Exempt Organizations Advisory - Russia To Tax Most Foreign NGOs

By Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

According to news reports, Russia has reduced the number of nongovernmental organizations (“NGOs”) that receive favorable tax treatment from 101 to 12.  The 12 favored NGOs are intergovernmental organizations.

On June 28, Government Decision 485 provided that grants from foreign NGOs other than the 12 named intergovernmental organizations will be taxable to Russian taxpayers.  On July 2, Prime Minister Vladimir Putin signed a decree subjecting money brought into Russia by foreign NGOs, other than the 12 named NGOs, to a tax of 24%.  These provisions are effective January 1, 2009.

Those NGOs that will retain their favored tax status include the following intergovernmental groups:

• the European Commission;
• the Council of the Baltic States; 
• the Nordic Council of Ministers; 
• the International Atomic Energy Agency; 
• the Black Sea Economic Cooperation; 
• the European Fund for the Support of Coproduction and Distribution of Cinematographic and Audiovisual Works; 
• the Joint Institute for Nuclear Research; 
• the United Nations Educational, Scientific and Cultural Organization (UNESCO); 
• the United Nations Industrial Development Organization (UNIDO); 
• the United Nations Environment Program (UNEP); 
• the United Nations Development Program (UNDP); and 
• the United Nations Children's Fund (UNICEF).
  

Organizations that will lose their tax favored status include World Wildlife Fund, the Global Fund to Fight AIDS, the MacArthur Foundation, the Ford Foundation, and the Red Cross.  Other organizations, like Human Rights Watch and Amnesty International, closed operations in Russia after onerous reporting requirements were imposed in 2006.  

Putin’s dislike of foreign NGOs is apparently based on a belief that they are fronts for Western intelligence and that they interfere with domestic politics and undermine the Russian government’s authority.