,000 EUR) in support of civil society organizations.
Public Funding Distribution
LegislationPracticetotal Score 0 – 20 Fully disabling environment 20 – 40 Disabling environment 40 – 60 Partially enabling environment60 – 80 Enabling environment 80 – 100 Fully enabling environment
The legal framework in all of the countries contains provisions that stipulate general and uniform criteria for the process of distribution of public funds.
In 2019, North Macedonia set a positive example with its increased efforts for strengthening transparency and accountability of the process of distribution of public funds. More specifically, it was for the first time that state institutions submitted data on the allocation of funds to CSOs at national and local level. This data was later published and used at a session of the Council for Cooperation and Development of the Civil Society. Moreover, the names of all the recipients of public funds (including NGOs) were published on the Open Finance website by the Ministry of Finance. Finally, information on the complete assessment process and selection of the beneficiaries carried out by the General Secretariat of the Government for CSOs in 2019 was published on the Unit for Cooperation with NGOs website.
In Montenegro, on the other hand, with the introduction of the new decentralized funding system in 2018, many ministries came under heavy criticism for not following legally prescribed procedures, although things improved slightly in 2019. As a result, 52.08% of surveyed organizations stated they disagreed or strongly disagreed that state institutions observed the procedure for allocating funds and 64.58% of surveyed organizations stated that they disagreed or strongly disagreed that decisions on allocation of funds were fair.
In Serbia, due to the general provisions on the programme’s criteria for selection, which could leave greater room for arbitrary decision-making, numerous cases of non-transparent financing of CSOs have been observed. This number has risen lately as funds are being allocated to newly registered CSOs (often affiliated with political structures – GONGOs/PONGOs).
Regarding accountability, monitoring and evaluation of public funding, all countries have enforced legal acts prescribing clear measures for accountability, monitoring and evaluation.
Ordinarily, monitoring of financial support is performed through routine and financial visits to ensure compliance with legal requirements. Organizations also submit reports, mostly during the project implementation period, as well as one final report as soon as the project is completed. Nevertheless, some accountability provisions do not take into account the specific nature of CSOs.
Non-Financial Support
LegislationPracticetotal Score 0 – 20 Fully disabling environment 20 – 40 Disabling environment 40 – 60 Partially enabling environment60 – 80 Enabling environment 80 – 100 Fully enabling environment
Non-financial state support is generally available to CSOs in the region. The most common means of non-financial state support is the use of public premises, free of charge or for a reduced fee, or the use of movable items.
With the exception of Albania, which has not yet enforced a legal framework or regulations with specific provisions that authorize state authorities to provide non-financial support to CSOs, all other countries have already addressed this issue. In 2019, Kosovo amended the Law on Allocation for Use and Exchange of Municipal Immovable Property; however, the new law does not take into account the nature of civil society organizations and contains no specific provisions on one-time usage of municipal or other public property by civil society.
The prevailing opinion is that CSOs are mostly unaware of the opportunities for non-financial support extended by the state.
Sub-area 2.3. Human resources
Employment in CSOs
<p style=”text-align: center;”><span id=”leg”>Legislation</span><span id=”pra”>Practice</span><span id=”total”>total Score</span><span id=”one”> 0 – 20 Fully disabling environment </span><span id=”two”>20 – 40 Disabling environment </span><span id=”three”>40 – 60 Partially enabling environment</span><span id=”four”>60 – 80 Enabling environment </span><span id=”five”>80 – 100 Fully enabling environment</span></p>
In all of the countries, legislation generally permits the hiring of staff in CSOs. Nevertheless, the laws and policies pertaining to employment do not take into account the specific nature of CSO operation.
In North Macedonia, for example, CSOs suffer unequal treatment when it comes to receiving benefits available for businesses. Namely, the government policies on increasing employment are merely focused on businesses, which is showcased in the 2016-2020 National Employment Strategy where CSOs are listed as implementers of measures, rather than users. Furthermore, the civil sector is not represented in employers’ organizations and it is unclear under which collective agreement it is covered. The situation is similar in Montenegro and in Serbia where Labor Laws do not differentiate between employees of corporations, the state or CSOs. This means that CSOs are obligated to pay full taxes and surtaxes for every employee, which some see as burdensome. Incentives for employment in the civil society sector are also at a very low level.
Despite discussing the amending of the Labor Law in Kosovo since 2014 and identifying the provisions that allow CSOs the same treatment as other entities as burdensome and challenging for CSOs, the draft of the law that passed its first reading in June 2019 lacks, yet again, the inclusion of specific provisions on employment in CSOs. Albania also saw a legislation change in 2019, when the Law 15/2019 “On Employment Promotion” was adopted. Implementation of this law is expected to improve the employment level by offering services and public programmes for employment, self-employment and the obtaining of professional qualifications.
In practice, employment in CSOs in still quite low. As an illustration, latest available data indicate that only 854 people were hired by CSOs in Montenegro, 1,645 in North Macedonia and 8,517 in Serbia, which makes up for less than 1% of all the employed persons in these countries.
Volunteering in CSOs
<p style=”text-align: center;”><span id=”leg”>Legislation</span><span id=”pra”>Practice</span><span id=”total”>total Score</span><span id=”one”> 0 – 20 Fully disabling environment </span><span id=”two”>20 – 40 Disabling environment </span><span id=”three”>40 – 60 Partially enabling environment</span><span id=”four”>60 – 80 Enabling environment </span><span id=”five”>80 – 100 Fully enabling environment</span></p>
Volunteering continues to be a viable practice for CSOs in most of the countries due to generally stimulating regulation. In some countries, changes to this particular legislative framework have been observed.
In North Macedonia, a new National Strategy for Promotion and Development of Volunteering 2020 – 2025 was discussed in 2019 and a new Law on Internship was adopted in 2019, drawing a distinction between the concepts of internship and volunteerism. A new Draft Law on Volunteering was also in parliamentary procedure in Montenegro. The Law redefines volunteering and aims to establish volunteerism as civic activism instead of a work relationship. The adoption of this law is in accordance with the Strategy for Improving Enabling Environment for CSOs in Montenegro for the period 2018-2020. A “Code of Ethics for Volunteers” in compliance with the Law on Volunteerism was enacted in July 2019 in Albania, while in Kosovo, the process of drafting the Law on Volunteering is still in its beginning phase (currently, volunteering is regulated by the Law 03/L-145 on Youth Empowerment and Participation).
In Bosnia and Herzegovina, on the other hand, volunteering is not regulated by means of any legal framework. Although the passing of a Law on Volunteering was suggested several times, it has not yet been passed due to the lack of political will.
Survey results show that in practice, engagement of volunteers in the work of CSOs is rather satisfactory. For instance, 81% of surveyed CSOs in North Macedonia stated that they hired volunteers during 2019.
Non-Formal Education
<p style=”text-align: center;”><span id=”leg”>Legislation</span><span id=”pra”>Practice</span><span id=”total”>total Score</span><span id=”one”> 0 – 20 Fully disabling environment </span><span id=”two”>20 – 40 Disabling environment </span><span id=”three”>40 – 60 Partially enabling environment</span><span id=”four”>60 – 80 Enabling environment </span><span id=”five”>80 – 100 Fully enabling environment</span></p>
CSOs engagement in non-formal education looks promising with room for improvement in most of the countries.
The legislation in Montenegro is the most notable example. Specifically, the importance of the role of the CSO sector is recognized in the Adult Education Strategy for Montenegro 2015-2025, which recommends using the NGO sector potential for adult education to increase social inclusion of adult citizens through lifelong learning and education. For this purpose, the Ministry of Education makes annual allocation of funds for financing NGO projects and programmes in accordance with the Law on Non-Governmental Organizations.
Legislation in the rest of the countries generally allows the organization of educational activities by CSOs, including non-formal ones, in line with their statutes and fields of activities, which in some cases may require the acquiring of licenses or certifications.
With regard to formal education, civil society related subjects are moderately included in the official curriculum of the educational system at all levels in almost all countries.