One Way to Avoid Taxes: Nonprofit Consumer Cooperatives

I want to share some insights about the activities of nonprofit consumer cooperatives (NPOs) and their potential benefits. If you’re not familiar with them, you might find this interesting.

These organizations are regulated by the Civil Code and the law “On Consumer Cooperation (Consumer Societies and Their Unions) in the Russian Federation.” You can look it up for more details.

Main Features of Consumer Cooperatives

• No Property Tax: One of the main advantages is the absence of property tax (on movable and immovable assets) if the property is transferred to the cooperative’s share fund.
• Asset Protection: All property in the share fund is 100% protected from raiders and creditors. Claims on members’ share contributions cannot be made for debts, and even court bailiffs are powerless. Creditors don’t stand a chance.
• Tax-Free Withdrawals: You can get your share contribution back in the form of money, vehicles, real estate, land, equipment, or anything else, with zero taxes and no need for declarations, since it’s not considered income.

Withdrawing funds from a cooperative is clean and transparent, and most importantly, tax-free. For example, if you transfer your computer, phone, bed, car, and apartment to the share fund (let’s say worth $250,000), the cooperative can give you these items back for free use. In essence, your belongings remain with you, but the cooperative owes you $250,000. You can legally receive this money tax-free, since it’s just a return of your share contribution, not income. It’s as white as snow. By the way, the value of the “transferred” property is determined by the cooperative’s board! Also, not only members can make contributions.

Nonprofit Status and Taxation

Consumer cooperatives are generally not commercial organizations, meaning they don’t generate profit and therefore don’t pay taxes. The key is to register correctly with the tax authorities: choose the simplified tax system (STS) at 6% (income). Since there’s no income, the tax under the simplified system will always be zero. According to the law, nonprofit cooperatives have no taxable base, so no taxes arise.

If the tax office asks, “Why are there transactions but the STS 6% (income) tax is zero?” you can refer to your charter: “The cooperative is not a commercial organization, does not conduct commercial activities, and all funds received in our accounts and cash register are entrance, share, membership, or targeted contributions.” That’s it.

How to Register a Consumer Cooperative

• You need at least five individuals (preferably relatives or close friends), or three legal entities.
• The charter capital can be as little as 5 rubles (one ruble per person).
• Then you need a charter, a founders’ meeting, etc.—all of which you can easily find online.
• It’s important to keep “control” over the organization, so only trusted people should be on the board.

Be sure to monitor the purpose of payments from your members. The word “contribution” is mandatory—not “payment for services,” “subscription fee,” etc. Such payments should be returned or you should get written confirmation that it’s a specific contribution; otherwise, you could have problems with the tax authorities.

Additional Benefits

In regular organizations (LLCs, JSCs, sole proprietors), various taxes totaling about 30% must be paid on income (like salaries), which is unfortunate. In a cooperative, you can provide any amount of material assistance to any member at any time, with zero taxes. The main thing is to properly document everything. You can also return the share contribution from the share fund.

In other words, if you fully understand the topic, you can do everything legally and, most importantly, completely “white.”

Hopefully, you’ll never need it, but property from the share fund can be inherited.

Increasing or decreasing the number of cooperative members, or the size of the share fund, does not require registration with tax or other government authorities.

Key Points to Remember

• The two main people in a cooperative are the chairman of the board and the chairman of the management board.
• If the cooperative engages in commercial activities, it loses its advantages and must keep separate accounting for commercial and non-commercial activities.

Of course, this is a very brief overview—there are many more positive aspects. Everything described here is legal and publicly available, so study and use it if you wish.

It’s just not in the state’s interest to promote this, so most people only know about sole proprietorships and LLCs.

Wishing you all the best, friends.