Non-profit law refers to specific legal regulations that affect non-profit organizations or corporations such as associations (e.V.), foundations, non-profit limited liability companies (gGmbH) and non-profit cooperatives (e.G.).
However, there is no special non-profit law, it manifests itself e.g. in special regulations of the Tax Code or the Value Added Tax Act.
The state grants non-profit corporations extensive benefits such as tax exemptions or financing through deductible donations. However, these benefits are subject to legal requirements.
The focus of our activities in this area is on consulting clients from the international non-profit and charitable sector. Our services include tax consulting, foundation administration, foundation consulting, asset management, project management, etc.
We will be very happy to advise you and find the right form of organization for you.
Exemption from corporate income tax and trade tax, insofar as the non-profit corporation does not maintain a so-called taxable commercial business operation
Exemption from real estate tax, but not from real estate transfer tax
Benefits within the scope of VAT
Tax-free transfers of assets during lifetime and upon death to charitable corporations (i.e. exemption from inheritance tax and gift tax)
Entitlement to receive tax-deductible donations
Possibility of granting tax-free lump sums to employees (lump sum for instructors, honorary lump sum)
Exemption from capital gains tax deduction
In addition, non-profit organizations enjoy the following non-tax privileges:
Exemption from or reduction of government fees (e.g., foundation supervisory authorities, transparency register, broadcasting fees, notary public, etc.).
Grants from the public sector are often linked to non-profit status
Sponsorship agreements with entrepreneurs require non-profit status in individual cases
Obtaining non-profit status at the time of foundation is one thing. However, it is much more important to retain the non-profit status. A withdrawal of the non-profit status leads to far-reaching negative tax consequences.
We assist you both in obtaining recognition and in the ongoing administration of the organization.
The establishment of an organization (association, trust foundation, independent foundation and non-profit limited liability company) must be strictly distinguished from the recognition of non-profit status by the competent tax office for the organization.
The preliminary examination of the non-profit status should be carried out before the founding of the organization, so that in the end one does not establish an organization which is not allowed to carry out the charitable work.
The revocation of the non-profit status can be the consequence in case of misconduct of the organization.
Also known as a fiduciary, non-legally capable, dependent foundation.
The purpose of a trust foundation is to donate assets to a legal entity or natural person with the stipulation that the donated assets are to be used permanently to achieve the purpose determined by the founder.
Characteristics of the trust foundation
Unincorporated foundation does not have legal capacity
Participation in legal transactions requires the involvement of a trustee, who must manage the trust assets separately from his other assets. The trustee is the owner of the assets. Rights and duties of the trustee result from the trust agreement and from the foundation charter
Foundation is possible without the involvement of a foundation supervisor
No costs of foundation, except for possible consulting costs
Short time of foundation in relation to an independent foundation
No state recognition
Tax and civil law treatment differ fundamentally:
Independent taxable entity in terms of § 1 Sec. 1 no. 5 German Corporation Tax Act
Dependent foundation must independently meet the
requirements of §§ 51 ff. German Tax Code; obligations to
submission of an own tax return
Activity of the trustee for the dependent foundation is a taxable service (different for foundation funds, no VAT)
Extended special expenses deduction according to § 10b 1a Income Tax Act (foundation allowance)
Dependent foundation is suitable for sustainable, long-term foundation commitment; lower establishment and administration costs compared to independent foundation
Same tax advantages as for an independent foundation
Can be endowed with a smaller foundation capital
Can later be “converted” into an independent foundation
The regulations on independent foundations can be found in §§ 80 ff. German Civil Code and the respective state foundation laws.
Independent and legal entity under civil law; formation through recognition by the foundation supervisory authority of the respective federal state.
Establishment requires foundation act and foundation statutes.
Independent tax entity in the terms of § 1 Sec. 1 no. 4 German Corporation Tax Act – no divergence from dependent foundation.
Establishment and administration of the foundation is associated with greater expense than in the aforementioned variants; here, too, however, the activity of third parties for the foundation by way of an agency agreement or the activity of banks within the scope of asset management is possible and permissible.
A separate legal entity whose defining characteristics are assets, purpose and organization (at least board of directors).
Binding the founder’s will and the foundation’s purpose.
State foundation oversight monitors compliance with the foundation statutes and the implementation of the founder’s will.
Financial supervision exclusively for the use of the foundation’s funds for the charitable purpose.
Foundations are usually established for an indefinite period of time.
Foundations enjoy a high reputation in society.
State recognition and foundation oversight ensure legal certainty.
Tax advantages for charitable and non-profit foundations:
– no gift tax
– no inheritance tax
The foundation capital can be increased.
The foundation can accept both endowments and donations and issue corresponding certificates.
The preservation of the founder’s life’s work and personal values can be maintained.
Form of the foundation transaction
Notarial certification in the case of property transfers
Freely revocable until the foundation is recognized (§ 81 (2) 1 German Civil Code)
On account of death:
Forms of will or contract of inheritance
Attached articles of association must also satisfy formal requirement
Heir can revoke foundation transaction unless founder/decedent has already applied for recognition (§ 81 Sec. 2 (3) German Civil Code)
Supplementary authority of the foundation supervisory authority (§ 83 (2) German Civil Code)
Foundation cannot be pre-inheritor (disputed) due to lack of permanent asset commitment
Prior clarification of eligibility for recognition with the foundation authorities recommended (better: gradual formation)
Formation with recognition, but pre-effect according to § 84 German Civil Code
Problem of the lack of tax recognition of pre-effect (BFH BStBl. II 1996, 99 on the inheritance tax recognition of value increases between inheritance and recognition, BFH ZEV 2004, 85 on corporate income tax)
Legal nature of the foundation between death of the founder and recognition (pre-foundation) is highly controversial!
Coupling with execution of will required (to obtain recognition of foundation, to amend articles of foundation, etc.)
Board of Directors = body authorized to represent the foundation externally
Board of Trustees/Supervisory Board = Monitoring and supervisory body
Advisory Board = Advisory body (e.g. scientific advisory board)
Secretary General/Managing Director = Operationally responsible with authority to act
Only independent/legally capable foundations under civil law are subject to recognition.
= Seat of the foundation
Can be freely chosen by the founder
Actual seat of administration
Abuse control (str.) – “Forum Shopping
Type of foundation (civil law – ecclesiastical – municipal – public law)
Foundations in terms of §§ 80 ff. German Civil Code: Foundation authority
Legal nature of the recognition
= administrative act shaping private law
Renamed by law on the modernization of the foundation system: formerly “approval”
Founder’s legal entitlement to recognition, § 80 Sec. 2 German Civil Code
(=subjective public law)
Legal protection: action for obligation to grant recognition as favorable administrative act
Foundation only comes into existence as a legal entity upon notification of recognition to applicant or executive board.
„Pre-foundation” with its own legal personality; however, according to prevailing opinion, donations to pre-foundation are permissible.
Procedure of the recognition process
Preliminary examination of articles of association and foundation business
Parallel: Clarification of the formal compatibility of the articles of association with the requirements of the tax code (in the case of non-profit status) with the tax authorities; these issue a provisional certificate (protection of confidence, cf. BMF letter dated 17.11.2004 – IV C4 -SO 171-120/04)
Recognition and announcement to the board
Announcement of recognition
Entry in the register of founders (entry has no guarantee of correctness/protection of good faith).
The non-profit corporation (UG=entrepreneurial company, GmbH=limited liability company or AG=stock company) is not a special form, but it is a normal GmbH, which fulfills non-profit purposes due to the German Tax Code and the articles of association.
The certainly most important reason is the tax concession granted to the company due to its non-profit status (by the tax office).
Profits must be used for the charitable purpose and the shareholders do not receive any profit distributions.
A family foundation is a foundation that is essentially established in the interests of a family or certain families (§1 Sec. 1 No. 4 Inheritance Tax Act).
The Federal Fiscal Court (judgement of 10.12.1997, ZEV 1998, 122) points out that “according to the articles of association and, if applicable, the foundation transaction, its essence is to enable families to use the foundation assets, insofar as they are available for private use, and to draw the foundation income to themselves. The extent to which this is actually used is not decisive.”
The tax authorities (Inheritance Tax Act R 2 Sec. 1-3) assume a family foundation if:
The founder, his relatives and his descendants are entitled to receive and accrue more than half or
more than one quarter of the beneficiaries are entitled to receive and accrue benefits and additional characteristics prove a family interest, e.g. significant influence on the management of the company.
In addition to the entitlement to draw, significant family interests consist in the use of foundation assets at a discount or free of charge (e.g. real estate, personnel, art holdings).