KYRGYZSTAN TODAY Policy briefs on - Department of Geography

Nookatbek Idrisov,
Director of the International Center
for Not-for-Profit Law in Kyrgyzstan
Taxation of Non-for-Profit Organizations in the Kyrgyz
Republic: Recommendations for a New Draft Tax Code
Introduction
The following is required for not-for-profit organizations (NPOs) to exist in any
state: (1) legislation that would allow establishing NPOs with no difficulty, (2) lack of
significant obstacles on the part of public offices for NPOs to implement their activities,
and (3) possibility of financing NPOs legally.
Are there any legal ways to finance the activities of not-for-profits in Kyrgyzstan?
To answer this question, it is important to first analyze the terms under which NPOs
receive their funds from various sources.
What we have seen worldwide demonstrates that today the revenue of NPOs can
be divided into three types, such as:
1) Internal income (membership fees, income arriving as a result entrepreneurial
activities, and income that comes from securities and invested capital);
2) Assistance received from the state;
3) Donations by physical and legal entities and grants.
The efficiency of funding among not-for-profits is contingent on tax regime for each
of the above-mentioned items in a particular state.
Sources of NPO income exempt from taxes
At the present time, in accordance with the Tax Code of the Kyrgyz Republic
(hereinafter referred to as the Tax Code), any income arriving from membership and
entrance fees, gratuitous and charity donations, grants, and humanitarian aid is exempt
from profit tax. In most of European countries, these are traditional sources of income
among NPOs.
However, in some cases definitions of these sources of income in the Tax Code
don’t let NPOs enjoy tax exemption. For instance, Article 9 (68) of the Tax Code defines
membership fees as “assets provided by entities that are part of a non-for-profit
organization based on membership, whose amount and transfer procedure are outlined
in articles of association belonging to this organization, provided that the member of
this organization does not enjoy reciprocal services for free or below cost.” As a result
of this definition, tax authorities oblige, for example, associations of water users or
garage cooperatives, which are non-for-profit organizations, to pay 4 percent of tax for
providing paid services to the public using membership fees. Thus, tax authorities view
all membership fees of such NPOs as income for the services they provide. Needless
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