Russia Taxes Foreign Non-Profit Groups

by Tatiana Smolenskaya, Tax-News.com, Moscow

09 July 2008

Russian Prime Minister Vladimir Putin has taken the controversial step of abolishing tax privileges on grants received by the majority of foreign non-profit organisations operating in the country.

A decree signed recently by Putin has reduced the number of organizations on the tax exempt list to just 12 from 101. The new law, scheduled to enter into effect on 1st January, 2009, means that non-exempt organizations will be liable for corporate tax at 24% on the funding they receive from foreign bodies in the form of grants.

Pyotr Gorbunenko, the Managing Director of WWF Russia - one of the organisations struck off the list - told Gazeta in an online report that many foreign charities and non-governmental organisations (NGOs) will be forced to close in Russia as a result.

“Parent organizations will have to stop financing their Russian offices because they are not permitted to contribute to foreign countries’ budgets. Their grants come to Russia minus taxes, which are paid in the country of their parent companies’ registration," he explained.

However, he said that the WWF was unlikely to be adversely affected since it receives less that 4% of its funding form Switzerland.

Other groups will be unaffected because their funds are classed not as grants but as donations, which fall under a different taxation scheme.

It has been suggested that political motives lay behind Putin's move - many of these NGOs promote activities and political philosophies with which the Kremlin disagrees. But it is unclear why so many non-politically aligned groups, such as WWF and the Red Cross, have also lost their tax exempt status.

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