1. Ukrainian CSO Legal Environment, 2007 – Financial Sustainability

2. Progress in CSO legal reform Since 2005, tax exempts for CSOs have not been suspended Since 2005, tax exempts for CSOs have not been suspended Tax deductions for domestic donors (e.g., ones in new law on individual income tax of 2004) contributed to decreasing dependency of Ukrainian CSOs from foreign donors Tax deductions for domestic donors (e.g., ones in new law on individual income tax of 2004) contributed to decreasing dependency of Ukrainian CSOs from foreign donors Law on social services was formally adopted in 2003 Law on social services was formally adopted in 2003

3. Remaining Challenges Government funding of CSOs is extremely scarce (2-2.5% of total reported CSOs income yearly) and complicated due to poor budgeting procedures Government funding of CSOs is extremely scarce (2-2.5% of total reported CSOs income yearly) and complicated due to poor budgeting procedures Discretionary decisions by tax authorities due to the blank regulations in the taxation laws (e.g., granting tax exempt or public benefit status under the law on corporate income tax of 1997) Discretionary decisions by tax authorities due to the blank regulations in the taxation laws (e.g., granting tax exempt or public benefit status under the law on corporate income tax of 1997) Ukraine has the worst tax reporting system in Europe under the World Bank estimation 2006, and CSOs are also subject to these regulations Ukraine has the worst tax reporting system in Europe under the World Bank estimation 2006, and CSOs are also subject to these regulations

4. Remaining challenges CSOs face major legal obstacles in service delivery (including social services and participation in public procurement procedures) CSOs face major legal obstacles in service delivery (including social services and participation in public procurement procedures) No law on foundations is in effect yet, thus, CSOs’ access to investments and loans is limited No law on foundations is in effect yet, thus, CSOs’ access to investments and loans is limited CSOs legal status, not activities, are crucial for their VAT taxation CSOs legal status, not activities, are crucial for their VAT taxation

5. Key areas for donors’ future engagement Incorporation of CSOs financial sustainability agenda into treaties (e.g., Ukraine/WB agreements) Incorporation of CSOs financial sustainability agenda into treaties (e.g., Ukraine/WB agreements) Assistance to amending legislation on social services and public procurement Assistance to amending legislation on social services and public procurement Systematic harmonizing of VAT taxation with EU standards Systematic harmonizing of VAT taxation with EU standards Ensuring more flexible and transparent procedures for CSOs public funding (e.g., new Budget code) Ensuring more flexible and transparent procedures for CSOs public funding (e.g., new Budget code)