KYRGYZSTAN TODAY Policy briefs on - Department of Geography

membership fees, donations, grants), the only way to administer it would be a separate
account of income and expenses.
As an example, the following approach can be recommended. All expenses related to
business activities, such as the cost of producing goods to be sold later, should be totally
deducted. However, the deduction of general costs related to the whole organization,
like office rent, overheads, and salaries should be contingent on the amount of income
received from business activities and income gained from other, not business-related
sources (membership fees, donations, grants, etc).
As far as taxation of business-related activities is concerned, NPOs may use different
approaches, depending on the goals and objectives of an organization, the amount of
business-related income, and the connection between commercial and non-commercial
activities in an organization. To learn more about the general discussion of various
approaches, please check Section 9.3 of Guidelines for Development and Application of
Laws Regulating the Activities of Civil Organizations 2 .
Taxation of charitable institutions
Kyrgyzstan adopted a Law “On Sponsorship and Charitable Institutions”
(hereinafter referred to as the Law “On Charity”) and introduced some tax benefits for
charitable institutions. Nevertheless, the number of NPOs that received the status of a
charitable institution 3 is very low, which has several reasons. Firstly, the Law “On Charity”
contains very strict criteria for any given NPO to be regarded as charitable institution.
In accordance with this law, NPOs have to spend 98 percent of their income on charity
activities, with the remaining 2 percent meant for their administrative purposes, which
is, in fact, impossible to accomplish. Secondly, according to the Tax Code, compared to
other NPOs charitable institutions do not enjoy significant benefits, although they have
to comply with much more stringent requirements.
As a rule, the only ground for the status of a charitable institution is a special tax
regime for such organizations. The tax regime is determined by tax legislation. Therefore,
it is recommended that the Law “On Charity” be regarded as no longer effective, and
additional norms on the status of a charitable institution be included in the Tax Code.
Taxation of donations from physical and legal entities
According to the Tax Code, the total annual income of physical and legal entities
can be reduced by 5 percent, which is the amount of assets gratuitously transferred to a
charitable organization. This percentage is quite high, and is in line with international
practices. However, it turned out that physical and legal entities in Kyrgyzstan don’t
use this benefit to the full extent. Part of the reason is many legal entities don’t have
taxable income which can be reduced each accounting year. At the same time, many
legal entities have some property (i.e. old computers or goods) which they are willing
2
Guidelines for Development and Application of Laws Regulating the Activities of Civil Organizations
(Second edition, 2006, Almaty) was formulated by the International Center for Non-for-Profit Law at
the request of Open Society Institute.
3
Article 9 (4) of the Kyrgyz Tax Code: Charitable institution is a non-commercial organization (1) established
and implementing its activities in accordance with legislation on non-commercial organizations
and charitable activities, (2) which is not involved in the production and sales of excisable goods and gambling
industry, (3) and which has, in accordance with all relevant procedures, received a document from
tax authorities confirming its rights to tax benefits pursuant to Articles 112 and 145 of this Code.
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