Tax advice for Non-Profit Organisations (NPO)

With their charitable commitment - nationally and globally – Non-Profit Organisations (NPO) form the third pillar in our community besides the state and the economy. Human rights, climate protection, education, health care and animal welfare are just a small part of it. Especially in difficult times, non-profit organisations gain in importance, nationally as well as abroad. It is therefore a special concern and a privilege for us to advise national and international NPO that are involved in various ways. Some of our clients belong to the world's largest foundations and non-profit institutions.

In order for an organisation to be granted charitable status and the associated tax benefits, it must meet a number of specific requirements. In particular, it requires the actual pursuit of tax-privileged purposes. Here, the legislator regulates which activities qualify for such support and prohibits profit distributions. In addition, the organisation is obliged to comply with a number of administrative and supervisory requirements. 

Limited or unlimited tax liability

Generally, it must be clarified whether the unlimited or limited tax liability applies to an NPO. Domestic NPO with its place of management or statutory seat in Germany are subject to unlimited tax liability here, even if they operate internationally. NPO with their statutory seat abroad, that perform activities in Germany, are generally subject to limited tax liability. Our Public Sector Experts examine which requirements apply to the respective organisations and whether a tax liability applies.

We gladly provide supporting tax structuring and optimization, for example with regard to charitable tax exemptions as well as further exceptions and other related questions.

Donations

Many NPO operate based on donations. In this context, special conditions apply with regards to foreign NPO.

Use and transfer of funds in Germany and abroad

In many cases, the requirements and specifications for the use and transfer of funds must also be clarified for NPO. Generally, domestic NPO can also pursue their charitable activities abroad and use their funds for this purpose. Funds can be used directly by the NPO or by assigning tasks to auxiliary persons. For example, in the case of further training measures, this can be a workshop provider who was hired for this task. Our tax experts recommend drawing up a written contract between the NPO and third parties as provision of evidence.

Under certain conditions, funds can be passed on to other charitable institutions abroad – in addition to their own usage. The details of the regulations vary, depending on the location of the NPO’s statutory seat that receives the funds. In such cases of cross-border transfer of funds our experts generally advise concluding so-called grant agreements. This ensures that the funds are verifiably used to promote charitable purposes that comply with German law.

High Burden of Proof

NPO always must thoroughly document the receipt of donations and the use or transfer of funds. In an international context, NPO are increasingly obliged to cooperate and provide evidence. Our experts support you when examining which evidence has to be submitted to the authorities and which practical measures make these obligations manageable.

Due to the large number of legal provisions and requirements, some of which also have tax implications, national and international NPO in Germany face a number of challenges. The non-profit status allows certain tax privileges, but these often conflict with the market-oriented actions of many NPO. This can quickly lead to unwanted violations with unpleasant consequences - from an image and reputational damage to the withdrawal of an organisation's non-profit status.

To avoid this, our public sector experts support you with expertise and a wide range of services and advice. If necessary, they involve further specialists, for example in the areas of Transfer Pricing, Global Mobility Services, Indirect Tax, Consulting as well as of KPMG Law.
In addition to the challenges, the foreign tax regulations for NPO often do not correspond to those in Germany. In this context it is important to conciliate and design. This is where the cooperation with our Global IGH Tax Team comes into play. In this team Public Sector Experts of the global KPMG Network work together with the focus on non-profit organisations.

Among other things, we advise associations, foundations, churches, educational institutions and organisations as well as foreign foundations as well as trust structures and we are familiar with complex tax law topics. At the same time, we are proud to be able to support non-profit organisations as part of their social mission in all tax law matters and further related topics.

Contact us, we are looking forward to you and your projects.