Legal framework and implementation
Tax incentives for CSOs and their donors are generally small, although there are some positive legal provisions, in particular with regard to private CSO donors. The new Law on Corporate Income Tax and the Law on Personal Income Tax foresee the increase of tax deductions for corporate or individual donations from 5 % to 10 % of their taxable income if these donations are for humanitarian, health, educational, religious, scientific, cultural, environmental, or sporting purposes. Recipients eligible to receive such donations include NGOs and any other non-commercial organization that directly carries out activities in the aforementioned areas. Tax incentives are offered only for a select number of public benefit activities, a number that is much smaller than the number on the list of public benefit activities in the Basic Law for NGOs. The provisions on NGOs in the Law on Corporate Income Tax remain unclear and it is not clear whether corporate tax exemptions apply to all NGOs or only those having Public Benefit Status. Accepting external funding is allowed. Moreover, CSOs can also receive funds from individuals, corporations and other sources.
Regarding the economic activity of CSOs, the legal framework is ambiguous, especially with regard to the economic activities of CSOs that do not have the public benefit status. According to the Kosovo Tax Administration, the economic/commercial activities of Organizations with Public Benefit Status (OPBS) are exempt from corporate income tax if the purpose of the revenue is only for public benefit purposes and to the reasonable level of revenues. While only OPBS are mentioned in the article for tax incentive/relief, another article on economic activities mentions all registered CSOs whose economic activity is exclusively related to its public purpose up to a reasonable level of revenues. This implies that the economic activity of a registered NGO needs to be directly related to its mission and the revenue should be reasonable, while all other economic activities are subject to income tax. Sub-legal acts describing the procedures and details of those tax exemptions are in the process of drafting. However, this incoherence causes difficulties in interpreting and implementing this Law. Similarly to the previous law, the new law does not include any provisions on tax benefits in passive CSO investments, as there are no provisions for the establishment and operation of donor organizations, nor foresees tax benefits for the latter.
Regarding the implementation of incentives, no CSO has reported any direct or indirect tax on grants or donations. There is no accurate data on the number of CSOs benefiting from tax exemption for their economic activities, although 16.8% of interviewed CSOs stated that they or their donors had been excluded from some of the taxes (Matrix Report, 2016). However, a detailed analysis of reported tax exemptions shows that only a small part was excluded because of their NGO status, with the exception of VAT (based more on donor status rather than NGOs), which was the most common type of tax exemption. Less than half of surveyed CSOs (41.17%) consider tax benefit procedures as very complicated or somewhat complicated. However, CSOs are quite uninformed about tax legislation – earlier studies show that almost half of CSOs are unaware of these procedures. Since the practices of creating or operating a donation in Kosovo were not observed, no tax benefit was reported for donations. The same goes for passive investments.