Foundations and their financing in Germany
Dr. Stefan Stolte
Stifterverband für die Deutsche Wissenschaft
April 6th 2009, Warsaw
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Income from donations
No legal barriers regarding
type of foundation
form of fundraising
But: Only public benefit foundations can issue tax receipts!
„Earmarked“ money must fit with the foundation‘s statutes
Accepting additional endowments may require an explicit permission in the foundation‘s statutes
Income from asset management
The principle of capital sustainment
Endowment cannot be spent
„Value“ must be preserved
According to tax law this means „nominal value“
Statutes can demand preservation of „real value“
Asset classes, nationalities, professional vs. non profession asset management etc.
Has an
impact
on
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Return on
investmentSafety
Liquidity
Principle of capital sustainment Principle of capital sustainment
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Income from economic activity (1/2) Economic activity = permanent activity aimed at generating
income (not necessarily profit!)
Economic activity ≠ asset management (exception: „influential shareholding“!)
Civil law: economic activity can be the main purpose
Tax law makes a difference between „related“ and „unrelated“ economic activity
Federal Ministry of Finance: „theory of imprint“: When foundation is public benefit, unrelated economic activity cannot be „dominant“
Federal court of finance: Unrelated economic activity does not endanger tax exemption as long as income is used for public benefit purposes
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Income from economic activity (2/2) No special permission needed for economic activity, but positive prognosis on rentability is needed (principle of capital sustainment!)
Additional reporting according to commercial law may be needed
Income must be spent on public benefit purposes; expenditures for maintaining and developing economic activity are allowed if „commercially acceptable“
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Income: spending vs. accumulating
No (absolute) minimum payout rule, but: Rule of timely disbursement (of actual income)
Exceptions:
1. Accumulation of income as an „earmarked reserve“
Project-based reserve (income of 3-5 years)
Operating expenditures reserve (income of 1 year)
2. General contingency reserve (up to 1/3 from asset management-profits plus donations not exceeding 10% of donations and profit from economic income)
3. Accrual reserve for newly established foundations (3 years)
4. Reserves for maintenance of economic activity/asset management (must be justified by a concrete reason and commercially acceptable)
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Income: spending on statutory purposes vs. spending on administration
No explicit and generally binding ratio between cost for statutory purposes and cost of administration
maximum allowance depends on individual case:
new foundation vs. old foundation
operating vs. grant-making foundation
etc.
„principle of proportionality“
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Taxation of a public benefit foundation
DonationsDonations Asset management Asset management Economic activityEconomic activityRelated
e. g. museum
Unrelated
e.g. museum-shop
e. g. donations,
endowments, legacies
e. g. dividends,
lease & rent etc.
7% (lease & rent)
0% capital investment
7%
(in some cases 0% ,
e.g. hospitals)
Full taxation if
> 35.000€
19%
Income
tax
Income
tax
VATVAT
Inheritance /gift tax
Inheritance /gift tax
0 %0 %
0 %0 %
0 %0 %
0 %0 % 0 %0 %
0 %0 % 0 %0 % 0 %0 %
How to receive tax deduction (as a donor / founder)
Donations and endowments exceeding 200€: Official form must be issued by foundation („tax receipt“)
Below 200€: receipt by donation or bank statement is sufficient
In kind-donations: value report may be necessary
Receipt must be filed with donor‘s tax return
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How to receive (and maintain) tax exemption(as a foundation)
No general „tax exempt status“, because statute and actual management must meet criteria for tax exemption; can only be evaluated ex post
Final tax exemption is granted only with respect to a concrete tax year (in retrospect)
To issue tax receipts: „preliminary declaration of tax exemption“ is needed
Annual tax reports (in practice: every three years = sufficient)
But: No binding rules on transparency with regard to the general public
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To keep in touch:
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Dr. Stefan Stolte
Stifterverband für die Deutsche Wissenschaft
Barkhovenallee 1
45239 Essen
Tel. (+49) 201 8401-116
www.stifterverband.de