Centre for Development of Non-Profit Organisations (CERANEO)

Centre for Development of Non-Profit Organisations
J.Gotovca 1,10000 Zagreb, CROATIA
tel/fax 385 1 4664-112; 4664-712
e-mail:ceraneo@ zg.tel.hr

This text gives the basic information about the development of non-profit (nongovernmental) sector in Croatia. First part deals with the founding and registration of non-profit organisations with comments regarding regulations. Further there is information about tax and financial framework concerning operation of non -profit organisations. We briefly put forward the problems of financing non-profit organisations. Needs assessment and typology of non-profit organisations are given based on research of Ceraneo. At the end there are statements about future development of non-profit sector in Croatia.

I. Legal framework for founding and registration of non-profit organisations

The status of private non-profit organisations in Croatia have associations, foundations and funds, as well as private benefit companies. The foundation and registration of these legal persons is stipulated by special laws.

A.

According to the Law on Associations (1997), an association is any kind of free association of a number of citizens or legal persons domiciled in Republic of Croatia who, for the purpose of protection and promoting of common ecological, economical, humanitarian, informational, cultural, ethnic and national, educational, social, professional, sports-related, technical, medical, scientific and other interest and goals, due to their convictions, without any purpose of gaining profit, comply to the regulations stipulating the organisation and activity of this kind of association, unless by the law stipulating each single activity, is not stipulated otherwise.

The association becomes legal person by registering in the register of associations at the Ministry of Public Administration or county office for public administration, subject to the area of activity.

The association is managed directly by their members or delegated representatives. The law stipulates that, apart of other bodies, each association should have its assembly and the president of the association . The basic act of the associations is the statute.

The assets of an association consist of financial funds ( generated by memberships subscription, contributions and donations, organising of gambling, performing of permitted activities, grants from the state budget), the real estate and movables, as well as other property rights.

If an association in performing its activity generates profit, the profit has, according to the articles of association, to be used exclusively for performing and promoting of the association’s activity, achieving within this activities the goals stipulated by the statute of association.

The administrative supervision over the performing of the Law on Associations, as well as the regulations passed in accordance with the Law is performed by the Ministry of Public Administration, whereas the superintendent supervision of the association’s operations is performed by the body of the state administration competent for registration, as well as the body of state administration competent for the scope of activities of the association, considering the goals stipulated by the said association. The financial supervision of the business operation of an association is performed by the body of the state administration competent for supervision of public income.

In the process of passing the Law on Associations the participating in discussions of the associations was insufficient. The foreign experts consider the said law is not stimulating the freedom of association and development of civil society. Ceraneo, as well as Croatian Legal Centre (HPC) have held three round tables about this Law. At the round table in April 1998 suspicions in constitutionality of some provisions of the Law have been expressed and thus the decision was passed to start legal procedure of assessing of the constitutionality of some stipulations of the Law at the Constitutional Court. HPC and Ceraneo organised June 18, 1999 in Zagreb round table about the Law on Associations. HPC and Ceraneo made a Proposal to Constitutional Court to make Constitutional Review of the existing Law on Associations. Participants in round table have been informed on that very sensitive issue. It should be a big challenge for the Constitutional Court. Beside that, HPC and Ceraneo made the Draft of Law on Associations. During the round table we informed participants about solutions for critical provisions in existing Law. We think that this Draft is made in accordance to the standard of democratic countries. Under pressure of the European Council the representatives of the Government expressed the necessity of amending the Law. It is important to mention that the Government, on the recommendation of Office for Associations, accepted in working group for the Law on Associations and Humanitarian Organisations representatives of three Croatian NGOs and one representative from Office for Associations.

From the total social organisations and associations of citizens some 18.000 of them have been re-registered in accordance to the new law.

Number of new- founded social organisations and associations of citizens in the period from 1991 - 1997

source: Public institution for statistics of Republic of Croatia, special elaboration

The Foundation , as stipulated by the Law on Foundations and Funds (1995) is the property assigned to, alone or by the income generated, permanent gaining of a charity purpose of other purpose of common interest.

The fund , as stipulated by the Law is the property assigned to charity purpose or purpose of common interest within a period not longer than 5 years.

The purpose of common interest is, as stipulated in the Law a purpose accomplishing cultural, educational, scientific, spiritual, moral, sports-related, medical, ecological or other social activity or purpose or financial status of the society in general.

Humanitarian purpose is, as stipulated by the Law, the purpose providing with necessary help the persons in need.

The foundation may be founded by an inland or foreign physical or legal person. The foundation can be founded by the act of founding a foundation ( decision, will, contract) the contents of which is stipulated by the Law.

The foundation becomes legal person by its registering in the register of foundations at the Ministry of Public Administration. Prior to passing the resolution the Ministry of Public Administration must obtain consent by the Ministries competent for the scope of activities of the foundations. The Foundation may start its activity upon approving its Statute by the Ministry.

The inspection supervision over the activity of the foundation is performed by the Ministry of Public Administration, Ministry of Finance and Public Auditor’s Institution.

The founding of the foundations was stipulated by the legal rules of the Law on Endowments (1931) before the said Law has been passed. At the beginning of 1997 some 30 foundations and one fund have been founded in Croatia.

According to the experts the Law on foundations and funds is restrictive, providing the government bodies with excessive authority. In order to stimulate the process of founding and registration of foundations and associations Ceraneo is prepared the manual “Foundations- activities and registration”. Apart of it the organising of the round table with the topic: the role of foundations in development of modern society is planed.

The Law on Public Benefit companies (1993) defines a public benefit companies as legal person with purpose of permanent performing of following activities : education and tuition, science, culture, children’s care, health services, social care, care for disabled persons and other activities whose purpose is not assigned to gaining profit.

If the above activities are being performed for the purpose of gaining profit, the legal persons performing this activity comply to the legal regulations of commercial law, whereby the law provides that special laws (defining a specific activity) which can stipulate that some activities can not be performed for the purpose of gaining profit.

The public benefit companies may be founded by inland or foreign physical or legal person, unless the law stipulates the performing of specific activities or specific public benefit companies otherwise.

The public benefit is founded by the statute on foundation issued by the founder. The contents of the statute is stipulated by the Law. The act of foundation can be : law, statutes, resolution, agreement, contract and decision on founding, depending on the founder.

The public benefit companies can perform its activities upon registering in the Court’s register of public benefit companies, as well as upon obtaining the final resolution from the competent governmental body, body of local self-management or legal person with public authorities, which resolution confirms that the conditions stipulated for performing of the activity comply with the technical, medical, ecological and other conditions.

The internal organisation of the public benefit companies is stipulated by the Articles of Association of the public benefit, in accordance with the Article of foundation. The law provides for managing of the public benefit companies by the management board or other managing body (subject to the regulations stipulated for specific activities) in charge for appointing the director of the public benefit.

The property of the public benefit consist of operating funds, obtained by the founder of the public benefit companies, generated by providing with services or selling of the products or some other sources. If the public benefit companies in performing of its activity generates profit, the same may be used only for performing or stimulating the activity of the subject public benefit companies, in accordance to the Act of foundation and the statute public benefit companies. The founder may invest the profit in development as well as performing of activities of some other public benefit companies he has founded.

The law provides for financial supervision of the competent governmental body over the financial operations of the public benefit companies, as well as supervision of professional body over the professional operating of the public benefit companies, competent ministry control over legality of the activities of the public benefit companies and the legal acts, as well as special supervision according to the regulations on governmental administration of public benefit companies.

According to information gained more than 100 private benefits have been founded in Croatia, providing services within the programmes of health and social care.

In exceptional programme documents , accepted by the Parliament of the Republic of Croatia the importance of associations /non-governmental organisations has been mentioned, stimulating this way their development.

In the “National report on environment and development” from 1992 the role of the non-governmental organisations was mentioned. The Government ( Ministry, state administration) supported the projects of associations with environmental scope of activities.

The programme of meeting the social needs of citizens of Republic of Croatia in the period from 1997 - 1999 has been adopted by the Parliament in late 1996. The programme clearly defines as follows: The prerequisites for participating of non-governmental charity organisations, as well as non-profit sector in care for elder persons in need, disabled persons, socially unprosperous children and youth, as well as other categories of persons in social need will be established.

Further on, the National employment policy , adopted in 1998 says: the Law on Social Care provides for the activity of non-profit and non-governmental organisations in providing social care, the complementary system shall be created with the purpose of co-ordination in specialising of individual groups in some activities, in order not to address the same groups by several institutions. The voluntary activities will be supported in order to support system of care for elderly and helpless.

The Ministry of Development and Reconstruction stimulated in their programmes especially the development of non-governmental organisations.

II. Tax status of non-profit organisations

The non-profit organisations are not due to payment of profit tax. Due to amendments of the by-law Tax-payment Regulations of January 1^st 1998 the tax status of non-profit organisations has been significantly modified. The non-profit organisations, as well as institutions performing, apart of their basic activities the permanent economical activity with purpose of gaining profit as well, are due to payment of profit-tax for this specific activity, that is for the total amount of generated profit, not only for the difference between the gained profit and lump sum of the non- taxable profit. The criteria for defining the permanency in performing the activity are not defined in the Regulations. The passive income generated from interest and dividends are not due to taxation.

The non-profit organisations are not due to paying tax for donations, subventions etc.

The donations to non-profit organisations being active in culture and art are tax-deductible. The income-taxpayers are approved for the yearly deduction amounting to Kn 5.000,00 and profit taxpayers for Kn 15.000,00. The said amounts may be exceeded provided the authorisation of the Minister of Culture is obtained. For donations to sports organisations the income tax-payers are approved for the yearly deduction of Kn 50.000,00 and the profit tax-payers for Kn 500.000,00. Amounts exceeding above mentioned may be approved by the Minister of Finance for donations to national representations.

The private non-profit organisations are subject to value added tax (VAT) in force since January 1^st 1998, but are considered as end users due to paying 22% tax. A minority of the said organisations, performing mostly economical activities are in system of VAT. The VAT considerably raised the operating costs of non-profit organisations.

The charity and similar organisations are exempted from duty in import of specific goods and spare parts, provided the same are not being produced in our country. The non-profit organisations are also exempted from duty in import of goods received for scientific, cultural, religious, charity and social purpose from abroad without charges.

Non-profit organisations are exempted from capital transfer tax, as well as inheritance and gift tax. The non-profit organisations which are not due to paying the profit tax are not due to paying the tax on company as well.

Approving donations to non-profit organisations as tax deductible either in a relative or absolute amount would be a welcome tax innovation. The reduction or exemption from VAT payment for some activities of non-profit organisations is imperative.

III. Financing of non-profit organisations

The Parliament of Republic of Croatia adopted in the mid of 1998 the Decision on criteria for determining of associations whose activity is of interest to the Republic of Croatia and financial support to associations from the state budget. The status of associations being of interest for Republic of Croatia can obtain the associations performing activities within the whole territory of the Republic through the organised membership network, organisations whose programmes promote realisation of highest values of constitutional system, as well as organisations which are members of international organisations.

The Government set up on October 1, 1998 an Office for Associations. The main aim of Office of Associations is establishment of trust and development of collaboration of the Government and nongovernmental organosations in the Republic of Croatia as the basic prerequisite for modernisation and development of civil society in Croatia.

In December 1998. Office for Associations announced Public invitation for submitting of programs of associations for financial support from State budget in 1999. Associations with programmes on the country level were eligible for that grant programme.

After assessment of 677 programs, the Government, in the beginning of April, made decision to accept 276 programs of associations from the different field of activities according to the Public invitation. For 276 programs the Government approved budget of 28.316.522,47 kunas or $ 3.988.242.

According to the questionnaire made in 71 towns in Croatia the most subsidies are divided between associations performing activities in sport, culture, social care ( Red Cross and persons harmed in the Homeland War ), firemen and veterans.

The funds are distributed by decision of the local authority, without inviting for tenders. Some towns are ready to finance the valuable programmes of associations.

Zagrebacka banka, the biggest Croatian bank, announced the bid for financial support of programs of NGOs in different field of activities. It is the first systematic approach related to corporate citizenship issues.

Foreign organisations provided the founding and activities of non-profit organisations in Croatia with substantial support . It was 81 such organisations registered 1995 in Croatia. These organisations cease performing their programmes in Croatia. This financial resources become short what is reflected to the activities of associations in Croatia.

IV Problems and needs of non-profit organisations

From 548 surveyed organisations in 1997 86% turned out to be associations, 9% foundations and 1% private benefit companies.

According to the scope of activity the most numerable are organisations supporting specific interests- advocacy (24%), organisations for social care (20%), environmental organisations (13%), cultural and art organisations (9%), promoting voluntary activities (9%), community development and housing (8%), health care (7%), education and research (5%) international organisations (3%) and religious organisations (2%).

Significantly only 4% of organisations involve volunteers and 72% of them have developed co-operation with various state services.

Most of the shown problems comprise (in 75% of organisations) financial problems, whereas 8% of organisations find it difficult to co-operate with public authorities. Some 5% show lack of business premises and fittings. Insufficient professional training is a problem for 2% of the organisations.

V. Problems of further development of non-profit (non-governmental) sector in Croatia

The modernisation of social infrastructure will mostly depend on development and activities of non-governmental organisations in Croatia.

Obstacles for significant development of such organisations are as follows:

1. Inadequate legal, especially tax status of such organisations;

2. Not defined role of such organisations and underdeveloped partnership with the state;

3. Citizen’s attitude that the state should solve all their problems;

4. Insufficient professional training of the employees in these organisations;

5. Insufficient reporting of mass media on activities and achievements of the organisations;

6. lack of funds;

7. Insufficient co-operation between the organisations and disregarding of achievements of other organisations;

8. Insufficient involvement of Croatian NGOs in international programmes.

This problems could be partially solved by participating of Croatia in the Phare programme. The DemNet programme of USAID will contribute to better skills co-operation of organisations. Office for Associations has started with several promising project and initiatives which will improve financial stability of NGOs and help development of partnership with the Government and local authorities. The organisations themselves should secure better legal status and adequate presenting in mass media.

The partnership with the local authorities should be the strategic orientation in development of the private non-profit sector in Croatia.

The First (1997) and the Second (1998) Croatian Forum of NGOs raised requests to the Government about important issues for development of nonprofit (nongovernmental) sector. Within the activities of Office for Associations we could see realisation of some requests we made.

Prepared by,
Gojko Bezovan, Ph.D., Associate Prof.
President of Ceraneo
September, 1999