CSOs are allowed to engage in economic activities. However, as the tax laws have not been amended in accordance with the Law on Not-for-profit Organizations, the financial regulations do not distinguish between CSOs and commercial enterprises. Consequently, CSOs are liable to profit tax on all income from economic activities on the same basis as other legal entities.

CSOs and any other legal entities which carry out public benefit activities; that is, “religious, humanitarian, charitable, scientific and educational activities,” are exempt from tax, provided that the property or profits are not used for the benefit of founders or members. CSOs are not required to register for VAT and thus they are exempt from charging VAT on their services. Otherwise, organizations are liable to pay VAT at the full 20% rate on all services and products they themselves buy. Under the Law on Not-for-profit Organizations, CSOs are also explicitly permitted to raise income from their assets by means of investments, and the renting and sale of property. Income from these activities is also subject to standard tax. Over the years there has been considerable confusion surrounding the implementation of the above tax regulations. Tax exempt CSOs are required to possess a tax code and report to the tax authorities in the same way as profitable businesses and non-exempt organizations.

In 2008, the Government introduced arbitrary changes to the tax law, without consultation with civil society, which were in direct contradiction of the measures set out in the Law on Not-for-profit Organizations. CSOs launched a vigorous campaign to have the amendment revoked. The Prime Minister responded in early 2009 by forming a working group, consisting of representatives from both the Ministry of Finance and civil society, to review the issue of taxation of CSOs grants and earned income. In addition to the specific issue of VAT, civil society advocated strongly to full harmonization of all tax regulations with the provisions of the Law on Not-for-profit Organizations and a separation of CSOs’ not-for-profit economic activities from normal commercial activities, in order to clarify both tax and reporting obligations.

Currently, basing on the type of organization, the respective scope and exercise of activities, NPOs are exempted from annual tax on incomes realized by donations and membership quotas. However, the relevant state authorities hold the right to supervise NPOs, according to the law on taxation and social securities, licensing and exercising of economic activities, contracts of exercising public and social services, and fulfillment of activities of State Budget.