Can a club be considered non-profit if it also generates profits?
March 9, 2024 | 50,00 EUR | answered by Björn Ley
Dear tax consultant,
I am the chairman of a non-profit organization that aims to help disadvantaged children and teenagers in our region. We regularly organize events and collect donations to provide financial support for this target group. In recent years, thanks to the support of our members and donors, we have been able to generate small profits.
However, I am now concerned about whether it is compatible with our non-profit status to make profits. I wonder if an organization that generates profits can even be recognized as non-profit. I am worried that we could jeopardize our status as a non-profit organization and potentially face tax disadvantages.
Could you please explain to me whether an organization can be considered non-profit if it also makes profits? Are there specific limits or requirements that a non-profit organization must consider when generating profits? What can we as an organization do to ensure that we continue to be recognized as non-profit, even if we make profits?
I appreciate your help and thank you in advance for your support.
Sincerely,
Dirk Schröder
Dear Dirk Schröder,
Thank you for your question regarding the charitable status of a non-profit organization that generates profits. I understand your concerns and would like to help clarify this matter for you.
In principle, it is possible for a non-profit organization to generate profits as long as these profits are used exclusively to fulfill the statutory purpose of the organization. This means that the profits generated must not be distributed to the members, but must serve the charitable purpose of the organization. The intention to make a profit must not be the main focus.
However, there are certain limits and requirements that a non-profit organization must adhere to when generating profits. Firstly, the economic activity of the organization must not be carried out excessively. This means that profit-making can only be a secondary purpose of the organization and the economic activities must serve the charitable purpose.
Furthermore, the profits generated must be used in a timely and appropriate manner for the statutory charitable purposes. It is important that the organization has transparent and traceable financial accounting in order to prove this to the tax authorities.
To ensure that your organization continues to be recognized as charitable, even if profits are generated, I recommend regularly reviewing the economic business operations of the organization and ensuring that the profits are used exclusively to fulfill the charitable purpose of the organization. It is advisable to inform yourself in advance about the tax regulations for non-profit organizations and, if necessary, seek professional advice.
I hope that this information has been helpful to you. If you have any further questions, please do not hesitate to contact me.
Sincerely,
Björn Ley
