Can a nonprofit association also operate tax-exempt economic enterprises?
August 9, 2022 | 50,00 EUR | answered by Björn Ley
Dear tax consultant,
I am Carsten Fritsche and have been working voluntarily for a non-profit organization for several years. Lately, I have been considering whether our association can also operate tax-exempt economic businesses. Our organization is mainly funded through donations and membership fees, but these revenues are not always sufficient to finance all projects and activities. Therefore, we are considering whether we could establish additional economic businesses to improve our financial situation.
I am concerned that we may potentially violate the regulations of non-profit status if we operate economic businesses. I have heard that certain limits must be adhered to and that the revenues from such businesses should not constitute the main activity of the association. Therefore, I would like to know from you if it is possible for a non-profit organization to operate tax-exempt economic businesses and what requirements need to be met for this.
Could you please provide me with more information on this and suggest possible solutions on how we as an association could generate additional income without jeopardizing our non-profit status?
Thank you in advance for your support.
Sincerely,
Carsten Fritsche
Dear Carsten Fritsche,
Thank you for your inquiry regarding the possibility for a non-profit organization to operate tax-exempt economic enterprises. It is indeed possible for charitable organizations to run such businesses, however, there are certain conditions and limits that must be adhered to in order to not jeopardize the tax-exempt status.
In general, non-profit associations may operate economic enterprises as long as they are ancillary and the nonprofit aspect of the association is primary. This means that the revenue from these businesses must not be the main activity of the association and should only serve to support the statutory purposes of the association.
In order for a non-profit association to operate tax-exempt economic enterprises, these enterprises must also meet certain tax requirements. For example, the revenue from these businesses must not impede tax-exempt purposes and must be subject to corporate tax. In addition, the revenue from the economic enterprises must generally fall below a certain threshold.
It is important that the association clearly distinguishes economic enterprises from non-profit activities and uses the revenue from these enterprises transparently and accountably. Furthermore, the association should conduct a thorough examination of the tax framework to ensure compliance with all legal requirements.
If your association wishes to generate additional revenue to finance its projects and activities, you may consider other fundraising measures in addition to economic enterprises. These may include fundraising campaigns, charity events, or partnerships with companies. It is important for the association to diversify its sources of income in order to be financially more stable.
I hope this information is helpful to you and that you have gained clarity regarding the possibility of operating tax-exempt economic enterprises. If you have any further questions or need assistance, please feel free to contact me.
Best regards,
Björn Ley
