G.O. 26/2000 created a distinction between “direct” business activity, under which NGOs may sell products or services related to their non-profit purpose without setting up a company, and “indirect” business activity, under which business activity is done through a company. Profit, in the second case, if not reinvested in the company, must be used to fulfill the NGOs’ purpose. In addition, the ordinance enabled NGOs to compete for government contracts and procurements at both the local and central government level. However, many NGOs still find this system too difficult to navigate.
In terms of the VAT the CSOs are not treated separately. Regarding the tax payment CSOs are treated deferent: the tax on profit is paid once a year and the tax on salaries twice a year (six months).
Since 2000 CSOs are entitled to receive public benefit status although the procedure remains unclear, with a lack of uniform criteria across different government ministries. CSOs are advocating for more coherent regulations and clear advantages (taxes, funding) for CSOs of public interest. Since 2007 CSOs developed a new proposal to improve the existing law, but no agreement was reached with the Parliament and Government at the moment.
The new Fiscal Code came into effect in January 2005 and includes several provisions aimed at strengthening the financial sustainability of NGOs. The most important provision is the new 2% rule that permits individual tax payers to allocate 2% of their income tax bill to NGOs. The new 2% rule increased the philanthropy and a sense of civic responsibility among Romanians, and reduces the NGO sector’s overwhelming dependency on foreign funding. In addition, businesses may now deduct up to 3% of their total income, but not more than 20% of their total taxes due, for donations to NGOs.