Foundations and their financing in Germany

Dr. Stefan Stolte

Stifterverband für die Deutsche Wissenschaft

April 6th 2009, Warsaw

2

Sources of funding

German foundations‘ capital: 50 – 70 billion €

3

Income

(asset

management /

economic

activity)

Income

(asset

management /

economic

activity)

4

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 %

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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

stefan.stolte@stifterverband.de

www.stifterverband.de