NEW LEGAL FRAME FOR TAX BENEFITS TO NGOs IS ADOPTED

The amendments to the Law on Corporate Income Taxation were promulgated in issue the State Gazette 107/07.12.2004 which enters into force for January 1, 2005. The law sets forth new regulations concerning the tax treatment of donations to NGOs.

 

It partially changes the mechanism for making and accounting donations. According to the law effective by the end of 2004, the legal entities may decrease their financial result with sums of donations amounting up to 10% if the donation is made to definite categories of subjects among which are NGOs in public benefit registered in the Central registry and non-commercial entities with charitable, social, environmental, health, scientific research, educational, cultural and sports purposes. Besides, donations accounted as expenses, levied with a tax withheld at the source at the rate of 20% pay a lower tax of 15% when the recipients are the above mentioned persons.

 

The new Law on Corporate Income Taxation that enters in to force from 2005 evokes the possibility for decreasing the financial result with sums of donations. It stipulates that donations in favor of healthcare institutions, specialized organizations providing social services under the Law on Social Support, the Bulgarian Red Cross and NGOs in public benefit registered in the Central registry and others are accounted as expenses. They are not levied with a tax withheld at the source and lead directly to decrease of the financial result. If the expenses for donation exceed 10% from the positive financial result of the legal entity-donor, with the surpass increasing of the financial result is done, which means that it is levied with a corporate tax. A basic new moment in the tax treatment of donors to NGOs is the falling away of the non-commercial entities with charitable, social, environmental, health, scientific research, educational, cultural and sports purposes from the list of recipients giving right of tax incentives to their donors. NGOs in private benefit are within this circle and considered from 2005 their corporate donors will not be entitled to use tax benefits for donations.

 

The new rate of the tax withheld at the source on the donation accounted as expenses is 17%. This tax will be paid by corporate donors donating to organizations which are not among the exempt categories like NGOs for mutual benefit. The corporate tax rate for 2005 is 15% and the profits from supplementary economic activity will be levied with it. For more information you refer to the Bulgarian Center for Not-for-Profit Law. Phone Number 02/9 888 166, e-mail: info.bcnl.org.