THE NONPROFIT SECTOR
IN THE CZECH REPUBLIC
Petra Brhlikova
May 26, 2004
Abstract
In an attempt to extend Salamon, Anheier, and Associates' (1999)
study I analyze the evolution and scope of the Czech nonprofit sec-
tor after 1995. Data limitations do not allow an exact extension. The
available data suggest that with respect to expenditures, full-time em-
ployment and the number of nonprofit institutions the Czech nonprofit
sector is still growing, although at a decreasing rate. I also pay at-
tention to the evolution of Czech nonprofit law and argue that the
slow evolution of legal regulations and weak enforcement of existing
law slowed down the growth of the Czech nonprofit sector. Too lit-
tle emphasis on accountability and transparency of nonprofit entities
negatively affects trustworthiness of the nonprofit sector.
Keywords: Czech Republic, nonprofit sector, evolution

I would like to thank my supervisor Andreas Ortmann for his helpful comments.

CERGE-EI
1

Contents
1 Introduction 3
2 Definition and international classification of the nonprofit
sector 5
3 The Czech nonprofit sector 7
3.1 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2.1 Foundations and foundation funds . . . . . . . . . . . . 10
3.2.2 Citizens' associations . . . . . . . . . . . . . . . . . . . 13
3.2.3 Public benefit organizations . . . . . . . . . . . . . . . 14
3.2.4 Churches and religious communities . . . . . . . . . . . 15
3.2.5 Budgetary and subsidiary organizations . . . . . . . . . 15
3.2.6 Other nonprofit entities . . . . . . . . . . . . . . . . . 16
3.3 Changes in law and regulation of nonprofit entities . . . . . . 16
4 Data Analysis 18
4.1 Scope of the sector . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Structure of the sector according to legal forms . . . . . . . . 22
4.3 Employment, volunteerism . . . . . . . . . . . . . . . . . . . . 24
4.4 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5 Data accessibility and quality and trustworthiness of the non-
profit sector 29
6 Conclusions and suggestions for further research 31
7 References 33
2

1 Introduction
The nonprofit sector has gained economic, social, and political importance
and attracted almost universally growing attention over the last two decades.
The nonprofit sector comprises entities that are not run for profit and that
aim to provide publicly beneficial services. It is also called third sector since
it complements government and market in the provision of services especially
in health, education, and social fields. Other alternative names of the sector
reflect its further distinguishing characteristics: voluntary (employing volun-
teers), civil (dealing with the problems of the civil society), or independent
(from the state). These terms will be used as synonyms in this paper.
In the Czech Republic the nonprofit sector started to re-emerge after the fall
of the Communist regime in 1989. Although the Czech nonprofit sector was
quickly growing, it lags behind nonprofit sectors in developed countries as
regards size and economic and social importance. Its short history is not the
only reason for it. Governments in 1990s kept control over traditional non-
profit fields, health and education. The majority of nonprofit entities in the
Czech Republic is thus active in the culture, sport and recreation domain1
.
Governments, especially in the early 1990s, did not consider the nonprofit
sector to be necessary. This translated in an unwillingness to solve the prob-
lems of the sector and the slow evolution of a legal and regulatory framework
1
This pattern is common in transition countries such as Slovakia, Hungary, and Ro-
mania but is not typical in western countries where health and educational organizations
clearly dominate the nonprofit sector (Salamon, Anheier, and Associates 1999).
3

for nonprofit entities. The incomplete legislation and weak enforcement of
existing law created opportunities for for-profits in disguise2
. This kind of
organizations is not a specialty of the Czech nonprofit sector. More devel-
oped nonprofit sectors, e.g. the U.S. one, also face similar attempts to exploit
the nonprofit status (Hansmann 2000, Ortmann and Schlesinger 2003). The
emerging Czech nonprofit sector, however, was more vulnerable to such at-
tempts that have had a detrimental effect on its trustworthiness.
Up to date the two most extensive quantitative studies of the Czech nonprofit
sector are Fric and Goulli (2001) and Salamon et al. (1999). Fric and Goulli
analyze the evolution of the Czech nonprofit sector since 1989. Salamon
et al. provide a summary of these findings focusing on size, structure, and
philanthropy and compare nonprofit sectors in 22 countries. Both studies
are based on data from 1995. Thus, they focus only on the first five years of
the Czech nonprofit sector. In the second half of the 1990s, new nonprofit
legal forms were introduced and necessary adjustments to already existing
regulations were made. The second half of the 1990s thus represents an
important period of crystallization of the sector.
In the present paper I aim to study the evolution of the Czech nonprofit sector
in the second half of the 1990s. I focus on nonprofit entities that exist under
the Czech law, their numbers and growth rates across years, scope and source
2
The term 'for-profits in disguise' was introduced by Weisbrod to represent profit-
motivated entrepreneurs who want to exploit tax and regulatory breaks bestowed on non-
profits. In section 2 I discuss breaks given to Czech nonprofit entities.
4

of revenues as well as employment in the nonprofit sector, volunteerism, and
donations. In addition, I pay attention to legal and regulatory changes and
to impact these changes have had on the evolution of the Czech nonprofit
sector.
The structure of the paper is as follows: in the second section I charac-
terize basic features of the nonprofit sector and compare the international
classification to the Czech classification of nonprofit entities. In the third
section I briefly summarize the history of the Czech nonprofit sector and
its re-emergence in the 1989. In this section I also describe various insti-
tutional forms of nonprofits existing under the Czech law. In the fourth
section, I evaluate the evolution of the Czech nonprofit sector with respect
to its scope, workforce, volunteerism, and donations. I summarize changes
in the legislation and regulations of nonprofit entities and discuss the impact
of these policy changes on the evolution of the nonprofit sector in the Czech
Republic.
2 Definition and international classification
of the nonprofit sector
The nonprofit sector refers to entities that are, by the choice of their organi-
zational form, not run for profit. Despite a widespread misperception, these
5

organizations can earn profits3
. However, the non-distribution constraint
and its sidekick, the reasonable compensation constraint, restrain managers
of nonprofits from distributing profits among themselves.
Other key characteristics of nonprofit organizations include their indepen-
dence from the government, their employment of volunteer labor, their fi-
nancing of activities from donations, their exemption from paying certain
taxes, and certain regulatory breaks bestowed on them. Tax and regulatory
breaks are provided by the state as a quid pro quo. Legislators, and the
public, expect nonprofits to return the favor to the public in one way or
another.
The nonprofit sector is a hodge-podge of various institutional forms4
. The
heterogeneity of nonprofit entities is, moreover, present also in the focus of
their activities. The international classification of the nonprofit organizations
(Salamon and Anheier 1996) defines 12 fields for these entities.
International classification
1. Culture 7. Civic and advocacy
2. Education and research 8. Philanthropy
3. Health 9. International
4. Social services 10. Religious congregations
5. Environment 11. Business and profes-
sional, unions
6. Development 12. Other
3
Thus, a more descriptive label for these entities would be not-for-profit. Here I follow
the established convention of calling not-for-profits, nonprofits.
4
I will focus only on the entities that are defined by Czech law. Their description can
be found in Section 2.
6

Although the Czech classification of "non-producing activities" recognizes a
smaller number of categories it can be mapped into the international classifi-
cation. The Czech classification, for instance, reports education and research
activities separately as opposed to the international classification. Activities
of churches and their facilities, on the other hand, are not reported as a sepa-
rate category in the Czech classification. Since churches provide educational,
health, and social services, their activities are already included with activities
of other non-governmental nonprofit organizations in corresponding fields.
The more important point, however, is that the Czech Statistical Office gath-
ers and categorizes data on nonprofit entities with respect to their legal form
rather than the field of activity (see the section four for a more detailed de-
scription of nonprofit data). This categorization significantly complicates an
international comparison.
3 The Czech nonprofit sector
3.1 History
The history of the Czech nonprofit sector is rich with periods when the sec-
tor flourished and periods when civic activities were restricted or banned.
Its evolution dates to the middle ages and culminated in the period of the
first Czechoslovak Republic (1918-1939). Apart from associations focused
on national interests, nonprofits concentrated on the three traditional fields:
7

health, education, and social services5
. So, the character of the sector was
very similar to modern nonprofit sectors of western countries. The following
regimes shifted the main focus of the Czech nonprofit sector toward culture,
sport, and recreation. This pattern is common for Eastern and Central Eu-
ropean countries but represents an anomaly in the world-wide context.
The shift started under the German occupation in 1939 when many nonprof-
its were banned and others were reorganized in order to serve state purposes.
After World War II nonprofits renewed their activities. Many organizations,
however, became influenced by political parties and the further evolution
of the nonprofit sector was blocked by the Communist regime (1948). The
activities of churches were restricted to worship and education. The posses-
sions of churches as well as of associations were confiscated. Associations
were unified into the "voluntary organization" called National Front that
was a roof institution for unions, political and voluntary organizations. The
membership in the National Front was considered to be the expression of the
loyalty to the state (Fric and Goulli, 2001).
The state patronized the provision of education, health and social care. These
services were provided by budgetary and subsidiary organizations that cre-
ated the so-called state nonprofit sector. The political pressure of the state
slowly faded in the 1960's. Citizens became more active in public affairs and
several nonprofit organizations were re-activated. The 'normalization period'
5
For the more detailed history of the Czech nonprofit sector see Fric and Goulli (2001).
A brief summary can be also found in Salamon et al. (1999).
8

(after the military invasion of Warsaw pact countries) returned the nonprofit
sector to the conditions before 1960s. Civic activities started to awake in
1980s. Environmental, and some educational and scientific activities were
tolerated by the communist regime. Other civic organizations worked infor-
mally and their activities culminated in the 1989 revolution (Salamon et al.,
1999).
The re-emergence of the Czech nonprofit sector, however, started in full only
in the 1990's after the abolishment of the Communist legacy. The fast in-
crease in the number of nonprofit entities (see a table in section 4), however,
was not accompanied by sufficient changes in the legal regulation of the sec-
tor. In the following section I take a close look at the (evolution of) Czech
nonprofit legislation.
3.2 Legislation
In Czech law, similarly to some other countries, there is no `roof' act that
would apply to all types of nonprofit organizations. In fact, the Czech law
does not even define the term 'nonprofit organization'. The relevant tax act
defines organizations such as citizens' associations including trade unions,
political parties, churches and religious communities, foundations, budgetary
and subsidiary organizations as entities that are not established for business
purposes.
9

These organizations are exempted from paying taxes on certain types of
income such as governmental subsidies, donations, membership fees, and
contributions from foundations. Nonprofit entities can, in addition, decrease
their tax base by 30% up to three million CZK. In case of 30% being less
than 100 000CZK a nonprofit entity can deduct this amount in full.
The registration and legal activities of nonprofit institutions are ruled by
specialized acts. The following sections are focused on nonprofit forms in
the Czech Republic, namely foundations and foundation funds, churches and
their purpose-specific facilities, citizens' associations, public benefit corpora-
tions, and budgetary and subsidiary organizations.
3.2.1 Foundations and foundation funds
In the early 1990s the foundations were first regulated by the Business Code
(1990) and then by Civil Code (1991). These regulations were, however,
very liberal and incomplete. The tax-exempt status and other regulatory
breaks of the nonprofit status under a weak enforcement of law attracted
profit-motivated entrepreneurs.
Fric and Goulli (2001) argue that profit-motivated entrepreneurs opted for
the foundation form in order to receive money from the Foundation Invest-
ment Fund6
and in order to receive money that would be taxed otherwise.
6
The Foundation Investment Fund was created to support activities of the nonprofit
sector. It received 1% of returns from the privatization. The amount was divided by the
Council for Non-governmental Nonprofit Organizations (CNNO) among foundations. In
10

Such speculative motives are illustrated by the rapid increase in the num-
ber of foundations in the Czech Republic. Before 1989 there was only one
foundation (which was not active.) Until 1998 their number had grown to
over 5000 registered foundations. In 1998 the separate act on foundations
and foundation funds came into effect. The new act distinguished between
granting nonprofits with and without endowment7
and brought more restric-
tions on these two institutional forms. With stricter rules, the number of
foundations decreased to 55 in less than a year (in Nov 1998). The steep
decrease is striking even under the assumption that some foundations have
possibly been transformed into foundation funds or public benefit organi-
zations. It is, therefore, natural to conjecture that the stricter regulation
applied to foundations eliminated for-profits in disguise from the sector and
thus contributed directly to a higher transparency and indirectly to a higher
trustworthiness of foundations.
The act on foundations and foundation funds from the year 1998 was per-
ceived as too restrictive and limiting opportunities to raise financial resources
needed for granting activities and services of other private nonprofit organi-
zations. The act was amended four years later and currently, foundations
and foundation funds are regulated by the Act No. 210/2002 Coll. Both
types are defined to be property associations established to provide publicly
the first round, in 1998, 500 million CZK were distributed among 38 foundations. In the
second round, in 2001, above 849 million CZK were distributed among 62 foundations.
7
Foundations and funds may be considered legal forms parallel to U.S. operating foun-
dations with or without a fixed endowment (Pajas, 2002).
11

beneficial services such as preservation of human rights, environment, cul-
tural heritage and traditions, the development of research, education, and
sport.
To serve their purpose, foundations use returns on their registered endow-
ment and other property. The registered endowment has to be at least 500
000 CZK. Foundations are restricted from performing business activities ex-
cept renting real estate, organizing cultural, educational, and sport events.
Foundations can use modern investment tools. They are allowed to buy
for their portfolio bonds, certificates, and other securities from any capital
market in a country that is a member of the OECD. In addition, founda-
tions are allowed to establish a public benefit corporation8
. Foundations
use double-entry book keeping. Annual reports and an audit on the annual
base are required9
. Foundations are, similarly to other nonprofit entities,
tax-exempted from paying taxes on certain types of income. Foundations
are, moreover, fully exempted from paying tax on returns of the registered
endowment.
Foundation funds, in contrast, can use all their assets for their publicly bene-
ficial activities. The initial deposit has to be paid but its minimal amount is
8
Public benefit corporations are allowed to engage in commercial activities. Public
benefit organizations are, moreover, allowed to establish a branch abroad (foundations are
not), what is crucial for foundations with an international base such as People in Need
Foundation.
9
Although both, foundations and foundation funds, are required to publish annual
reports, in reality only 54% of foundations and 30% of foundation funds does so (Center
for Nonprofit Sector Research 2004)
12

not prescribed by the law. Similarly to foundations, foundation funds are pro-
hibited to engage in business activities except renting real estate, organizing
cultural, educational, and sport events. Foundation funds use single-entry
book keeping (double-entry if their income and expenditures make up for
more than 3 mill. CZK.) Annual reports are required (audit only in case
foundation fund's property or the sum of income and expenditures exceed 3
mill. CZK.)
3.2.2 Citizens' associations
The Act No. 83/1990 Coll., on associations of citizens relates to citizens' as-
sociations and trade unions (excluding churches and political parties). These
organizations are based on membership and "are used to provide their mem-
bers, clients of general public with certain services or achieve their goals"
(CHC 2000). Citizens' associations are not required to make any initial de-
posit. They are allowed to engage in business activities. Business activities,
however, may not be the main goal of the institution.
Up to date this is the least restrictive and, maybe not coincidentally, the
most often used legal form in the Czech nonprofit sector. As regards shares
of particular legal forms citizens' associations represented 88% of the Czech
nonprofit sector in 2002. According to some estimates, however, about one
third of these entities is not active (NGO Sustainability Index 2002).
13

3.2.3 Public benefit organizations
A new form of nonprofit organization - Public Benefit Organizations (PBO)10
- has been defined by the Act No. 208/2002 Coll. These organizations
are private entities established to provide publicly beneficial services, such
as education and health care, that represent their source of income. To
finance their activities PBOs use deposits of founders, presents and bequests,
funds of the PBO, and they can also ask for subsidies from the state and
municipalities' budget. Their profits can be used only to improve quality
or to widen the spectrum of services 11
. PBOs, moreover, are allowed to
perform commercial activities under the condition that commercial activities
ensure more effective use of PBO's property and do not, at the same time,
worsen quality and accessibility of publicly beneficial services. Public benefit
corporations are obliged to publish annual reports on their activities, so they
are exposed directly to the independent public control 12
.
10
From the U.S. view, these organizations correspond to foundations without foundation
endowment or to nonprofit corporations without membership (Fric and Goulli, 2001).
11
This organizational form, thus, represents Weisbrod's argument for the existence of
nonprofits.
12
Although Pajas (2002) argues that due to amendments done in 2002, PBOs, founda-
tions, and foundation funds represent "the most transparent part of the [Czech] not-for-
profit sector", it is questionable whether the control and enforcement of law is sufficient
to restrict the abuse of the nonprofit status.
14

3.2.4 Churches and religious communities
In the Czech Republic churches are not separated from the state that sup-
ports them financially. Purpose-specific facilities of churches are ruled by the
Act No. 3/2002 Coll. on freedom of faith and the position of churches and re-
ligious communities. Act No. 161/1992 Coll., on the registration of churches
and religious communities, rules the registration of these institutions. Czech
Helsinki Committee (CHC) 2000 argues that the Czech legislation supports
"the well-established large and influential churches and is directed against
new spiritual movements and small religious communities." This is due to
the rules for registration that require the submission of 500 signatures for
Christian churches that are members of the World Council of Churches and
10000 signatures for others. The rule forces smaller entities to register under
the form of citizens' association although they perform religious activities.
There, however, exist several religious communities that are not approved by
the state but these institutions do not receive state support (Fric and Goulli
2001). Churches and religious communities are allowed to provide education
and other social services.
3.2.5 Budgetary and subsidiary organizations
A large group of nonprofit organizations is represented by budgetary and
subsidiary organizations. These entities are financed by the state or munici-
palities. The legal regulation is provided by Act No. 576/1990 Coll. and Act
15

No. 205/1991 Coll. The preferential position of these entities as regards state
subsidies is often criticized (Fric et al. 2000, Potucek et al. 2001). The Pub-
lic Benefit Organizations Act was expected to transform a portion of these
institutions into non-governmental legal institutions but these expectations
have not been fulfilled (CHC 2000). Acts amendments 218/2000, 250/2000,
and 129/2000 "shall have substantial influence on the future decentralization
of the subsidy policy" (CHC 2000, pp.63).
3.2.6 Other nonprofit entities
Act No. 424/1991 Coll. regulates associating in political parties and political
movements. Act No. 513/1991 Coll. regulates also corporations and cooper-
atives that are considered to be business entities but that can be established
also for other than business purposes, e.g. private schools. In such case they
are considered to be nonprofit institutions. Separate acts regulate activities
of professional organizations, legal entities such as the Czech Academy of
Sciences, the Czech Television, and the State Fund of the Culture in the
Czech Republic.
3.3 Changes in law and regulation of nonprofit entities
Transition economies in the Central Europe are known to struggle with in-
complete legislation and the weak enforcement of existing law. This is espe-
cially so for the Czech Republic, which for years has been sliding in Trans-
16

parency International (TI) rankings, from 5.4 in 1996 down to 3.9 in 2003
(CERGE-EI 2004). TI states that although "the Czech Republic is rather
one of the countries where media provides information about latent ubiqui-
tous corruption, the central power is not able to demonstrate its authority
and to enforce the law" (TI 2001). It is an obvious (and in the light of the
nonprofit sector's role in western economies, important) question of interest
how the slow evolution of nonprofit law and weak enforcement impact the
Czech nonprofit sector. One suggestive example of how the nonprofit form
attracted for-profits in disguise was discussed in the section on foundations
and foundation funds.
In the following table I summarize the evolution of the law related to the
Czech nonprofit sector. We can see that a majority of legal regulations was
made in 1990 and 1991 as a part of democratization process. The key acts for
the existence of the nonprofit sector were the Act on citizens' associations,
the Act on freedom of faith and the position of churches, and the Act on
associating in political parties. Further necessary adjustments to the existing
law, however, were postponed until 1997 (on foundations and foundation
funds) and 2002 (on freedom of faith and the position of churches) or are
still waiting to be made (on citizens' associations.)
17

1990 Act on citizens' associations No. 83/1990 Coll.
Act on budgetary and subsidiary organizations No. 567/1990 Coll.
1991 Act on corporations and cooperatives No. 513/1991 Coll.
Act on budgetary and subsidiary organizations No. 205/1991 Coll.
Act on freedom of faith and the position of churches and religious
communities No. 308/1991 Coll.
Act on associating in political parties and political movements No.
424/1991 Coll.
Act on book-keeping No. 563/1991 Coll.(paragraph 9)
1992 Act on the registration of churches and religious communities No.
161/1992 Coll.
Act on income tax No. 586/1992 Coll.
1995 Act on public benefit corporations No. 248/1995 Coll.
1997 Act on foundations and foundation funds No. 227/1997 Coll.
1998 500 million CZK from the Foundation Investment Fund distributed
among 38 foundations (CHC 2000)
2000 218/2000 amendment of acts on budgetary and subsidiary organi-
zations (567/1990 and 205/1991)
2001 (Dec)the remnant from the FIF (849 323 000CZK) distributed
among 64 foundations
2002 Act on freedom of faith and the position of churches and religious
communities No. 3/2002 Coll.
Act on voluntary service No. 198/2002 Coll.
Act on public benefit corporations No. 208/2002 Coll.
Act on foundations and foundation funds No. 210/2002 Coll.
Source: ASPI and ICN
4 Data Analysis
In this section I analyze data documenting the evolution of the Czech non-
profit sector since 1995. The analysis is based on data sets available from
the Czech Statistical Office (CSO). There are several limitations of these
18

data sets. First, the CSO reports nonprofit institutions under several dif-
ferent groups of institutions. In the CSO classification the majority of non-
profit institutions is included in the sector 'Nonprofit Institutions Serving
Households'(NISH). This sector covers citizens' associations, political parties,
churches and their facilities, foundations and foundation funds, cooperatives,
and some educational and health facilities of churches. The sector 'Non-
financial Enterprises' also includes some nonprofit entities such as interest
associations of cooperatives and of natural persons serving market produc-
ers. Interest associations of natural persons serving financial institutions are
incorporated in the sector of 'Supplementary Financial Institutions'. Second,
the CSO provides only aggregate data. A more detailed economic analysis is
thus not presently possible.
For the period 1996-2000 I use data from the National accounts that report
expenditures and capital investments for NISH 13
. The number of employees
is taken from labor statistics (CSO). For the years 1999-2001 more detailed
data sets on nonprofit institutions14
and Public Benefit Organizations are
available (CSO 2000, 2001, 2002). Data on nonprofit institutions for the
year 2002 (CSO 2003), although available, are not incorporated in my anal-
ysis. The CSO applied a different sampling method thus, the data set is not
comparable to data from previous years.
13
Salamon and Anheier's analysis included, in addition, budgetary and subsidiary orga-
nizations.
14
Nonprofit institutions in 2000 and 2001 incorporated over 77,000 NISH, about 400
institutions from the sector of 'Nonfinancial Enterprises' and 9 organizations from the
sector of 'Supplementary financial institutions.'
19

4.1 Scope of the sector
To assess the scope of the nonprofit sector Salamon et al. (1999) focus
on expenditures15
of the sector. In 1995 the Czech nonprofit sector had
expenditures of $ 800 million which represented 1.6 % of GDP (Salamon et
al. 1999). Looking only at expenditures of Nonprofit Institutions Serving
Households (NISH), the nonprofit sector had expenditures of 14,537 mil.
CZK, comprising 1.1% of GDP in 1995.
Figure 1: Expenditures
With a slight decrease in 1999 being an exception expenditures were steadily
growing to 24,85616
mil. CZK, representing 1.4% of GDP. This growth was
mainly driven by operating expenditures that doubled during those six years;
the increase in wages was smaller. Operating expenditures include inter-
mediate consumption and depreciation of tangible and intangible property.
Operating expenditures, thus, represent the general operation costs of an
15
Expenditures in their analysis include salaries, fringe benefits, and other personal
costs;purchases of non-capital goods, supplies, and services; and any fees and charges
paid. The list of incorporated measure excludes capital expenditures. Their expenditures
are equivalent to sum of, what I call here, wage expenditures and operating expenditures.
16
Reported data for the years 1996-2000 are inflation-adjusted. I used deflator published
by CSO (2004).
20

organization.
Extending the analysis of Salamon et al. (1999) I also look at capital expen-
ditures. Capital expenditures include acquisition of tangible and intangible
investments. These expenditures are expected to be important in early stages
of nonprofit sector evolution. Capital expenditures were, indeed, growing
from 1,102 mil. CZK in 1996 to 3,690 mil. CZK in 1999. The increase is
especially apparent in 1998 and 1999. The significant increase was probably
a consequence of the new act on foundations and foundation funds that re-
quires higher level of foundation endowment17
. The distribution of 500 mil.
CZK from the Foundation Investment Fund among 38 foundations in 1998
also contributed to the upward shift. In 2000, however, capital expenditures
were only 454 mil. CZK, which represents less than half of 1996 capital in-
vestments. This decrease, if is continued, suggests that the first years of the
NS evolution were more capital intensive in order to create a solid base for
nonprofit activities. After the initial period the increase in total expenditures
reflects growth of operating expenditures. Capital expenditures, however, ac-
counted for less than 10% of total expenditures in the years 1995-2000 with
an exception of 1999 (15%). The structure of expenditures is depicted in
Figure 2.
In 1995-1999 operating expenditures represented more than 60% of total
expenditures. In 2000, this percentage increased to 76%. It is not obvious
17
In 1998 only 55 foundations were able to (re)register. In 1999 additional 217 founda-
tions completed the (re)registration.
21

Figure 2: Structure of Expenditures
from the available data what caused this jump.
4.2 Structure of the sector according to legal forms
Salamon et al. (1999) expected market saturation. The numbers of non-
profit institutions across their legal forms, however, suggest that the Czech
nonprofit sector is still growing although at a decreasing rate (Table 1).
Year Total Founds F.Funds Citizens' A. PBO(1) Churches(2)
1995 31067 4 253 - 26 814 - -
1996 32200 4 392 - 27 807 1 -
1997 35587 5 238 - 30 297 52 -
1998 36301 55 71 36 046 129 -
1999 39599 272 695 38 072 560 -
2000 44043 282 735 42 302 557 167
2001 49052 299 784 47101 701 167
2002 55835 330 825 49108 762 4810
2003 57964 346 856 50 972 849 4941
(1) Public Benefit Organization
(2) Purpose specific facilities of churches; source Foundation VIA reports
22

Source: ICN (CSO, Albertina)
In 1991 the growth rate was 141% and until 1996 it was steadily declining
toward 3.7%. Due to a significant increase in the number of foundations
and citizens' associations the growth went again up in 1997 (10.5%) but was
followed by abrupt decrease to 2%. It was a consequence of the new act on
foundations and foundation funds that became effective in 1998 and reduced
the number of foundations by 98% 18
. This decline was not compensated,
notwithstanding even with a significant increase in the number of citizens'
associations. After 1998 the Czech nonprofit sector started to grow faster
again as more foundations were able to (re)register, the growth within new
legal forms - foundation fund and PBO - became more significant, and cit-
izens' associations followed steady growth. The positive trend is apparent
until the end of 2002. In 2003 the growth slowed down.
Figure 3: Growth rate
These numbers, however, have to be considered with caution as they probably
overestimate the scope of the Czech nonprofit sector. According to CSO
18
The foundation example was discussed in the Section 3.2.1.
23

estimates about one third of nonprofit units is not active. For instance, in
1998 there was 73, 760 nonprofit institutions (without PBOs) in the statistical
register, while only 56, 956 were active (CSO 1998). 19
4.3 Employment, volunteerism
In 1995 the Czech nonprofit sector was employing 74 200 full-time equivalent
(FTE) paid workers. This represented 1.7% of all nonagricultural workers
or 3.4% of service employment in the country (Salamon et al. 1999). The
number of employees of NISH is less than half of the estimate in Salamon et
al., 30,27420
(CSO). This number was growing until 1998, when it reached
its maximum (Fig. 4), then followed a decreasing trend and in 2000 was only
slightly above the 1995 level. Thus, the employment in NISH increased by
3% during 1995-2000 period. These employment numbers are very low when
compared to the number of active organizations in the sector (e.g. in 1998
56,956 active units). One explanation is that statistical surveys include only
about 60% of total employment in the Czech economy21
(Fric and Goulli
2001).
Volunteerism is much less common than in developed countries. The reluc-
19
The nonprofit sector, on the other hand, exceeds the limit of legal definition and
incorporates also other legal entities and natural persons that are not established for
business purposes.
20
This number, moreover, does not represent FTE employees, which would be even
lower. The translation to FTE is not done in my study since I do not have data on
average number of hours worked by these employees.
21
For a discussion on what is missing see Fric and Goulli (pp.155-156,2001).
24

Figure 4: Number of employees
tance to volunteer comes from the communist era when the 'voluntary` work
was considered to be the (demonstration of) loyalty to the regime. Only
8% citizens performed voluntary activities in 1999 (Fric 2000). 68% of ques-
tioned volunteers, however, donate labor regularly at least once per month.
The voluntary work is performed mostly in entities focusing on social services
(37%), sport and recreation (17%), and health (15%)22
.
Act No. 198/2002 Coll., on voluntary service finally defines the term 'volun-
tary activity' and specifies requirements for volunteers and nonprofit entities
that organize them. For instance, health insurance of volunteers is paid by
the state while voluntary work is performed. Volunteer work is also counted
as previous employment in the case of unemployed volunteers. The evolution
of volunteerism in the Czech Republic advanced also with nonprofit entities
that concentrate on educating volunteers, matching demand and supply of
22
Data on private nonprofit institutions of 2000 suggest the same ranking of fields among
volunteers: social services (71%), culture, sport and recreation (28%), health (1%), and
education (0.3%). These numbers do not cover volunteerism in subsidiary organizations
and therefore underestimate volunteerism in health and education.
25

voluntary work (see e.g. their common project on www.dobrovolnik.cz).
Data on private nonprofit institutions and PBOs for the 1999-2001 period
(CSO), indeed, report increasing numbers of volunteers. While in 2000 there
was about 190 thousands of volunteers (in PBOs plus private nonprofit insti-
tutions), in 2001 the number reached nearly 220 thousands. These numbers
overestimate the volunteer input since they are not translated to FTE due
to the data limitations.
4.4 Financing
To finance its activities, the nonprofit sector uses several sources of revenue:
revenue from its own activities (fees and charges), public sources, and philan-
thropy (donations and volunteerism). Salamon et al. (1999) categorize the
Czech nonprofit sector as 'fee income dominant', meaning that the majority
of revenues (47%) comes from activities of nonprofit entities, while the public
sector contributes 39%, and philanthropy accounts for 14% of revenues. The
Czech nonprofit sector was according to CHC (2000) even less dependent on
public budgets in 1998. CHC (2000) reports only 30% of revenues coming
from public budgets, then 47% from activities of nonprofit entities, and 21%
from philanthropy.
The share of philanthropy reported by Salamon et al. (1999), 14%, is not low
when compared to philanthropy in western countries such as the U.S. (13%),
26

U.K. (9%), or Germany (4%) (Salamon et al., 1999). One has, however, to
take into account that their study relies on data from 1995. At that time the
Czech nonprofit sector was receiving rich donations from western countries.
Western sources started to dry up after 1997 and by 2002 the foreign financial
support had decreased by about 25% (NGO Sustainability Index 2002). Had
this decrease any effect on the nonprofit sector's independence from the state?
Was the sector sufficiently mature to compensate foreign donations by sources
from own activities and/or from local donors and volunteers? We do not know
answers yet since we are constrained by the presently available data. For the
time being these have to remain questions for further research23
.
Donations and volunteerism, in addition to commercial activities, are two
important inputs that help the nonprofit sector to maintain its independence
from state support. Educating volunteers and donors is especially important
in post-communist countries. After decades when the state was the main
23
There are studies on public sources, e.g. the Centre for Nonprofit Sector Research
(2003) analyzed financing nonprofits from selected public sources. In the years 1999-2001
CSO in surveys for private nonprofit institutions distinguishes between operating subsi-
dies from state budget, municipalities, and other operating subsidies for institutions with
double-entry book-keeping. Also financial contributions from individuals are reported.
According to my computations based on this data set the structure of revenues was as
follows: in 1999 70% represented fees and charges, 24% from public sources, and 6% phi-
lanthropy; in 2000 the corresponding numbers were 79%, 19%, and 2%; for the 2001 the
numbers were 70%, 21%, and 9%. The contribution of philanthropy is underestimated
since data on hours worked by volunteers are not available, thus are not able to compute
the imputed value of volunteer labor. In any case numbers for philanthropy are signifi-
cantly lower than those reported by Salamon et al. (1999): 14% without and 30% with
volunteers. The difference is most probably caused by the fact that I exclude private non-
profit institutions with single-entry book-keeping and subsidiary organizations. I expect
especially subsidiary organizations (educational and health institutions) to receive a high
fraction of revenues from public sources and more donations.
27

and the unique provider of social care people became used to relying on
state care in return for their tax payments. The survey "Donations and
Volunteerism in CR" (Fric, 2000), indeed, reveals that 41% respondents think
that it is not necessary to contribute to nonprofits if they pay taxes and 79%
respondents think that contributions are not needed if the state would be
more responsible. Despite such opinions, individuals contribute financially
and through volunteer work. We discussed volunteerism in more detail in
the section 4.3. In this section we focus on donations.
Individual donations, as mentioned above, are influenced by the fact that
people still demand social services from the state. Based on Fric (2000),
the percentage of individual donors in the Czech Republic did not exceed
16% in the first half of 1990s. The abrupt increase in donations was drawn
by the floods in 1997 when the ratio of donors almost doubled (29%.) Af-
ter 1997, donations have been slowly and steadily decreasing. In 1999, 24%
of people contributed financially and 28% provided a non-monetary dona-
tion. Financial donations are mostly targeted to fields of charity, health,
and social services. Non-monetary donations are usually directed to health,
international activities, and culture and arts (Fric, 2000).
Donations followed a decreasing trend. Another peak in contributions, how-
ever, can be expected in the 2002 data because of reactions to the disastrous
floods the Czech Republic faced again.
Although individuals are becoming used to donate, corporate giving is not
28

sufficiently developed (CHC 2000). Firms often prefer sponsoring to donating
since costs related to sponsoring can be deducted from the taxable income.
This source of income is, unfortunately, not accessible to all types of nonprofit
entities. Favored are sport clubs and big nonprofits that can organize film
and music festivals (Potucek et al. 2001).
Tax-advantages of donors in the Czech Republic are regulated by the Act
No. 586/1992 Coll. on income tax. Legal entities that contribute at least
2,000CZK can deduct their donation with the upper limit 5% of their tax
base. Natural persons donating at least 1,000CZK or 2% of their tax base can
deduct their donation from their income tax base; the maximal deduction is
5% of the tax base.
5 Data accessibility and quality and trust-
worthiness of the nonprofit sector
In the previous section, I argued that data limitations do not allow to make
a more detailed economic analysis of the Czech nonprofit sector. Thus the
proper evaluation of its progress made from the year 1995 and comparison
to nonprofit sectors in developed countries is not possible.
Low data accessibility and quality, however, have negative impact also on
the nonprofit sector's trustworthiness. Nonprofit entities depend on the sup-
port of the general public, corporations, and the state. To ensure a stream of
29

donations and fees from the public and grants and contracts from state agen-
cies the nonprofit entities need to provide information about their projects,
sources of income, costs of fundraising, property, board members, etc. In
short, they need to show that they warrant investments and that they make
a good use of donations and grants.
In the U.S., for instance, such information is available to the general public
through Form 990 (Return of Organizations Exempt From Income Tax).
Form 990 has to be filled on an annual basis and reports from the past
three years have to be accessible. Donors or volunteers thus can get a lot of
information about the filer's activities and financial conditions24
.
In the Czech Republic, data sets for private nonprofit institutions (1999-
2001) available form the CSO contain most of the information included in
Form 990. The CSO, however, offers only aggregates based on data gathered
through a selective survey25
Individual data, in the Czech Republic, ought
to be provided through annual reports by foundations, foundation funds,
and public benefit organizations. As was already mentioned, only 54% of
foundations and 30% of foundation funds, indeed, publishes their annual
reports (Center for Nonprofit Sector Research 2004). In addition, published
24
Form 990 of many nonprofits is accessible also through Guide Star
(www.guidestar.org). Guide Star is a national database of nonprofit organizations
and serves as a rich source of information for nonprofit entities, donors, and grantmaking
agencies.
25
For instance, in 1998 questionnaires were sent to 6,589 nonprofit entities, out of which
2,844 returned questionnaires. Aggregate indicators were estimated for the sample of
active entities, 56,956 (the whole sample included 73,760 entities.).
30

annual reports many times lack necessary information. Ministries and courts,
that register nonprofit entities, have also some information on nonprofits
but these data are not easily accessible to the general public. The public
trust in nonprofit entities, therefore, can not be based on the information
about nonprofits' financial and nonfinancial performance. The general public
simply does not have the relevant information.
An alternative way how to build trustworthiness of the nonprofit sector might
be a certification system. Certification was, for instance, successfully intro-
duced in the Netherlands (Bekkers 2003) and other European countries (Guet
2002), and in Maryland (Maryland Association of Nonprofit Organizations
1998).
6 Conclusions and suggestions for further re-
search
In the present paper I have analyzed the evolution of the Czech nonprofit
sector after 1995. Although an exact extension of previous studies of the
Czech nonprofit sector (Fric and Goulli 2001 and Salamon et al. 1999) is not
possible due to data limitations, it is possible to describe basic trends in the
evolution of the sector.
With respect to expenditures, full-time employment and the number of non-
profit institutions the Czech nonprofit sector is still growing although at a
31

decreasing rate. Major capital investments were made in the 1998-1999. Af-
ter 1997 foreign financial sources started to dry up. Questions for further
research, therefore, are whether investments made are sufficient for contin-
uing activities of the sector and whether the sector is mature enough to
compensate foreign financial inflows by donations from domestic sources or
its own activities, i.e. whether it is self-sustained.
In the Czech private nonprofit sector the fields of culture, sport, and recre-
ation are still dominant. The transformation of budgetary and subsidiary or-
ganizations, when completed, will shift the sector's focus toward traditional
nonprofit fields, health, education, and social services.
Regarding legal regulations, a long awaited amendment of the Act on cit-
izens' associations would contribute to higher transparency and therefore
positive image of the Czech nonprofit sector. Additional measures, such as
certification, might ultimately be more effective.
32

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35