A (non-profit) foundation acquires its legal capacity through the recognition the foundation supervisory authority (state authority). But until then it is a long way, which we want to outline in detail here.
- Strive for charity of the foundation - the reasons
- Charity and taxation
- How to found a charitable foundation
- Purpose and administration
- How is the founding procedure going?
- Special features of the transfer of assets
- Donate to reduce income
- Donate at different heights
- Gift tax and land transfer tax
- Taxes in the Family Foundation
- How is taxed?
- Right to choose the tax rate
- Which income is taxed?
- When is taxed?
- Tax breaks in the ideal area
- Asset management in the ideal area
- Taxation in the area of ideas
- dedicated activities
- Economical business
- Attention tax liability for non-profit making
- What kind of income is there?
- Corporation tax and solidarity surcharge
- Value added tax
- Sales tax and land tax
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Strive for charity of the foundation - the reasons
Anyone toying with the idea of founding a foundation should always aim for non-profit status. Because the foundation obtains the Status of a charitable foundation, this is associated with immense advantages.
As a rule, a foundation under private law is set up to set a “monument” to the founder and to do something good. The status of nonprofit naturally increases the reputation of a foundation. Public funding is also easier to access. So what needs to be done to establish not just a foundation, but a non-profit foundation?
The funds collected must be used promptly. In a timely manner, the funds are used up to the end of the following financial year. Deviating from this, reserves can also be created to save more capital expenditure. However, this must be documented.
Charity and taxation
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If the foundation is charitable, the tax exemption would be exempt from corporation tax, commercial and land tax. The tax-specific features are discussed in a separate article.
In addition, the donations to the Foundation can be deducted as donations. In addition, non-profit activities in the non-profit sector can be remunerated with a tax-exempt amount of up to 2.100 € per year (§3 No. 26 ESTG).
How to found a charitable foundation
In the statutes, the pursuit of charitable purposes must be entirely clear be determined and secured by ongoing business operations. In doing so, the general public must be selflessly promoted in material, spiritual or moral areas. The recognized purposes are finally listed in Section 52 of the Tax Code.
These include, for example:
- the promotion of science and research
- the promotion of religion
- the promotion of youth and elderly aid
- the promotion of art and culture
- the promotion of animal welfare
- the promotion of animal breeding, carnival, model flights and dog sports
- and many other areas.
Purpose and administration
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It is therefore compulsory that the subsidized purposes must be open to all and not only to a closed group of people. The management must be directed to pursue these purposes directly, exclusively and selflessly. For example, it is not enough, for example, to promote dog sport, and to consider family members as well.
Administrative expenditure must not be exorbitant in order to jeopardize the status of charity. An administrative cost ratio of 30 per cent would therefore lead to the revocation of charity.
How is the founding procedure going?
Within the Foundation a provisional certificate of non-profit status will be issued by the financial administration if the statutes meet the requirements. This provisional certificate is valid for a maximum of 18 months. The financial statements are then regularly checked by the financial authorities (every 3 years).
In the run-up to the founding, a draft statutes should also be sent to the financial administration with the request for confirmation that the statutory requirements are fulfilled. If deficiencies are still present, these can be eliminated at the start-up stage.
Special features of the transfer of assets
The distinction also applies to the transfer of assets to a charitable foundation as to whether the assets transferred from private assets or business assets. So you have to look at the side of the donor and the foundation. This is crucial for wealth growth.
If the transfer is transferred to a non-profit foundation free of charge, the income tax effects are identical to the effects of the transfer to a non-profit foundation, since there is no gain on the sale.
When transferring business assets, a special feature must be observed: In addition to the transfer to book values of operations, sub-operations and investments in corporations, it is also possible to transfer individual assets while avoiding the disclosure of hidden reserves (withdrawal profit). The basic requirement for this is that the economic asset is sent directly to the tax-privileged (non-profit) foundation. Section 6 (1), number 4, sentence 4 EstG forms the basis for this preferential treatment.
Donate to reduce income
Particularly interesting for donors is the possible donation deduction in connection with the transfer of assets to a charitable foundation. The legislature is very generous here. For donations to the assets of a foundation, up to 1 million euros can be used as income-reducing donations within a ten-year period.
It is also interesting to note that this grant can be distributed at the request of the individual years. So if you pay 01 1 million euros in the foundation stock of a foundation, you could be taxing 01 Euro in the year 100.000 and the following nine years.
Donate at different heights
The basis of the donation deduction is, of course, a proper donation receipt. The donor is not bound in the distribution of the donations, he can apply for different heights.
In addition, of course, donations can also be made to a charitable foundation within the framework of the maximum amounts (20% of Income or 4 per mille of sales and salaries company donation) can be used as a tax-reducing amount in the tax return.
Gift tax and land transfer tax
Capital appreciation at the foundation triggers taxation in accordance with the Inheritance / Gift Tax Act. However, here the exemption from the gift tax in accordance with $ 13 ErbStG applies if the foundation is actually recognized as a charitable and the assets are supplied promptly.
Real estate transfers are exempt from the basic income tax. The paradox here is that this is a taxable acquisition on the part of the foundation and thus the income tax exemption in accordance with §3 No. 2 GrEStG, regardless of whether actually gift tax is paid.
Taxes in the Family Foundation
In a family foundation, the beneficiaries also have to pay taxes. How does that look in detail? A family foundation is established to hold the assets together and to provide family members with permanent support through so-called Destinate payments. Beneficiaries of a family foundation are called beneficiaries. But how are these cash flows to be taxed at the beneficiaries?
The topic of distinctions is very complex. Because, as with all other forms of foundation, the foundation stock is usually not touched, and only the income generated benefits the beneficiaries.
How is taxed?
These items are taxed either as income from capital assets (§20 EStG) or are recognized as other income in accordance with § 22 EStG.
If the taxation is as income from capital assets, the foundation is obligated to deduct from the distributions in advance 25% capital gains tax plus solidarity surcharge and possibly church tax. The amount after deduction of the tax accrues to the Destinatären.
Right to choose the tax rate
The beneficiaries have the right to choose: If the personal tax rate is below 25%, the taxation of the income can be included in the income tax assessment. In this case, the income is recorded and that paid by the foundation tax is credited as a tax prepayment.
For this purpose, it is necessary to submit a tax certificate to the Residence Bank.
Which income is taxed?
Taxes are paid to the tax office responsible for taxing the foundation. A capital gains tax return is submitted for this purpose. With the payment of this tax, taxation at beneficiary level is complete. This tax deduction has final Effect (withholding tax).
In the case of taxation as other income, only 60% of the income is entered in the income tax. 40% will be tax-exempt in accordance with § 3 No. 40 EStg (the so-called partial income tax procedure.) What is more favorable in case of doubt should be clarified in advance with the personal requirements of the beneficiaries.
When is taxed?
- The grants can be agreed as constant annuities or
- (eg no seat in the board of trustees), or the use of the income is excluded
- the beneficiaries provide a consideration of the Foundation
it is other income according to § 22 EstG.
If these criteria are not met, the payments will be taxed as capital gains. In this respect, there is a certain room for maneuver.
Tax breaks in the ideal area
Foundations recognized as charitable are tax-exempt per se. However, this does not apply to all areas of possible activities. Because a charitable foundation can be active in different areas: A charitable foundation can be active in four areas. First there is the ideal area:
Endowments (increase in assets), public grants or donations fall within the ideal area of the foundation. Of course, these pure cash inflows are not subject to any taxation. That also applies to them Value added tax, as there is no exchange of services and the foundation is treated like a non-entrepreneur.
Asset management in the ideal area
The assets are, however, only the income for the purpose of the foundation can be used. In order to achieve the highest possible income from the asset portfolio, professional asset management is necessary. Typical returns for the area of asset management are: interest, rents and leases. However, price gains can also be included.
It would make no sense to tax this income in addition. No, they should be used XNUMX% for the purpose of the foundation. Therefore, there is also an exemption from trade and corporation tax here. In terms of sales tax, things are a little different.
Taxation in the area of ideas
If taxable income (eg from a taxable rental) is applied, a reduced tax rate of 7% is to be applied (nevertheless, instead of the normal tax rate of 19%). If these sales are below 35.000 € per year, an average rate of 7% can be applied for the pretax. On balance, this does not result in a tax burden
- A non-profit foundation generates rental income of net 30.000 €
- these are to be taxed with 7% 2.100 €
- The average rate of 7% is deducted from revenue
- is formed and is therefore also. 2.100 €
- In sum, there is a tax burden of 0 €
Special purpose operations of a foundation are economically organized business operations, which, however, have the following three characteristics: The operation must serve statutory purposes directly. The operation must be immediately necessary for the realization of the statutory purposes.
The holding must not be placed unfairly on unfavored farms in economic competition.
A foundation “Against Forgetting” has set itself the task of dealing with the terror of National Socialism and bringing it closer to the young. For this, she has rented a training room and is generating income from lectures and publications on this topic.
The area is a purpose-built operation with the tax-advantaged consequences. It should be noted, however, that the income of 35.000 € already mentioned should not be exceeded for the tax benefit.
Economic business is defined as sustainable and self-employment for the purpose of generating revenue or other economic benefits beyond the scope of pure asset management.
These (contrary to the purpose of operation) do not directly contribute to the achievement of the statutory purposes and are in immense competition with other non-taxed traders.
However, the tax liability in the case of corporate income tax and trade tax also applies here only if the income exceeds 35.000 € per year. However, VAT is subject to the general tax rate of 19%, as long as there is no tax exemption.
Attention tax liability for non-profit making
The foundation itself does not have to operate these establishments directly. It is sufficient already if the foundation is involved. The tax consequences presented are also to be drawn.
A non-profit foundation is generally taxable. Special exemption or exemption rules do not exist.
What kind of income is there?
It should be noted that the foundation does not, like other entities, constitute a commercial enterprise by virtue of its legal form, but income from various types of income. These types of income include:
- Commercial income
- Income from agriculture and forestry
- Income from capital
- Income from leasing and lease
- Other Income
Income from self-employment and self-employment is not possible, because always the person is in the foreground and this is not possible with a foundation.
Corporation tax and solidarity surcharge
The income is taxed with the corporation tax of 15% (and solidarity surcharge 5,5%) and as far as commercial income is available, trade tax is payable, also around 15%.
First of all, this is a very attractive tax rate if, for example, the foundation's assets consist of real estate and thus income from letting and leasing exists.
Value added tax
There are no special requirements for VAT. Foundations can be normal entrepreneurs in the sense of the sales tax and thus achieve common taxable sales with the rule tax rate of currently 19%.
Again, the usual exemptions of VAT law apply, such as the tax-free rental of housing.
Sales tax and land tax
In addition to the already mentioned transfer tax, which is levied every thirty years, a tax on current business is provided, as far as real estate is concerned, land tax.
Here, too, the normal principles that the unit value forms the basis of assessment of the property tax, and since this is a council tax, this can be different levels, depending on the rate of levy.
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