Can our association also carry out commercial activities and how does that affect our taxation?
May 26, 2023 | 50,00 EUR | answered by Günther Schmidt
Dear Tax Advisor,
Our organization, the association "Help for Children e.V.", has been supporting disadvantaged children in our region for many years. In addition to organizing holiday camps and educational projects for children from socio-economically disadvantaged families, we also operate a second-hand store where we sell donated clothing and toys. Through the sales, we generate income that we reinvest in our projects.
We have heard that associations can also engage in commercial activities. However, we are unsure about how this could affect our taxation. Our understanding so far has been that associations are tax-exempt as charitable organizations and are not allowed to make profits. Can we continue to engage in commercial activities without jeopardizing our charitable status? Or should we expect tax consequences?
We are faced with this question because the second-hand store has become an important source of income for our association. We want to ensure that we are acting correctly and in accordance with tax regulations. Therefore, we would greatly appreciate it if you could clarify for us whether and how we can engage in commercial activities as an association without jeopardizing our charitable status.
We look forward to your expertise and thank you in advance for your support.
Sincerely,
Luisa Rothammer
Association "Help for Children e.V."
Dear Mrs. Rothammer,
Thank you for your inquiry regarding conducting commercial activities as a nonprofit organization. I am pleased to hear that the "Help for Children e.V." association is so actively involved in supporting disadvantaged children in your region. Your work is commendable and of great importance.
In general, nonprofit organizations are allowed to engage in commercial activities. However, it is important to ensure that the commercial activities are closely related to the statutory purpose of the association and serve this purpose. The association must not generate profits that are not directly used for the realization of the nonprofit purpose.
In the case of the "Help for Children e.V." association's second-hand store, it seems to me that there is a connection to the statutory purpose, as the proceeds directly support disadvantaged children. As long as the proceeds are used exclusively for the realization of the nonprofit purpose, this should not pose any tax issues.
However, there are some tax peculiarities to consider. If the turnover of the commercial operation exceeds a certain threshold, the association may become liable for trade tax. Also, the proceeds from the commercial operation must be separately reported in the tax return. It is therefore advisable to clarify the exact tax regulations with a tax advisor or tax office to avoid any potential tax consequences.
In summary, nonprofit organizations can indeed engage in commercial activities as long as they are in line with the statutory purpose and the profits generated are directly used for nonprofit purposes. I hope this information can be helpful to you in continuing your second-hand store.
If you have any further questions or require more detailed advice, I am at your disposal. Thank you for your commitment and continued success with your projects!
Best regards,
Günther Schmidt
Tax advisor
