Association accounting and reporting in 2026

Association accounting differs fundamentally from the accounting of for-profit companies. Associations and public institutions are non-profit legal entities, yet they are subject to strict accounting, financial reporting and tax requirements. Non-profit status does not exempt them from these obligations.

The main challenges stem from different sources of funding. Membership fees, donations, project funding, subsidies and commercial services — all these funds must be kept separate in the accounts according to their purpose and funding conditions. Improper separation can cause serious problems during funders' audits.

In this article you will find the legal framework, the principles of association accounting, the specifics of income and expenses, tax obligations for 2026, reporting deadlines, the most common mistakes and practical solutions. All of this will help ensure that your organisation's finances comply with the applicable provisions of the Law on Associations.

Key points

• Accounting policy and procedure for recording and measuring business transactions – every association must choose its accounting principles and methods and set the rules for recording and measuring business transactions, taking into account the nature and scale of its activities.
• Separation of funding sources – membership fees, donations, projects and commercial income must be accounted for separately.
• Manager's responsibility – the manager organises the accounting and is responsible for organising it, even if the accounting is kept by an external specialist. The person who keeps the accounts is responsible for the bookkeeping itself.
• VAT obligation – an association's non-profit legal entity status does not exempt it from the obligation to register as a VAT payer. If the consideration for VAT-taxable economic activities carried out in Lithuania exceeds EUR 45,000 in the current or previous calendar year, the association must register as a VAT payer. A VAT registration obligation may also arise from acquisitions of goods from other EU Member States.
• Corporate income tax in 2026 – profit from commercial activities may be taxed at a 7% rate (0% for new entities), and at 17% in other cases.
• Annual reports – every association must prepare an annual set of financial statements and an activity report each year and submit them to the administrator of the Register of Legal Entities. An association that has chosen simplified accounting may prepare a single annual report instead of these documents. The procedure for preparing and submitting the reports is governed by Articles 10 and 10¹ of the Law on Associations.

What are an association and a public institution (VšĮ), and what legal framework applies to their accounting?

How is an association defined under Lithuanian law?

An association is a membership-based legal entity operating as a non-profit organisation. The Law on Associations governs the establishment, management, activities, reorganisation, transformation and liquidation of associations. The law is amended frequently, so always rely on its current consolidated version in the Register of Legal Acts (e-TAR).

Association reporting is governed by Article 10 of the Law on Associations, "Set of annual financial statements and activity report. Annual report". The signing, publication and submission of documents to the Register of Legal Entities is laid down in Article 10¹, and quality monitoring of financial statements and activity reports in Article 10². This means that accounting cannot be ignored even in very small organisations.

How does a public institution differ from an association?

A public institution (VšĮ) is a separate legal form of non-profit legal entity. Its activities are governed by the Law on Public Institutions. A public institution serves the public interest and provides public services.

Like an association, a public institution prepares an annual set of financial statements and an activity report. Both documents are public, and the activity report is submitted to the Register of Legal Entities together with the set of financial statements. The procedure for accounting and reporting by non-profit legal entities is detailed in Order No. 1K-372 of the Minister of Finance.

What are the main differences between an association and a public institution?

What makes the accounting of these organisations special is that funding sources, their intended use, project costs, donations and operating results must be shown separately. Non-profit status in itself does not exempt them from financial reporting and tax obligations.

Basics of association accounting under the Law on Financial Accounting

Who must organise an association's accounting and who is responsible for it?

Accounting is organised and kept in accordance with the Law on Financial Accounting. This is the name used since 1 May 2022 for the former Law on Accounting – a new version of it (Law No. XIV-680) entered into force on that date.

The Law on Financial Accounting distinguishes between organising accounting and keeping accounts. Accounting is organised by the head of the entity: they choose who will keep the accounts (an accountant, an accounting services company or another person), approve the accounting manual and ensure that accounting documents are handed over on time. The person who keeps the accounts is responsible for the bookkeeping. If the manager keeps the accounts personally, they are also responsible for the bookkeeping. More information is available in the Law on Financial Accounting. Read more about who must keep accounts and the manager's responsibility in our separate article.

Should simplified or full accounting be used?

Article 4 of the Law on Financial Accounting allows a non-profit limited-liability legal entity to choose simplified accounting (single entry) if all of the following conditions are met:

• in the reporting and previous financial years the organisation had no employees;
• its income and/or funding received in the previous two financial years did not exceed EUR 30,000;
• it is not a public sector entity.

Having chosen simplified accounting, an association may prepare an annual report instead of a set of financial statements and an activity report. This is the biggest relief for small associations. The choice must be formalised by a decision of the manager.

In other cases, accounts are kept using double entry. The accounting manual (accounting policy) sets out the chart of accounts, income recognition rules, methods of accounting for non-current assets and other principles. If this document has not yet been prepared, preparing an accounting policy and a procedure for recording and measuring business transactions can help formalise these principles properly from the very beginning.

The procedure for accounting and for preparing financial statements, activity reports and annual reports of non-profit legal entities is laid down in Order No. 1K-372 of the Minister of Finance of 22 November 2004. The Ministry of Finance is preparing Lithuanian Financial Reporting Standards (LFRS) 44 and 45, which are expected to replace these procedures in the future, so it is worth following their approval.

What accounting documents are mandatory for an association?

All accounting entries must be supported by documents. The list of mandatory documents includes:

• Invoices and contracts – support every business transaction.
• Bank statements and cash documents – confirm the movement of money.
• Payroll sheets – mandatory if there are employees.
• Donation documents and evidence of project expenses – needed for donation reports and funders' audits.

The set of annual financial statements, the activity report or the annual report is submitted to the Register of Legal Entities electronically via the Centre of Registers self-service portal. The submission procedure is set out in Article 10¹ of the Law on Associations and in the Regulations of the Register of Legal Entities (Government Resolution No. 1407 of 12 November 2003).

Bank and cash transactions must be kept separate from the classification of income and expenses. A bank statement confirms the movement of money, while an accounting document confirms the economic substance and basis of a business transaction. All cash must be recorded in cash documents.

Income and expense accounting in associations: what must be kept separate?

How should membership fees be properly accounted for in an association's accounts?

Membership fees are recorded in accordance with the association's articles of association, decisions of the general meeting of members and actual payments. The articles or decisions must clearly state who pays the fee, how much it is, when it is paid and in which cases a member may be exempted from paying it.

It is recommended to keep a separate accounting card or register for each member. It should show the payment status — this helps avoid disputes and ensures transparent accounting practice.

How should donations and project funding be properly accounted for?

Donated funds must be separated by donor, receipt document, purpose and use. The accounting system must make it possible to determine which activities the funds were used for and whether the conditions set out in the agreement or legal acts were complied with.

Only an organisation with charity recipient status may receive support within the meaning of the Law on Charity and Sponsorship. A charity recipient submits an annual report on the receipt and use of support (FR0478) to the State Tax Inspectorate (VMI). From 1 January 2026, monthly support reports, which previously had to be submitted after receiving more than EUR 15,000 from a single donor, no longer need to be submitted (VMI information).

Project funding is accounted for according to the project budget lines, eligibility rules and funding period. Each expense must be linked to a specific contract, activity and payment document. If the funder requires separate project accounting, this is achieved through cost centres or analytical accounts.

Why is correct expense classification important?

Expenses are classified at least by economic nature and by purpose of activity:

• Administrative – office rent, communications, stationery.
• Programme – directly related to the organisation's objectives.
• Project – linked to a specific funded project.
• Payroll – salaries and related contributions.
• Asset acquisition and financing – purchase of non-current assets, leasing.

Incorrect allocation can distort project reports, control over the use of donations and the calculation of corporate income tax.

Non-profit status does not mean that an organisation cannot earn income or carry out commercial activities. Any profit earned may not be distributed to members or stakeholders — it must be used for the purposes set out in the articles of association. The corporate income tax obligation depends on the nature of the income, the activities and the specific provisions of the Law on Corporate Income Tax.

Tax obligations and reporting: what every association needs to know

What taxes apply to associations and public institutions?

Depending on their activities and employees, an association or public institution may be liable for the following taxes:

• Corporate income tax – applies to taxable profit from commercial activities.
• VAT – if VAT-taxable economic activities are carried out and the registration threshold is exceeded.
• Personal income tax (GPM) – personal income tax on employees' salaries.
• Social and health insurance contributions (VSD and PSD) – social and health insurance contributions.

Article 51 of the Law on Corporate Income Tax governs the submission of the annual corporate income tax return and the advance corporate income tax return. More details on VMI corporate income tax regulation can be found on the VMI website.

When must an association register as a VAT payer?

An association or public institution is not automatically exempt from VAT simply because it is a non-profit organisation. The VAT registration obligation depends on the scale of its VAT-taxable economic activities.

The registration obligation and threshold are set out in Article 71 of the Law on VAT. Registration is mandatory when the consideration received (receivable) for VAT-taxable economic activities in Lithuania exceeds EUR 45,000 in the current or previous calendar year. The obligation may also arise when goods worth more than EUR 14,000 are acquired from other EU Member States. Article 92 of the Law on VAT sets out the consequences for a person who was required to register but failed to do so on time. Check the current threshold on the VMI website before making a decision.

Article 24(1) of the Law on VAT is particularly important for associations. Under it, services provided by an association to its members are exempt from VAT if they correspond to the objectives set out in the association's articles and no consideration other than the membership fee is received for them. If the membership fee is collected to cover the association's general operating costs and no specific services are provided to members in return, such a fee is not subject to VAT. General VAT provisions apply to services provided to non-members or for additional consideration.

What corporate income tax specifics apply to non-profit entities?

Non-profit entities pay corporate income tax only on taxable profit from commercial activities. Funds that an association receives for its main activities set out in its articles (membership fees, donations, grants) are not treated as income from commercial activities. Therefore, commercial income, funding, donations, membership fees and non-deductible expenses must be kept separate in the accounts.

From the 2026 tax period, the following rates apply to non-profit entities:

• 7% – where income for the tax period does not exceed EUR 300,000 and the other conditions of Article 5 of the Law on Corporate Income Tax are met. From 2026, the headcount threshold no longer applies (VMI on the 7% rate).
• 0% – for newly registered entities in their first and second tax periods, if the conditions of Article 5(2) are met. For example, an association established in 2025 may also apply the 0% rate in 2026.
• 17% – in other cases (16% for 2025).

The annual corporate income tax return PLN204N is submitted by the 15th day of the sixth month of the following tax period.

Donations are generally not taxed, but there are important exceptions. The Law on Corporate Income Tax taxes donations received and used for purposes other than those set out in the Law on Charity and Sponsorship, as well as the portion of cash donations received from a single donor during a tax period that exceeds 250 MLS (minimum living standard amounts).

What annual reports must an association submit?

Under Article 10 of the Law on Associations, an association prepares an annual set of financial statements and an activity report every year. An association that has chosen simplified accounting under the Law on Financial Accounting may instead prepare an annual report and submit it to the general meeting of members.

• Deadlines. The general meeting of members approves the set of financial statements or the annual report within 4 months of the end of the financial year. The approved documents are submitted to the Register of Legal Entities in accordance with the procedure set out in Article 10¹ of the Law on Associations and the Regulations of the Register of Legal Entities – within 30 days of approval. The activity report is submitted together with the set of financial statements.
• Audit. Whether an audit of an association's financial statements is mandatory is determined by the Law on the Audit of Financial Statements and Other Assurance Services. From 1 January 2026, the administrator of the Register of Legal Entities does not accept a set of annual financial statements without an auditor's report if an audit is mandatory (Article 10¹(4) of the Law on Associations).
• Quality monitoring. Under Article 10², the quality of associations' financial statements and activity reports published in the Register of Legal Entities is checked by the monitoring authority. Upon its request, an association must provide additional information within 10 working days.

The most common mistakes in association accounting and how to avoid them

Why does improper separation of income and expenses pose the greatest risk?

Income and expenses are not recorded by funding source, project or activity — making it impossible to tell what specific funds were used for. This is especially critical for project funding and donations.

Using donations and subsidies without separating them from the organisation's general funds can cause serious problems during funders' audits. In addition, donations used for purposes other than those intended are subject to corporate income tax. This is the most common mistake in association accounting.

What are the most common gaps in document management?

Accounting documents are not stored properly or are not linked to a specific business transaction. Contracts, minutes and decisions supporting specific financial transactions are missing.

In addition, membership fees often lack sufficient grounds: provisions in the articles, meeting decisions or payment documents are missing. There are no separate membership fee cards or registers. Read our article on accounting requirements in Lithuania to find out which document retention periods must be observed and what fines apply for violations.

Can misunderstanding the VAT regime be costly for an association?

Commercial services are wrongly treated as VAT-exempt simply because of non-profit status — a common and costly mistake. The VAT registration obligation must be assessed on the basis of actual economic activities, not the organisation's legal form. The membership fee exemption applies only to services provided to members, not to commercial services provided to third parties.

How can an association reduce the risk of sanctions and fines?

Article 223 of the Code of Administrative Offences provides for a fine on the head of the legal entity or another responsible person for failing to submit the annual financial statements, activity report or annual report to the Register of Legal Entities on time. Late or incorrect tax returns may result in fines and late-payment interest under tax laws.

To reduce the risk, it is recommended to follow this procedure:

1. Submit reports on time – approve the set of statements or the annual report within 4 months of the end of the financial year and submit it to the Register of Legal Entities within 30 days.
2. Check tax returns – regularly make sure that all tax returns are submitted on time.
3. Formalise responsibilities – it is recommended to conclude a written accounting services agreement that clearly allocates functions. However, no agreement can relieve the manager of the duty to organise accounting.

Practical solutions: how to manage a public institution's accounting efficiently?

What accounting software is suitable for public institutions and associations?

The software should make it possible to separate projects, funding sources, donations, membership fees, VAT transactions, payroll and non-current assets. Popular solutions in Lithuania include Rivile, Directo, site.pro and other cloud-based tools.

Choosing software does not replace the manager's duty to organise accounting. A public institution's accounting requires not only a technical solution but also a clear accounting manual.

When should an association hire an accountant, and when is self-management enough?

In a small association, some administrative tasks can be handled by the manager or volunteers: the membership fee register, simple bank transactions, collecting documents. This suits organisations without employees or complex projects.

As projects become more complex and employees, VAT transactions or funders' audits appear, a qualified accounting specialist becomes a practical necessity. Legal liability should not be assessed solely on the basis that the organisation is small. In such cases, professional public institution accounting can ensure proper compliance and reduce the risk of errors.

How does outsourcing accounting services work for an association?

Outsourcing an association's accounting can reduce the need for permanent staff and ensure a qualified service. The agreement must clearly set out:

• Procedure and deadlines for handing over documents – clear responsibility for submitting documents on time.
• Reporting schedule – aligned with statutory deadlines.
• Limits of responsibility for tax filings – who is responsible for what.
• Data retention requirements – in accordance with the provisions of the Law on Financial Accounting.

The agreement must reflect the distinction made by the Law on Financial Accounting between organising accounting (the manager) and keeping accounts (the service provider). We recommend concluding it in writing – this is the best evidence of who is responsible for what.

How should document management and archiving be organised in an association?

The document management system stores contracts, invoices, bank statements, cash documents, payroll sheets, donation documents, project reports, meeting minutes and submitted tax returns.

It is recommended to use an electronic document management system that allows documents to be found quickly by date, amount, counterparty or project. Information on tax filing procedures is available on the VMI tax administration website.

Conclusions and recommendations

Association accounting requires a clear accounting manual, separation of funding sources and timely reporting. Non-profit status does not exempt an association from these obligations.

A practical starting sequence for your organisation:

1. Accounting manual – approve an accounting manual (policy) and decide who will keep the accounts.
2. Accounting method – assess whether you can use simplified accounting and prepare an annual report.
3. Income separation – account separately for membership fees, donations, project funding and commercial income.
4. Tax obligations – assess the VAT threshold and the applicable corporate income tax rate (0, 7 or 17%).
5. Reporting calendar – draw up an annual schedule for submitting tax returns and reports.
6. Systematic submission – make sure that documents and financial statements are submitted through the designated electronic systems.

In complex cases — especially regarding VAT, international funding, payroll or corporate income tax — it is recommended to consult a qualified accountant or tax adviser. Do not rely solely on the general non-profit status of the organisation.

Need help with accounting?

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