Taxation in NGOs

Non-profit organizations (NGOs) can and should work effectively, including in terms of taxation. The right choice of tax regime, knowledge of benefits and competent optimization are key factors of sustainable development of NGOs. In this article, we'll understand. What tax systems are available. What to choose from your organization. What mistakes are the most dangerous and How to save money without going beyond the law.

What tax regimes are available for NGOs

Although NGOs are not created for profit, they, as legal entities, are obliged to keep tax and accounting records and can choose one of the standard regimes:

1. General System of Taxation (GST)

When applicable:

• automatically upon registration, unless otherwise stated;
• if the organization receives income from commercial activities.

Basic taxes:

• income tax (20%);
• VAT (20%);
• property tax of organizations (if not exempt);
• insurance premiums.

Pros:

• the possibility of VAT refund (if there is an incoming one);
• More flexible interaction with major partners.

Cons:

• high tax burden;
• complex accounting.

Suitable:

• large NPOs with commercial activities and partners on the Foundation;
• Those who plan to receive a VAT refund.

2. Simplified taxation system (USN 6%)

Object of taxation: income.

Tax rate: 6% of all income (including earmarked funds, if not properly executed).

Pros:

• ease of accounting;
• Minimum tax burden.

Cons:

• target funds may be mistakenly included in the tax base;
• You can't deduct expenses.

Suitable:

• NGOs with regular donations and no commercial activities;
• Small and medium-sized organizations at no cost.

3. USN 15% (income minus expenses)

Object of taxation: The difference between income and expenses.

Tax rate: 15% (can be reduced at the regional level)

Pros:

• the possibility of accounting for expenses, including for events and procurement;
• Funds that are documented as targeted are not taxed.

Cons:

• more complex accounting than with USN 6%;
• Risks of incorrect qualification of income/expenses.

Suitable:

• NGOs with large target costs and grant funds;
• organizations conducting projects with funding “under estimate”.

Risks in choosing a tax regime and obtaining benefits

1. Misqualification of income

If the target receipt (for example, a donation) is issued in violation, it can be recognized. taxable. This is especially dangerous with USN 6% - the tax can be charged on the entire amount of income.

Council:
Make targeted receipts through donation agreements, specify the purpose, purpose, terms and conditions. Keep supporting documents.

2. Loss of Eligibility for USN

If business income exceeds the limits (200 million ы or 130 employees in 2025), NGOs can switch over automaticallyThis will dramatically increase the tax burden.

3. Mistakes in the application of tax benefits

Some benefits (for example, exemption from income tax on earmarked funds) Applicable only under strict conditions:

• separate accounting of target and commercial funds;
• reporting on the forms established by the Ministry of Finance (F. 6-NCO, etc.);
• The existence of constituent purposes confirming non-commercial status.

How to save on taxes legally: ways to optimize

1. Separate accounting

Required under all regimes. Divide:

• target funds (donations, grants, subsidies);
• Business income (for example, paid services).

Outcome: Income is not included in the tax base.

2. Correct drafting of contracts

• Competent donation and purpose-financing agreements;
• reference goals, deadlines, reporting forms;
• There are no conditions under which a donation can be recognized as payment for a service.

3. Choosing the Right Regime

• If the NCO almost no expense Regular income is more profitable USN 6%Provided a clear separation of target and commercial funds.
• If the NCO many targeted projects and procurementsAnd there are estimates. USN 15% It allows you to take into account costs.
• If the NGO is working with Government agencies, foreign donorsgets VAT from suppliers - think intelligently BasicEspecially if you can refund the VAT.

4. Take advantage of regional benefits

Some regions have established reduced rates for socially significant NGOs (for example, 5% instead of 15%).

5. SONCCO Support Programme

Socially oriented NGOs can apply for:

• grants and subsidies (not subject to conditions);
• property tax benefits;
• VAT exemption for certain activities (education, culture, etc.).

What to choose for your NGO?

NGO is not about “getting away from taxes”, but about “being able not to overpay”.

Properly executed documents, timely reporting, a competent tax strategy and a qualified accountant are the best ways to save resources while complying with the law.