Forwarding Funds and Engaging Aides in Germany and Abroad

Nonprofit organizations (NPOs) are not limited to their own activities when pursuing the purposes set out in their articles of association or conducting their operational business. According to the provisions of the German nonprofit law, NPOs may also or exclusively provide support and forward funds to third parties or engage third parties as aides.

Depending on the legal qualification of the receiving corporation, the requirements for forwarding funds vary. Even the administrative effort will be lower or higher depending on the specific structure. Corporations that do not want to put their charity status at risk definitely need a suitable contractual basis and should make absolutely sure its provisions are carefully adhered to.

Forwarding funds within Germany

NPOs may forward funds to other domestic corporations or across borders to foreign corporations. When forwarding funds to domestic private-law corporations (i.e. private foundations, associations, charitable companies) the following rules apply:

At the time when the funds are received, the receiving corporation must mandatorily also be tax-privileged.

This is different in case of public-law corporations:

Funds may be forwarded to public-law corporations even if they are not themselves tax-privileged. In practice, this mainly concerns public-law corporations that use the funds received for a commercial enterprise (like museums or kindergartens).

Forwarding of funds should be anchored in the articles of association

In addition, the funding organization's articles of association must explicitly allow the forwarding of funds. It is not required – but admissible – to specifically name the receiving organization in the funding organization's articles of associations. Often the name of the receiving organization is deliberately omitted. Stating it would create an unnecessary restriction for the funding organization as, in such case, funds may no longer be forwarded to any organization except the one specifically named. Funding organizations wish to make commitments of this kind only in exceptional cases.

If the articles of association contain no provision on the forwarding of funds at all, the funds may only be forwarded in compliance with Section 58 No. 2 of the German Fiscal Code (Abgabenordnung; "AO"). But according to that provision, a tax-privileged corporation may never forward all or most of its funds. It may only do so in addition to achieving its purposes itself. Otherwise it risks losing its charitable status.

In addition, so-called forwarding chains (Weiterleitungsketten) are permitted. These allow the receiving organization to forward the funds received to another organization. In this context, it is important to ensure that, in the end, the funds are used for the funding organization's tax-privileged purposes.

What types of funds may be forwarded?

Any and all of the funding organization's assets can be used for the purpose of forwarding funds, unless they are covered by the more specific definitions contained in Section 58 Nos. 4 and 5 AO. This not only includes financial grants but also non-monetary funds. By way of example soccer balls could be given to a soccer club, which could then pass them on to a refugee facility using them to organize a soccer tournament for refugee children.

The term "funds"(within the meaning of the German law) may also include services provided for free or for a reduced fee. This may be relevant for holding companies that provide services for their tax-privileged subsidiaries.

Forwarding funds to foreign countries

It is not uncommon that domestic booster clubs or charitable foundations forward funds to foreign organizations. Sometimes the requirements for forwarding funds to a foreign organization may be easier to meet than those imposed on the forwarding of funds to domestic organizations. When forwarding funds across borders, the receiving foreign corporation does not need to be tax-privileged within the meaning of the German Fiscal Code.

This makes sense as only very few foreign organizations are established in compliance with the German Fiscal Code. Instead the requirements for forwarding funds abroad are as follows:

  • The foreign receiving organization must have a legal form that is comparable with a German statutory corporation. Proof of the legal form may be furnished by providing the foreign organization's articles of association.
  • Although the receiving organization does not need to be tax-privileged, its actual activities must hypothetically fulfill the requirements of German nonprofit law (control question: Would the activity be tax-privileged in Germany if it were exercised here?). Evidence may be furnished by "informal proof", which may consist of project descriptions, activity reports, contracts, but also press releases or brochures.

The Articles of Association of the funding organization must explicitly allow the forwarding of funds pursuant to Section 58 No. 1 AO. If these formal requirements are not fulfilled there will be no possibility of forwarding funds in accordance with Section 58 No. 2 AO to a foreign organization. In such case, any projects in other countries have to be carried out by the German booster club or charitable foundation acting itself or possibly with the assistance of an aide.

Engaging aides

Tax-privileged corporations may engage so-called aides (e.g. sub-contractors) to perform certain activities. An aide may be

  • an individual person,
  • a group of persons, or
  • a legal entity.

Aides are explicitly not required to pursue any tax-privileged purposes themselves.

Aide agreement sets out the activities

The most important aspect is that the activity of the aide is regarded as an activity of the corporation itself. As a consequence, the corporation must be authorized to give the aide instructions and to decide on the contents and scope of the aide's activity. For this purpose, the relevant powers given to the corporation with regard to the aide have to be agreed in a so-called aide agreement.

Regarding the aide's tax classification, the following applies: Aides do not pursue any tax-privileged purposes themselves but the tax-privileged purposes of the corporation that engages them. As a result, aides will in no case obtain a tax-privilege based on their activities as aides. In order to get a tax-privileged status, aides must pursue their own tax-privileged purposes (for themselves).

What type of cooperation with third (charitable) organizations or persons may be expedient will depend on the circumstances of the individual case. Often one type or another will be clearly more suitable. Our experienced attorneys will be pleased to assist you in your decision on and implementation of a planned cooperation.

Your attorney for forwarding funds and engaging aides

You wish to forward funds to another organization or execute an aide agreement? Our experts in nonprofit law support you. Your contact partners are Attorney Susanne Articus and Attorney Johannes Fein (Certified Specialist for Tax Law). The easiest way to reach us is by e-mail ( or by phone (+49 69 76 75 77 80). Please feel free to contact us with your questions.


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