The most criticized provision from the previous Law on Association of Citizens and Foundations, banning the organizations from engaging in economic activities, was removed in the new Law on Associations and Foundations. The new law, following the practice in almost all European countries allows the organizations to engage in income generating activities, if the income is used for fulfilling the objectives of the organization as defined by the statute. This provision contributes for the sustainability of the civil sector, but also observes the non-for-profit principle.
In practice, there are no useful tax benefits available to CSOs, as there is effectively no differentiation in law between CSOs and commercial businesses. Thus, CSOs are liable for the standard business tax on profits, property tax, gift and inheritance tax, VAT on all purchases of goods and services, customs and other import duties. There are some exceptions regarding to the VAT. Specifically, in the cases when the donors have signed contract for cooperation with the Government of the Republic of Macedonia, the users of the funds (grants or services providers) have right to claim back VAT. But this policy is primary due to the requests of the donors, rather than to the tax incentive policy of the state.
Under the Law on Donations and Sponsorships for Public Activities (adopted in April 2006), a range of tax exemptions and deductions were introduced to give incentives to companies and individuals to support CSOs undertaking activities in the “public interest;” that is of benefit to the public. In theory, the Law is doubly incentivizing as it provides extra benefits for the receiving party, such as the right to claim back VAT on a donation. However, the law suffers from are a number of impediments to its successful implementation and take‐up of its provision is at a low level: absence of a clear definition of public benefit activity effectively excludes the greater majority of CSOs from benefiting from the law; in case of some taxes, deductions are insignificant thereby militating against applying for them; complicated and lengthy bureaucratic procedures relating to both the giving and receiving party have proved a serious disincentive; differences in interpretation of the law by various government institutions have obstructed the process; the law has not been publicised adequately, and while CSOs, companies and individuals may know of the law’s existence, very few understand its potential benefits. In addition to these, there are a variety of socio‐cultural factors which impede the effective take up of benefits offered by the law: there is no culture of individual or corporate charitable giving to CSOs; CSOs remain culturally dependent on international funding sources and are poorly adapted to mobilizing local resources.
Deductions against personal income tax for charitable giving are only possible for those people (approximately 10% of those in work) who fill out an annual tax return form, rather than the usual method applying to employees of “pay‐as‐you‐earn.” An indication of the low interest in the law is the fact that in October 2007, when the law had then been in force for 10 months, state institutions reported that only 16 cases had been referred asking for confirmation of the public interest (First Children’s Embassy of the World “Megashi” 2007).