The two main forms of non-governmental organizations that may be established in Romania are the associations and foundations. While an association may be incorporated by at least three domestic/foreign individuals/entities as founding members, a foundation may be incorporated by at least one domestic/foreign individual/entity as founding member(s). Associations are set up in order to carry out activities for the general interest, for the interest of a community or for the non-profit interests of its members and the law does not impose a minimum initial patrimony.
On the other hand, the foundations are set up by constituting a patrimony which is affected, on a permanent and irrevocable basis, to the achievement of a purpose for the general interest or the interest of a community. Initial patrimony of foundations shall be, as a rule, equal to at least 10 times the minimum gross salary in the national economy and, as an exception, at least 2 times the minimum gross salary in the national economy, in case of foundations whose exclusive purpose constitutes the activity of fundraising for other associations/foundations. As of 1 January 2022, the minimum national gross salary in Romania is of RON 2,550 (~ EUR 510) and, therefore, the minimum initial patrimony for a foundation, under the general rule, would be of RON 25,500 (~ EUR 5,100).
Both associations and foundations may carry out direct economic activities only if such are ancillary and closely related to their main purpose and the funds are used in accordance with their declared purpose and objectives, as laid down in their statutes.
The process for establishing an association or a foundation is quite similar. The association/foundation acquires legal personality through registration in the Registry of associations and foundations held by the court in the territorial jurisdiction where the association/foundation has its registered office located. Thus, the registration file should be submitted to the competent court and a specific procedure shall be followed.
Irrespective if an association or foundation, NGO will have to follow a tax registration process. This process is similar to the one applicable to LLC and involves submission with the tax authorities of a specific registration form, along with certain additional documents supporting the reason for requesting the registration, such as incorporation/registration documents, contract concluded for the purpose of establishing the headquarter, etc.
The deadline to submit the registration file is 30 days since the registration with the relevant authority was finalised.
Based on tax legislation, the tax regime applicable to NGOs is corporate income tax regime. In this respect, NGO will have to prepare and submit quarterly and annual corporate income tax returns and also annual financial situations
The corporate income tax quota is of 16% applied to net fiscal result (taxable income and non-deductible expenses minus deductible expenses and non-taxable income).
Main categories of income derived by a foundation represent non-taxable income as per Romanian legislation, such as (i) levies and taxes of members; (ii) contributions in cash or in kind of the members and supporters; (iii) registration fees established according to the law; (iv) income from visas, taxes, penalties sports related and obtained from participation to sportive competitions and demonstrations; (v) donations, as well as money and goods received as sponsorships/patronage; (vi)income from dividends, debts, as well as difference from exchange rate related to disposals and non-taxable income; (vii) resources obtained from public funds or non-refundable fundings; (viii) income obtained from occasional events such as: fundraising events with participation fee, celebrations, raffles, conferences, used for social or professional purposes, in accordance with their statute, etc.
All other types of income are considered taxable and subject to corporate income taxation.
In terms of exemptions, the Romanian tax legislation does not provides for such benefits applicable at the level of NGO. However, NGOs may consider as non-taxable part of the income derived from economic activities up to the minimum between the RON equivalent of EUR 15,000 and /or 10% of the total amount of non-taxable income registered in a fiscal period.
Tax liabilities, compliance and accounting
The same provisions as the ones mentioned for LLC in what concerns obligations relates to tax liabilities (salary income tax and social security contributions, VAT), types of tax returns to be submitted and manner in which the bookending is organised and kept as well as all the mandatory accounting documents that have to be kept are applicable also to NGOs. In terms of financial statements these have to be submitted within 120 days since the termination of the financial exercise.
Incentives granted to taxpayers supporting NGOs
Taxpayers supporting NGOs have certain tax facilities, which differ by considering the taxation regime to which the taxpayer is subject to, as follows:
- taxpayer applying the corporate income tax regime that grant sponsorships to foundations may decrease their corporate income tax value with the value of the sponsorship granted, observing the following limits (i) 0,75% of the annual turnover or (ii) 20% of the corporate income tax due for the reference period;
- taxpayers applying microenterprise taxation regime that grant sponsorships to foundations may decrease the quarterly income tax value related to the quarter in which they registered the sponsorship expenses with the value of such sponsorships, but not more than 20% of the quarterly income tax.
Regardless of the tax regime that the local taxpayer is subject to, the reduction of the tax due to the state budget can only be claimed if (i) there is a valid sponsorship agreement signed between the sponsor and the beneficiary (i.e. the foundation) and (ii) the foundation is registered at the date the sponsorship is concluded/ redirection performed within the Registry of entities / places of worship for which a tax deduction may be granted (there are certain conditions that the NGO has to fulfil in order to be registered in such registry).
Also, if the taxpayers performed – during a relevant fiscal period – sponsorship below the maximum thresholds eligible for tax credit (as detailed above), they can further choose to redirect part of the tax paid to the state budget to NGOs.
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By Cristina Popescu, Tax Consultant, and Noemi Popa, Associate, DLA Piper