Russia’s invasion of Ukraine highlighted the extremely important role that volunteer and charity organizations play in providing the necessary support and assistance to those who need it – military personnel and their family members, internally displaced persons, and other socially vulnerable sections of the population. In view of the long duration of the war, such assistance becomes increasingly important, and therefore any obstacles and obstacles that may lead to its limitation are unacceptable and must be removed by the state.
According to the Ministry of Social Policy of Ukraine, as of 2024, there are more than 6.5 million internally displaced persons in Ukraine. According to the UN report, currently more than 13.5 million Ukrainians are in need of humanitarian assistance. Voluntary and charitable assistance is becoming vital for the survival and support of these people, but in recent years there has been a decrease in the activity of benefactors. In addition, charitable and volunteer assistance to our military, who need a constant supply of various resources – from food and medicine to protective equipment and equipment, is extremely important. Charitable and volunteer organizations can often provide for these needs more quickly and efficiently than government structures, especially in wartime conditions.
Problems with the taxation of charitable assistance
According to the Ukrainian Forum of Philanthropists, in 2023 the number of donations decreased by 15% compared to the previous year. One of the main reasons for the decrease in the activity of philanthropists is the complex taxation system. In order to support and protect citizens, the Verkhovna Rada of Ukraine in 2022 adopted laws No. 2516 and No. 2520, which introduced the exemption of charitable assistance to individuals from taxation. According to these laws, the amount of tax-free assistance during the year cannot exceed the equivalent of 500 minimum wages (in 2022, it was UAH 3.25 million). This assistance was used to restore lost property, housing, social, household and other needs determined by the government.
The legislation determined that recipients of charitable assistance must declare it (or its monetary equivalent) and pay tax on the amount exceeding the tax-free minimum. However, the mechanism for monitoring compliance with this restriction was not defined. In some cases, even this amount of assistance may turn out to be insufficient, for example, when a person lost his home and received a new one as assistance.
In addition, the list of persons who can benefit from exemption from taxation of charitable assistance was expanded. They include family members of combatants, participants of mass public protest actions in Ukraine, workers involved in the defense of the state, as well as individuals who live in temporarily occupied territories or have been evacuated. The status of taxpayers who receive charitable assistance (military personnel, volunteers, or internally displaced persons) is verified by the assistance providers themselves. In general, this benefit can be used by millions of people, including more than 10 million evacuees both inside the country and abroad.
An important aspect is that in 2022 and 2023, the assistance received by persons who used the right to temporary protection in foreign countries was not taxed.
Parliament also backed a tax exemption for benefits collected by volunteers during 2022, even if they only entered their details on the Volunteer Register at the end of the year. This decision was important because many people began to collect funds for various needs, and if they were not registered, they would have to pay taxes on these funds. Allowing you to register until the end of the year avoided this. The benefits also affected enterprises – until the end of the war, they should not take into account the amount of humanitarian aid transferred to ensure the defense of the state, including the supply of helmets, bulletproof vests and the transfer of funds to special accounts at the National Bank of Ukraine.
However, currently Ukraine’s current international obligations are an obstacle to establishing a more simplified and optimal tax regime for charitable assistance. The latest version of the Memorandum with the IMF on Economic and Financial Policy dated June 17, 2024 contains clauses to refrain from any tax and administrative measures that may reduce the tax revenue base
Currently, according to the general rule defined in national tax legislation, if a person receives money, property or a certain service for free, this is considered his income, which should be subject to two taxes at once – on the income of individuals (18%) and the military levy (1.5%). ). At the same time, in most cases, the obligation to pay taxes arises from charitable organizations as tax agents. This creates a significant administrative burden, which includes registration features, staying in a special register, using special accounts and providing numerous supporting documents.
In addition, charities, especially international ones, face additional difficulties when trying to provide aid. For example, in order to register in a special register and receive tax benefits, it is necessary to complete numerous formalities that require significant resources and time. This discourages potential benefactors and reduces the amount of donations. According to the report of the Ministry of Finance of Ukraine, in 2023, charitable organizations transferred more than 1 billion hryvnias of taxes to the budget. This creates a significant administrative burden, which includes registration features, staying in a special register, using special accounts and providing numerous supporting documents.
World experience
The regulation and taxation of international charitable aid in the European Union is an exemplary example for Ukraine. In countries such as Germany and Austria, the tax legislation provides for special conditions for charitable organizations, which greatly facilitates their activities. In Germany, foreign charities can receive tax benefits if they meet national requirements and enter into information sharing agreements. According to the German Federal Ministry of Finance, in 2023 more than 500 charitable organizations from other countries took advantage of such benefits. These organizations must prove that they meet national standards, after which they receive a tax-exempt certificate.
Austrian law also provides for tax benefits for charitable organizations, but with the mandatory condition that all efforts be directed exclusively to the achievement of charitable goals. In 2023, according to the Austrian Ministry of Finance, about 300 foreign charities received tax benefits by fulfilling the relevant requirements.
Under certain conditions, Germany has allowed charitable organizations registered in other countries to receive tax benefits previously granted only to local donors. This requires that the organization meets the national requirements for tax-exempt recognition (the tax authority issues a corresponding certificate of recognition) and originates from jurisdictions with which Germany has an agreement on the exchange of information in the framework of administrative assistance. In addition, starting in 2024, a publicly accessible register of legal entities applying “preferential tax purposes”, in particular charitable ones, will be introduced.
Austria has a similar approach. The country’s federal tax code provides that benefits granted for charitable purposes are inextricably linked to the requirement to act exclusively and directly to promote the stated purposes. Therefore, foreign charities that have neither their headquarters nor their management body in Austria must prove to the tax authority that they meet this requirement.
In Canada, charities have the ability to carry forward unused tax credits to future tax periods. This allows benefactors to flexibly plan their expenses and use benefits when it is most needed. In the Netherlands, automated climate control systems are actively used in greenhouses, which helps preserve the quality of agricultural products even at extreme temperatures. This is especially important for countries facing abnormal weather conditions. In the US, charitable organizations can take advantage of tax benefits if they are registered in the appropriate federal register and meet the requirements of local legislation. According to the IRS, more than 1.5 million charities took advantage of these exemptions in 2023.
How to solve the problem in Ukraine
World experience shows that the problems of taxing philanthropists in Ukraine can be solved as follows:
- Legislatively equate verified/qualified charitable organizations of EU member states with Ukrainian ones with the corresponding simplified state registration procedure, in particular in terms of automatic inclusion in the Unified register of recipients of humanitarian aid and remote registration with national tax authorities.
- To update certain “disincentives” for charity norms of Ukrainian tax legislation:
- to increase the maximum amount of charitable contributions of legal entities without additional taxation for the period of martial law and a certain time after it. For example, the parliament has already registered draft law No. 9177, which provides for an increase in the threshold to 10%;
- to raise the tax-free amount when receiving non-target cash payments from other benefactors (who do not have the status of a charitable organization) – from one subsistence minimum for able-bodied persons (at the beginning of 2024 it is only UAH 4,240) to 10-12 subsistence minimums per year.
- Consider the possibility of implementing the following norms into the Ukrainian tax legislation:
- transfer for the purpose of deducting the reduction of tax liabilities of the benefactor exceeding the permitted threshold to expenses of future tax periods (Canadian experience);
- provide the possibility of entering the details of donation accounts and Internet addresses into the Unified Register of recipients of humanitarian aid (the experience of Germany);
- to set limits on the size of donations that can be made in cash (Austria’s experience).
- Carry out other measures to simplify the activities of charitable organizations in Ukraine (simplify reporting, eliminate unnecessary regulatory requirements, issue a general tax clarification on the most problematic issues of regulation and taxation of volunteer and charitable organizations).
If philanthropic initiatives are burdened with taxation, the consequences could be disastrous for both the military and civilians. Philanthropists who are currently actively supporting the military and affected citizens may reduce aid due to financial constraints. This means that the military will not receive the necessary equipment, and wounded soldiers will remain without proper medical care. Civilians who have lost their homes due to war will be left with no support in rebuilding their housing, no means of livelihood, no hope for the future.
Every obstacle in the way of charitable aid is a blow to people who have already suffered from the war. These are not just numbers in reports; these are real stories of human tragedies. Children who were left without parents, mothers who lost their sons, families who were left without a roof over their heads – they all depend on the sincerity and support of caring people. Restrictions and obstacles in the form of taxation can destroy the last ray of hope for those who need it most. Bureaucratic barriers should not stand in the way of kindness and compassion, because every volunteer contribution is a step towards victory, towards restoring the country, towards a return to normal life.
