KYRGYZSTAN TODAY Policy briefs on - Department of Geography

to say, internationally such income would be regarded as membership fees, and such
organizations would be exempt from profit tax.
The Tax Code defines entrance fees 1 in a similar fashion. Entrance fees are “assets
provided by entities upon entering 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 at a lower cost.” Similar to membership fees, entrance fees
should be exempt from taxes.
At the present time, a number of traditional sources of NPO profits exempt from
taxes in many other countries, such as profit received as a result of charity dinner, or
selling out private property, are subject to taxes in Kyrgyzstan. The same is true of any
other NPO profit brought by any entrepreneurial activity. Income received as a result
of providing social services, which both the state and society need badly at the moment,
is also liable to tax. This applies to cases when any such income is totally reinvested in
the activities of social significance outlined in an organization’s articles of association.
For instance, these are museums and libraries which don’t bring any profit and thereby
have little attention by businessmen. At the same time, such organizations are extremely
unprofitable. Currently, very few non-for-profits provide such services, simply because
they can’t afford it. If all profits received by NPOs as a result of providing such services
are exempt from taxes, and if certain requirements are followed, more and more NPOs
will be providing such services.
Another traditional source of income which is traditionally exempt from tax
internationally is profits gained as a result of investment activities (the so-called passive,
or interest-based profit). We are not talking about vigorously trading securities in stock
markets or acting as a realtor. We are talking about any income coming from deposit
accounts, securities, or mutual funds belonging to NPOs, and some other similar
sources. Now, such income is liable to tax in Kyrgyzstan, while such world famous
institutions as the Soros Foundations, MacArthur Foundation, and Ford Foundation
finance their charity activities using the income they receive from their investments,
since it is free from tax.
Sources of NPO income liable to tax
Different countries have different forms of income taxation regarding
entrepreneurial activities by NPOs. However, many developed states allow NPOs to be
engaged in such activities. Normally, any income received as a result of these activities
is liable to tax, except for clearly defined cases, when income coming from certain types
of business activities can, under certain conditions, be freed from tax.
In Kyrgyzstan, any income received as a result of business activities is taxable,
except for cases when such income is gained by charity organizations from their charity
activities (i.e. selling goods and services at or below cost without any intention to
generate profits).
As far as the profit tax is concerned, the Tax Code does not provide for separate
account of income and expenses related to taxable and non-taxable income, which is a
necessity in the event of tax-payers using different taxation regimes for income coming
from various sources. If NPOs are involved in business activities with all relevant income
liable to tax, and at the same time enjoy certain traditional non-taxable income (i.e.
1
Article 9 (69) of the Kyrgyz Tax Code.
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