NGO Basic Fiscal Framework

In Kosovo, the basic law for NGO governance is the Law on Freedom of Association in NGOs (Law 04/L-57), which determines the main elements of establishing, organizing, internal governance and dissolving an NGO, as well as the main elements of the Public Beneficiary Status. This law is based on international principles of the not-for-profit law, whereas the main body responsible for the implementation of this Law is the Department for Registration and Liaison with NGOs with the Ministry of Public Administration.

This Law, according to article 4, prohibits the distribution of net income and earnings, so that the possibility to abuse privileges that come with NGO status is decreased. According to Article 14 of this Law, “any member of the governing body shall not participate in the consideration or decision of any matter in which he/she has a direct or indirect personal or economic interest”, to avoid any possibility of conflict of interest.  Article 16, which provides for the manner in which property and assets of an NGO are regulated, defines where the NGO may be funded from. This article also explains that NGOs may engage in economic activity, earnings from which have to be used to serve the purpose of NGO existence and that the NGOs may manage property and assets to accomplish their own not-for-profit purposes. Article 17 has important implications related to NGO fiscal issues. This Law determines how an NGO in Kosovo may gain the Public Beneficiary Status to benefit from fiscal privileges for NGOs.

The Law on Freedom of Association in Non-Governmental Organizations in Kosovo states that NGOs that operate in Kosovo are allowed to engage in economic activities if these support their not-for-profit activities and if the income accumulated is used solely for the fulfillment of the purposes specified in the NGO Statute.  Therefore earnings from economic activities are legal; however they have to be subject to this limitation. This means that NGOs are not allowed to distribute net income and earnings to natural persons, which are in a position to control the organization for private gain, such as the founder, director, employee or donor. Whereas obligations that stem from a contract, such as wages or reasonable compensation for persons engaged with the organization are legal and accepted according to this article.

All NGOs that use financial means for their activities must have proper financial management. In general, international accounting principles have to be abided by as well as the legislation in force in Kosovo. Each registered NGO must have a bank account and all the funds (donations) must be received only through the bank. Also there should be a goal of carrying out any type of payments through the bank, with the exception of small expenditures which are impossible to be paid through the bank. All payments must be carried out only based on regular bills or contracts for services, whereas each payment must be authorized by the Executive Director and the Financial Manager.

For all financial transactions, bookkeeping must be performed (usually in specific financial programs), whereas the organization must produce regular reports for all the income and payments (at least once per year). The reports must be handed over and approved by the highest entity of the organization, whereas it is preferred for them to be disclosed. Organizations with Public Beneficiary Status that have a yearly turnover of over EUR 100,000 shall be subjected to an annual audit by independent certified auditors, whereas it is preferred that other organizations carry out regular audits of projects and of the entire organization. Organizations with large turnover of funds are preferred to have special financial regulations, which would determine all the detailed regulations of financial procedures for any and all possible cases of income and payments.

Disclosing activities and funds used is a general principle of good governance. The level of disclosure to the public differs based on the type and activity of the organization.

Based on international principles, but also on the Law on NGOs, NGOs may be public benefit organizations or mutual benefit organizations. The main element that separates these organizations is whose interest does the work of said organization serve. In cases when the organization has a purpose of working in various fields which are considered as a “public good – a good for the entire society or for a considerable part of the society”, then they have the right to be bestowed the Status of Public Beneficiary. The Law on NGOs contains a broad list of activities which are considered to be of public interest, i.e. human rights, environmental protection, promotion of rights for persons with special needs, EU integration, etc. In cases when the organization aims towards promoting the interests of its members, which is not necessarily also for the general interest of the society, then this organization is qualified as a mutual benefit organization. For example, the Association of Stamp Collectors brings together all those that have such an interest; however their interest does not represent an interest for all of Kosovo’s society. Similarly, the Association of Fishermen has a goal of promoting the rights of its members; however this interest is not necessarily the interest of the general Kosovar society.

In this regard, organizations with public beneficiary status, because they contribute to the benefit of the society in general, must gain benefits and various aid from the state, i.e. public funds, tax breaks, free-of-charge use of various public spaces etc. Parallel to this, because of these state benefits, they are subjected to a certain financial and general control and are obligated to report regularly to the Department for Registration and Liaison with NGOs (DRLNGO). However, in Kosovo these organizations currently do not receive any concrete benefits from the state, despite continuing to be obliged to report regularly about their work. In fact it is the opposite, organizations for mutual interest are not obligated to report to state entities, except with the Tax Administration of Kosovo, as are all the other legal entities that have various financial transactions.

Besides the Law on Freedom of Association in NGOs (Law No. 04/L-57), NGOs are subjected to the other part of the legislation in force, depending on their work.  NGOs are subjected to the Law on Personal Income Tax every time they carry out payments for their staff, are subjected to the Law on Access to Official Documents every time they request information from public administration bodies, are subjected to Rules of Procedure of the Government every time they participate in drafting laws and various policies at the governmental level etc. However, Kosovo legal framework for proper functioning of NGOs still remains incomplete.