Can our association also receive sponsorship funds and how are they treated for tax purposes?
April 9, 2022 | 65,00 EUR | answered by Günther Schmidt
Dear Tax Advisor for Club Taxation and Nonprofit Status,
As the chairwoman of the organization "Help for Children e.V.," I am concerned about whether we, as a nonprofit organization, are allowed to receive sponsorship money and how this would be treated for tax purposes. Our organization is dedicated to helping disadvantaged children and is mainly funded through donations and membership fees. Until now, we have not accepted any sponsorship money, as we are unsure if this is compatible with our nonprofit status and what the tax implications would be for us.
Our main goal is to provide educational opportunities for disadvantaged children and promote their social integration. With sponsorship money, we could expand our projects and help even more children. However, we want to ensure that we comply with all legal requirements and avoid any issues with the tax office.
Therefore, my question to you is: Are nonprofit organizations like ours allowed to accept sponsorship money? How are these sponsorship funds treated for tax purposes, and are there any specific regulations that we need to be aware of to protect our nonprofit status? What options are available to accept sponsorship money in a legally compliant and tax-efficient manner?
Thank you in advance for your support and advice.
Sincerely,
Maria Schäfer, Chairwoman of the organization "Help for Children e.V."
Dear Mrs. Schäfer,
Thank you for your question regarding the acceptance of sponsorship funds as a charitable organization. It is generally possible for charitable organizations like your "Help for Children e.V." to receive sponsorship funds. However, there are some legal and tax aspects that you should consider in order to not jeopardize your charitable status and to act in a tax-optimized way.
First of all, it is important to know that sponsorship funds can generally be classified as donations if they are given voluntarily and without consideration. This means that sponsorship funds are not considered income from business operations as long as no promotional or commercial services are provided in return. However, if the sponsorship funds are associated with a consideration, such as advertising for the sponsor's company, these revenues can be considered as income from business operations for tax purposes.
To ensure that the sponsorship funds are recognized as donations and treated optimally for tax purposes, you should make sure that the funds are actually given voluntarily and without consideration. It is advisable to have a clear agreement with the sponsors stating that it is a donation and no promotional services are provided.
Furthermore, you should transparently disclose the sponsorship funds in your accounting and financial statements to ensure proper documentation. If you are unsure whether the sponsorship funds should be treated as donations or as income from business operations, I recommend seeking advice from a tax advisor or lawyer to minimize potential risks.
Overall, it is possible and beneficial to accept sponsorship funds as a charitable organization to finance your projects and help more children. With the right guidance and compliance with tax regulations, you can ensure that the sponsorship funds are used in a tax-optimized and legally secure manner.
I hope this information is helpful to you and I am available for further questions.
Best regards,
Günther Schmidt, Tax Advisor for Association Taxation and Charity
