Can a club also operate economic businesses?
March 13, 2024 | 50,00 EUR | answered by Björn Ley
Dear tax advisor,
I have a question regarding the taxation of a non-profit organization and the operation of commercial business activities. My organization has been active as a non-profit for many years and aims to support social projects in our region. So far, we have generated income solely from donations and membership fees.
Now we are considering whether it would be beneficial for us to also operate commercial business activities in order to generate additional income and further expand our projects. However, I am concerned that this may jeopardize the non-profit status of our organization and lead to tax-related issues.
Therefore, my question to you is: Is it allowed for a non-profit organization to operate commercial business activities? What tax aspects need to be considered and how can we ensure that we continue to be recognized as non-profit?
I am unsure of the best course of action and would greatly appreciate your expert advice and support.
Thank you in advance for your help.
Sincerely,
Chloé Hausdorf.
Dear Mrs. Hausdorf,
Thank you for your inquiry regarding the taxation of an association and the operation of economic enterprises. It is indeed possible and allowed for nonprofit organizations to operate economic enterprises in order to generate additional income. However, there are some tax aspects to consider in order to not jeopardize the nonprofit status of the organization.
In principle, a nonprofit organization may operate economic enterprises as long as these enterprises are closely related to the tax-privileged purpose of the organization. This means that the profits generated must be used exclusively for the statutory purposes of the organization and may not be used to generate profits that are then distributed to the members of the organization.
When operating economic enterprises, nonprofit organizations must ensure that the income from these enterprises does not exceed the tax-privileged purpose of the organization. A ratio of 1/3 of the total income of the organization from economic enterprises to the total income of the organization from all sources is generally considered unobjectionable.
It is important that the income and expenses from the economic enterprises are kept separate from the other income and expenses of the organization. In addition, the income from the economic enterprises must be separately disclosed in the nonprofit corporation tax return.
To ensure that your organization continues to be recognized as a nonprofit, I recommend that you consult with an experienced tax advisor before starting economic enterprises. They can provide comprehensive advice and help you consider all tax aspects to avoid jeopardizing the nonprofit status of your organization.
I hope that this information has been helpful to you and I am available for any further questions.
Sincerely,
Björn Ley, Tax Advisor
