How can a club avoid tax liability?
October 7, 2023 | 50,00 EUR | answered by Dora Krause
Dear tax advisor,
I am a board member of a non-profit organization and we have recently generated increased income through our association's operations. In doing so, we have realized that we may be liable for value added tax. However, as a non-profit organization, we are committed to using our resources exclusively for charitable purposes and would like to avoid having to pay VAT.
Currently, we are unsure if we are indeed liable for VAT and what steps we can take to avoid this. We want to ensure that our financial resources continue to benefit our charitable activities in full.
Could you please explain to us under what circumstances a non-profit organization becomes liable for VAT and how we can avoid this? Are there any specific regulations or exceptions that may be relevant to us? What actions can we take to ensure that we do not have to pay VAT?
Thank you in advance for your assistance. We look forward to your expert advice.
Best regards,
Eva Maier
Dear Mrs. Maier,
Thank you for your inquiry regarding the VAT liability of a charitable organization. It is understandable that as a board member, you are concerned with using the financial resources of the organization solely for charitable purposes.
Basically, charitable organizations, like other legal entities of private law, are subject to VAT liability if they engage in economic activities that are considered entrepreneurial activities. This is the case when the organization regularly and sustainably generates income and provides services for consideration. It is irrelevant whether the income is used for charitable or non-charitable purposes.
However, there are special regulations and exceptions that can be relevant for charitable organizations in order to avoid VAT liability. An important point is the so-called small business regulation according to § 19 UStG. This regulation states that entrepreneurs whose turnover did not exceed €22,000 in the previous calendar year and is not expected to exceed €50,000 in the current calendar year are exempt from VAT. Charitable organizations can benefit from this regulation if they comply with the turnover limits mentioned.
Furthermore, charitable organizations can generate tax-exempt turnover under certain conditions according to § 4 No. 22a UStG. This includes turnover from commercial operations or regularly recurring events such as charity concerts or bazaars.
To ensure that your organization does not have to pay VAT, it is advisable to conduct a thorough examination of the economic activities and, if necessary, seek tax advice. A tax advisor with expertise in the area of nonprofit taxation can provide comprehensive advice and recommend specific measures to avoid VAT liability.
I hope this information is helpful to you and I am available for further questions. Thank you for your trust and inquiry.
Best regards,
Dora Krause
