Germany is a federal civil law nation and has its unique nonprofit laws. There are three main types of nongovernmental and not-for-profit organisations: Foundations, Associations, and Limited Liability Companies. However, the limited liability company, or GmbH, is becoming more and more popular for the formation of nonprofits in the country.
- A charity must conduct its operations under the precise terms specified in the nonprofit law.s
- The local tax office makes the final decision regarding whether an organisation is eligible for tax benefits, based on federal law.
What are the various Nonprofit Laws in Germany?
In this section, we will outline the various nonprofit laws in Germany that govern the sector’s activities and operations.
1. Charitable purposes
The legal term “charity” only applies to tax law in Germany. There isn’t a distinct legal framework specifically for charities. According to the Fiscal Code (Abgabenordnung, AO), charity is the pursuit of goals that are religious, benevolent, or beneficial to the public.
All in all, the following are included in the list of public benefit purposes.
- The advancement of science, religion, art and culture.
- Education.
- Environment protection.
- Public welfare.
- Support for persecuted persons on the grounds of political, racial, or religious reasons.
- Internationalism.
- Protection of animals.
- Foreign aid.
- Consumer advice.
- Sport.
2. Tax Exemption
Secondly, for an organisation to be recognised as having tax-privileged status, it is not sufficient to pursue charitable objectives in compliance with the Fiscal Code. Also, NGOs must work towards these goals directly, solely, and selflessly. Furthermore, a charity is not permitted to earn revenue.
Since their statutes clearly state that their goals are charitable, charities are legally recognised as tax-exempt organisations.
As per Section 56 of the Fiscal Code, charities are limited to pursuing the specified goals, unless there are specific exceptions allowed by law. This may include limited opportunities to support the founder and their family members. Consequently, a company may forfeit its tax benefits if it engages in other activities.
3. Nonprofit Compliance
A charity must also conduct its operations under the precise terms specified in its statute. Section 57(1) of the Fiscal Code states that an organisation directly pursues its tax-privileged statutory purposes if it is involved in fulfilling those stated objectives.
4. Use of Fund
Section 55(1)(5) of the Fiscal Code mandates that a charitable organisation utilise its funds within a reasonable timeframe for the tax-privileged purposes listed in its articles. This is accomplished if the funds are used for the tax-privileged purposes specified in its articles by the end of the second year after the funds are received. For example, funds received in 2016 must be used by the end of 2018.
Also, there are exemptions provided by the tax code, most notably the ability to allocate to reserved capital.
5. Governing bodies
An association, charitable organisation, or foundation must receive permission from a public authority to be established. Also, the state body that determines whether to recognise a foundation must oversee it continuously. Without a judge’s approval, the state authority can enforce adherence to the regulations.
Also, the regional tax authorities oversee all charitable organisations that are exempt from paying taxes. Essentially, they keep an eye on whether the conditions for tax exemption are being met.
6. Board of directors
A board of directors is required for both associations and foundations. This may include one or more people. Also, both natural persons and legal entities may serve as board members. Additional bodies, such as a supervisory board, may be provided for in the statutes.
7. Financial Reports
Lastly, tax-exempt organisations are required to submit reports to the tax authorities detailing their operations, financial accounts, and reserve accumulation. In general, annual account filings are required. Every three years, charitable associations and foundations are permitted to file accounts, subject to approval by the tax authorities and the level of their operations.
Essentially, the requirements for releasing annual accounts for charitable organisations differ based on the size of the organisation. Small entities only have to release their yearly financial statements. Large and medium-sized corporations must have their bookkeeping, annual accounts, and business reports audited by certified accountants or qualified auditors.
Conclusion
In summary, NPOs in Germany are typically subject to federal law. Additionally, foundations are partially governed by state law in Germany. All in all, the local tax office makes the final decision regarding whether an organisation is eligible for tax benefits, based on federal law.
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