Tax advice for non-profit organisations

With their charitable work, non-profit organisations (NPOs) form the third pillar of our community alongside the state and the economy - both nationally and globally. Human rights, climate protection, education, healthcare and animal welfare are just a small part of this. Especially in difficult times, non-profit organisations are gaining in importance both at home and abroad.

It is therefore a special concern and a privilege for us to advise national and international NPOs that are involved in a variety of ways. Some of our clients are among the world's largest foundations and non-profit organisations.

Non-profit purposes

In order for an organisation to obtain charitable status and the associated tax benefits, it must meet a number of specific requirements. In particular, it must actually pursue tax-privileged purposes.

The legislator regulates which activities are eligible for such support and prohibits profit distributions. In addition, the organisation is obliged to fulfil a number of administrative and supervisory requirements.

Especially in times of global challenges, NPOs make an extremely valuable contribution. Preparing non-profit organisations for the tax challenges in the best possible way and advising them in Germany and worldwide is a real privilege for which we at KPMG are very grateful.

Prof. Thorsten Helm

Partner, Tax

KPMG AG Wirtschaftsprüfungsgesellschaft

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podcasts

Podcast

Non-profit organisations do valuable work, but face major challenges when they want to operate across borders. With the "European Cross Border Association" (ECBA), the EU Commission has presented a proposal to create a standardised legal form for NPOs. But what hurdles are there? How do the member states feel about it? In this episode, Thorsten Helm, Partner, Tax, KPMG, and Niyazi Damar, Manager, Tax, KPMG, analyse the current status, opportunities and potential risks of this new regulation.

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NPOs: Insights into tax law

Limited or unlimited tax liability

In principle, it must be clarified whether an NPO has unlimited or limited tax liability. Domestic NPOs with management or registered office in Germany are subject to unlimited tax liability, even if they operate across borders. NPOs based abroad that operate in Germany are generally subject to limited tax liability. Our public sector experts check which requirements apply to the respective organisations and whether a tax liability exists.

We are happy to provide support with tax structuring and optimisation, for example with regard to non-profit tax exemptions and other exceptions as well as related issues.

Donations

Many NPOs operate on the basis of donations. In this context, special features apply when it comes to NPOs from abroad.

Use and transfer of funds at home and abroad

In many cases, NPOs also need to clarify the conditions and requirements for the use and transfer of funds. In principle, domestic NPOs can also pursue their charitable activities abroad and use their funds for this purpose. Funds can be utilised directly by the NPO or by transferring tasks to auxiliary persons. In the case of training programmes, for example, this can be a workshop provider that has been hired for this activity. Our tax experts recommend drawing up a written contract between the NPO and third parties to provide evidence.

Under certain conditions, funds can also be passed on to other non-profit organisations abroad - in addition to the organisation's own use. The conditions may vary depending on where the NPO receiving the funds is based. In general, our experts advise concluding so-called funding agreements in such cases of cross-border transfer of funds. This ensures that the funds provided are demonstrably used to promote charitable purposes that comply with German law.

High burden of proof

The receipt of donations and the use or transfer of funds must always be thoroughly documented by NPOs. NPOs have an increased obligation to cooperate and provide evidence in the case of foreign matters. Our experts provide support in examining which evidence must be submitted to the authorities in detail and which practical measures make these obligations manageable.

Our offer

Due to the large number of legal regulations and requirements, some of which also have tax implications, national and international NPOs in Germany face a number of challenges. Although the non-profit status allows certain tax privileges, these are often in conflict with the market-orientated activities of many NPOs. This can quickly lead to unintentional violations with unpleasant consequences - from damage to an organisation's image and reputation to the withdrawal of its non-profit status.

To avoid this, our public sector experts provide support with their expertise and a wide range of services and advice. If required, they can involve other specialists, for example from the areas of transfer pricing, global mobility services, indirect tax, consulting and from KPMG Law Rechtsanwaltsgesellschaft*.

The challenges are compounded by the fact that foreign tax regulations for NPOs often do not correspond to those in Germany. It is therefore necessary to mediate and organise. This is where the cooperation in our Global-IGH-Tax-Team comes into play. This team is made up of public sector experts from the global KPMG network who specialise in advising non-profit organisations.

We advise, among others, associations, foundations, churches, educational institutions and organisations as well as foreign foundations and trust structures and are familiar with complex tax law issues. At the same time, it fills us with pride to be able to support non-profit organisations in all tax law issues and other related topics as part of their social mission.

Contact us, we look forward to hearing from you and your projects.

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