The non-governmental organizations (NGOs) are the main subjects of civil society. They are product of the personal initiative of citizens to unify their common interests in public spheres which are unlimited in their variety as the social sphere, healthcare, science, culture, art, education, physical activities, etc. The NGOs are the real manifestation of the right of association and freedom of expression regulated as fundamental human rights in the international treaties and the Constitution of the Republic of Bulgaria.

The creation of a favorable legal framework for NGOs is one of the most important preconditions for the existence of a viable and active civil society and a basic safeguard for exercising the right of association and the right of freedom of expression in their full value.

 The present concept is developed on the basis of a survey, carried out through an anonymous questionnaire, distributed among over 1000 active NGOs and received answers of 205 organizations. Its aim is to reflect the position of the majority of active NGOs in Bulgaria on the necessary amendments to the legislation related to their activity.    

             І. GENERAL NGO LEGAL FRAME

The Law on Non-Profit Legal Entities (LNPLE) in force since January 1^st, 2001, which revoked the old and scarce legal arrangements provided by the Family and Persons Act, has proven its values as the fundamental normative act, regulating the NGOs.

However, the practice of the implementation of the law demonstrated some problems in specific fields, the more important of which are:

1. Necessity from revoking the requirement for calling of the General assembly in associations by publishing an invitation in the State gazette and holding it only in the area where the respective NGO has its seat;

2. The role of the Central registry at the Ministry of Justice is necessary to be   developed as a guarantee for the transparency of the registered organizations, and a concrete sanction for nonobservance of the obligation for providing annual activity report to the registry must be regulated. At present the law does not provide such a sanction and some of the public benefit organizations do not fulfill their obligation.

Solutions

The solution of the above mentioned problems, connected to the general legal frame is quite important in terms of the future functioning of the entire third sector. The solution can be achieved through amendments and supplement to the LNPLE.

            ІІ. FINANCIAL SUSTAINABILITY OF NGO

            Ensuring the funding of social services

            With the changes to the Law for Social Support from the end of 2002 and its Implementing regulations from April 2003 a new philosophy of the state policy in the field of social services was introduced - namely their decentralization and deinstitutionalization. For the first time the procedure for social contracting was expressly regulated in the Bulgarian legislation. 

            The main problems of the legislation in this sphere are the following:

            - lack of sufficient financial resources for delivery of qualitative social services funded by the state. The municipalities have limited funding for delivery and development of local social services;

            - it is necessary that an operative mechanism for funding of social services is adopted and that their delivery by external providers different from the state and the municipalities is stimulated;

            - there is an extremely weak coordination between the local and central authorities, and  between the Ministry of Labor and Social Policy and the Ministry of Finance as well;

            - lack of effective mechanism for control on the quality of the social services, delivered by the state, municipalities and external providers.

Solutions

The solution of these problems requires amendments to different legal acts, related to the provision of social services and their financing, including guaranteeing the funding for them in the state and municipal budgets.

For the purpose of bringing to realization the mechanism for decentralization of the delivery of social services it is necessary that in the national and local budgets expressly are provided subsidies for social services, which to be utilized through contracting with external providers in the conditions of a free and competitive market. Concerning the control - an effective legal mechanism for control on the quality of the services delivered by all providers should be elaborated.

             Transparency of the funding for NGO from the state budget

            Each year in the Law for the State Budget of the Republic of Bulgaria subsidies for limited number NGOs are provided. The criteria for selection of exactly these organizations and the way the amount of the subsidy for each of them is calculated are quite unclear.

Within the Law for the State Budget of the Republic of Bulgaria for 2005, together with the list of the organizations-traditional recipients of state subsidies, for the first time a reserve of budget subsidies for funding projects of public benefit NGOs, entered in the Central Registry at the Ministry of Justice was provided. While organizing the competition, however, there was insufficient information for the competition itself, for the project requirements – application form, time frame, amount of funding, priorities, clear criteria for evaluation of the projects and transparency in the determination of the evaluation committee, and any other information for the decisions of the committee.

 Solutions

Amendments to the legislative and sub-legislative acts should be adopted, introducing clear and transparent rules about:

           - Criteria which NGOs-recipients of direct subsidies from the state budget should meet;

           - Methods for selection of the NGOs;

           - Transparency and accountability of these organizations;

           - Application mechanisms for subsidizing of socially significant projects of NGOs;

           - Criteria for evaluation of the projects.

             ІІІ. TAXATION AND PHILANTROPY

The taxation regime for NGOs most directly reflects the attitude of the government towards NGOs. The favorable fiscal environment for NGOs is one of the most important prerequisites for sustainability of the civil society organizations. The NGO tax framework is directly related to the operation of NGOs and the funding of their activity. It also has a key role in the creation of conditions for the encouragement of philanthropy for public benefit purposes.

Change is required in the following directions:

Legal distinction between incomes from for-profit and not-for-profit activity

The principle applied by our tax legislation is that NGOs are subjects to corporate income taxation only for their incomes from supplementary economic activity. However, there is a lack of legal definition for incomes from economic and from not-for-profit activity.

The main practical problem is that with the absence of a clear legal framework, the judgment on the nature of the incomes from for-profit and not-for-profit activity is subjective, as it is done by the concrete tax administration that is checking the financial accountancy of a certain NGO. All those problems create insecurity. 

Solutions

This problem can be overcome through regulation in the separate legislative acts of the typical not-for-profit activities such as donations, sponsorship, membership fees, grants, charity sales and other incomes, which are non-taxable incomes for the NGOs. The legal arrangement of these activities will guarantee that the future interpretation of the definitions for for-profit and not-for-profit will not be changed which will create more stable conditions for the operation of NGOs.

 Encouraging the economic activity of the public benefit NGOs

The present tax legislation does not provide any incentives for the public benefit NGOs in terms of their supplementary economic activity. The business activity of the public benefit organizations is limited to the direct achievement of their statutory goals and has a subsidiary role. They carry out such activity providing services in areas like healthcare, social support, education, culture etc. Acting in these areas the NGOs invest resources of their own in the social sphere, doing activities that not long ago were prerogative of the government.    

Solutions

A change to the tax law has to be made, which to regulate the right of remittance of the profit tax to the public benefit NGOs, entered in the Central registry with the condition that within a certain period of time, for instance, the amount is spent for the achievement of the statutory goals of the organization. 

Other appropriate legislative approach could be the exemption from income tax of the public benefit organizations up to a definite threshold.  

Percentage philanthropy

Some countries in Central and Eastern Europe, such as Hungary, Romania, Poland, Slovakia and Lithuania, with a level of economic development similar to the Bulgarian have adopted the so called “percentage philanthropy” mechanism, which gives the opportunity to the taxpayers to designate 1 or 2 percents from their due tax for a public benefit organization of their choice.  In practice this means that the government agrees to donate 1 % or 2% from its incomes from taxes paid by natural persons. The “percentage philanthropy’ creates a feeling of responsibility and commitment in citizens. It could have a complementary rather than replacing role to the already existing mechanisms for encouragement of the philanthropy in Bulgaria.

Solutions

The adoption of new regulations on the percentage philanthropy in the Law for Taxation of the Income of the Physical Persons would stimulate the donations related with public benefit causes in Bulgaria.

Revocation of the tax on dividends and liquidation quotas disbursed in favor of NGOs

The dividends and the liquidation quotas, paid by local legal persons and unregistered groups in favor of local non-commercial legal entities among which are NGOs, are levied with on-time 7% tax withheld at the source.

Solutions

This tax must be abolished, especially for the public benefit NGOs, because those incomes are used entirely for the furtherance of the public benefit goals of those organizations.

Clear mechanism for avoiding charging VAT on grants under international programs and projects

According to international treaties, the Republic of Bulgaria is obliged not to charge VAT on funds, provided for implementation of projects funded by international programs such as the PHARE program of the European Union for example. 

In compliance with these international acts previously the tax administration applied the practice according to which every NGO implementing a project funded by such a program had the status of a “coordinating body”, and the persons which provided services and goods for those NGOs in relation to the project had the status of “main implementers”.

Instead of a legislative regulation of this good practice, the tax administration recently introduced a new interpretation of the legal norms, according to which the funded NGOs are not “coordinating bodies” anymore but are “main implementers”. This interpretation turns those organizations into subjects obliged to register under the Law on Value Added Tax (LVAT), so that they can get a refund of paid VAT, and they have to give invoice for the received grants on certain projects. The inclusion of funded by grant schemes NGOs as participants in the VAT system creates a number of problematic issues, the most crucial of which are the following:

- NGOs are obliged to register under LVAT, and thus their administrative expenses highly increase;

- after the completion of a project, if the NGO does not accumulate the necessary turnover of 50 000 BGN from economic activity it should de-register from the VAT system. This means that the NGO must pay VAT on all available assets, including those purchased for the realization of the project though funded under a certain international treaty;

- there are conditions for creation of tax practices and interpretations which may define the activities under  internationally funded projects as business activities and the incomes from them to be charged with an income tax, which contradicts to the Law on the Corporate Income Taxation.

Solutions

These issues could be solved through detailed legislative changes, regulating the procedure for VAT exemption of deliveries under projects, contracted in accordance with international agreements, with which to be stipulated either that NGOs implementing such projects have the status of a ”coordinating body” or that these organizations have the right of refunding the paid VAT.

Inequality between governmental and non-governmental organizations pursuing the same goals

Example for such an inequality are the provisions of LVAT, according to which the donations made in favor of public benefit NGOs are not tax exempt whereas the donations for organizations with health, social and other public benefit purposes supported by the budget are.

Solutions

It is important changes to the LVAT to be adopted, under which the public benefit NGOs entered in the Central Registry should be included in the list of recipients of VAT- exempt donations.

 No VAT on funds raised by mobile operators during charitable campaigns

Most of the charitable initiatives organized for raising funds through SMS represent philanthropy related to a specific public benefit cause. It is not justified persons expressing their personal commitment to a certain cause to be charged with VAT and the government to benefit from such acts of civil responsibility and conscientiousness of citizens.

Solutions

Changes to the LVAT are needed which to exempt from VAT funds raised in charitable campaigns organized by mobile operators when these funds are donated to the persons in favor of which the given campaign has been organized.

Improvement of the legal frame for donations

In the long term a separate law on donations could be adopted, which would give an entire regulation of the general donations, donations to arts and sponsorship, including provisions on the incentives for donation. At present these issues are scattered in different legal acts.

              ІV. VOLUNTEERISM

There is a lack of regulations on volunteerism and voluntary labor in the Bulgarian legislation. It also lacks an entire legal mechanism giving the criteria and standards for performance of voluntary activities. This fact could be explained with the absence of traditions in Bulgarian society for voluntary labor and the shortage of enough interest in the government to stimulate those activities. However, NGOs in their practice often use voluntary labor performing their main activity.

            Solutions

            This huge gap in the Bulgarian legislation could be overcome only with the adoption of an independent legal act regulating the following issues:

            - Legal status of volunteers and voluntary labor;

            - Criteria and standards for performance of voluntary activity;

            - Methods of evaluation of the voluntary labor;

            - Mechanisms for compensation of the voluntary labor and reimbursement of the costs done by the volunteers;            

            - Protection rules for the volunteers

            - Social benefits for volunteers – insurance, health, social and pension security;

            - Tax incentives for voluntary labor;

            - Rules for corporate volunteerism.

            V. OTHER SPHERES OF NGO ACTIVITIES

            Social enterprises

The social enterprise is a specific type of economic activity of NGOs, with direct social effect in favor of vulnerable groups which is related to improving the quality of their life, employment, service provision and/or other forms of direct support with the aim to stimulate their social inclusion.

The activities of the social enterprises directly help the most isolated groups in society. In this sense these organizations assist the state in the realization of its social function with their own funds received from their economic activity.

Therefore, the government should create appropriate conditions for enhancing this activity and thus increasing the social effect, saving public funds on the other hand.

Solutions

A special state policy for social entrepreneurship is necessary to be adopted. The legal measures could be in the following areas:

            - regulation of tax incentives for social enterprises, such as increasing the tax benefits for donors to NGOs - social enterprises and tax exemption of the incomes of the social enterprises;

            - creation of mechanisms for direct state subsidy to social enterprises.

                Healthcare sphere

The health services in Bulgaria are provided by medical establishments under the Law on Public Health and healthcare institutions regulated by the Law on Healthcare Institutions. According to the current legislation the healthcare institutions must be registered under the Commercial Law or the Cooperative Law. Thus, NGOs do not have the legal opportunity to directly perform healthcare activities.

On the other hand, the healthcare institutions registered as commercial entities have a limited circle of financial sources and do not have access to the funds granted under foreign programmes in the sphere, because of the policy of the donors to fund mainly NGOs rather than to companies and cooperatives.  

            Solutions

            Changes to the Law on Healthcare Institutions should be adopted to give the opportunity for healthcare institutions to be registered in the legal form of NGOs for public benefit, which is a widespread practice in almost all European countries and USA which will have the following favorable implications:

            - The Bulgarian legislation will comply with the legislative model of the European countries, where healthcare institutions exist and perform their activities in the form of NGOs;

            - The natural connection between the goals of the public benefit organizations and the activities performed in the healthcare sphere will receive its manifestation and will be used as real potential;

            - The sources of financing for the activity of the healthcare institutions will be expanded by giving them the opportunity to receive donations, grants and funds from grant schemes designated for NGOs;

            - NGOs will be able to perform the whole spectrum of public benefit activities inherent for them which is the reason of their existence as provided in their main legal act – the Law on Non-Profit Legal Entities.

            All of the above problems in the NGO legal environment could be solved only through open dialogue between civic organizations and the central and local authorities.

            Therefore, it is of crucial importance for the future development of the third sector that the active partnership between the state and NGOs is stimulated. NGOs should strengthen their role and activities in areas such as: participation in the decision making process at the central and local level, participation in the drafting of legal acts at the central and local level, protection against discrimination, interaction with the ombudsman, lobbying etc.

            In addition, the partnership between the state and NGOs will expand the civic participation in activities of public interest, will guarantee the social approach in resolving problems of public importance, will support the state institutions in the execution of their functions mainly in areas like education, healthcare, culture, ecology and social activities, will increase the transparency in the operation of state and municipal bodies which will end in the creation of a strong civil society where NGOs are positioned as subjects equal to the state and to the other interested parties in resolving socially important issues.