Recognition of Charitable Status in Germany: Requirements, Possibilities, Costs
The status of a nonprofit organization offers many advantages, such as exemption from corporation and trade tax or the right to receive tax-deductible donations.
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But how exactly are organizations recognized as charitable?
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What requirements must be met?
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Who do organizations need to contact in order to obtain charitable status?
We provide answers to these and other questions.
Which legal forms can be recognized as charitable?
First of all: According to the legal regulations in Germany, only organizations that are organized in one of the following legal forms can obtain the status of a nonprofit organization:
- corporations (primarily gAG and gGmbH),
- cooperatives,
- registered and unregistered associations,
- foundations with and without legal capacity and
- commercial enterprises of legal entities under public law.
Only these organizations can be charitable. For this reason, they are also referred to as nonprofit corporations. Organizations in the legal form of a partnership, such as a GbR or OHG, can never be charitable.
What requirements must a corporation fulfill in order to be a nonprofit organization?
For an organization to be recognized as charitable, firstly its articles of association and secondly its actual management must comply with the charitable requirements of the German Fiscal Code (Abgabenordnung, AO).
- Articles of association: The articles of association of the corporation must clearly state that the organization pursues charitable purposes within the meaning of the AO and how it intends to achieve these purposes. The AO itself contains model articles of association to help nonprofit organizations. In general, it is advisable to coordinate the draft articles of association or the planned amendment to the articles of association with the tax office at an early stage so that any necessary adjustments can be made before the articles of association are adopted or the resolution to amend the articles of association is passed.
Important: It is not sufficient for corporations to adopt the model articles of association from the tax code 1:1. This is because these only contain the provisions of the articles of association that are necessary for tax reasons. Depending on the legal form of the organization, further provisions of the articles of association under civil law, e.g. on the management board or the general meeting, may therefore be necessary.
- Actual management: The actual management of the organization must be aimed at the direct and exclusive fulfillment of its own charitable purposes and comply with the provisions of the articles of association. Errors in the actual management can lead to the chartibale status being revoked. The organizations are also obliged to provide evidence of their actual management by means of an activity report and an account of the use of funds.
How can an organization be recognized as a nonprofit organization?
Charitable status can be recognized in the following ways:
- On application: Newly founded organizations and corporations that have recently amended their articles of association can apply to the relevant tax office for a so-called “Feststellungbescheid” (tax assessment) in accordance with § 60a AO. The tax office confirms that the statutory requirements have been met. Advantage: On the basis of this notice, organizations can receive donations and issue donation receipts without first having to wait for recognition of charitable status as part of the tax assessment. However, the tax authorities may refuse to issue a declaratory notice if the actual management of an NPO does not comply with the charitable status - even if the articles of association themselves do not contain any deficiencies. In such cases, they can also revoke an assessment notice that has already been issued.
- By official order: As part of the tax assessment, which generally takes place at least every three years, the tax office checks ex officio whether the articles of association and the actual management are in line with the requirements of German nonprofit law. If this is the case, the tax office must recognize the corporation as a nonprofit organization and issues a so-called notice of exemption. The organization does not have the right to accept or reject the charitable status at will. The review of charitable status as part of the assessment takes place regardless of whether the organization has already received a notice of assessment or not.
What happens if the tax office refuses to recognize the charitable status?
Our practical experience shows: If the articles of association are drafted with foresight and the draft articles of association or amendments to the articles of association are agreed with the tax office at an early stage, nothing should usually go wrong. The process of recognition can then be completed relatively quickly, i.e. within a few weeks, in some cases even a few days. If the tax office refuses to recognize the charitable status (which often happens when those responsible try to obtain charitable status for their organization without in-depth knowledge of nonprofit law), an appeal can be lodged against the tax office's decision. If this does not help either, an appeal to the tax court is possible.
What costs are incurred for the recognition of charitable status?
The good news first: The recognition of charitable status itself and the early coordination of a draft statute or a planned amendment to the statute with the tax office is free of charge - at least on the part of the tax office. However, there are costs for prior legal advice, which can be quite high depending on the complexity and previous history. Nevertheless, legal advice is strongly recommended for every organization. This is because errors in the tax structure of the articles of association can lead to non-recognition or withdrawal of charitable status. The subsequent correction of these errors by an expert in nonprofit law is usually more expensive than legal support from the outset. In addition, errors in the civil law drafting of the articles of association can paralyze the work of the organization or even lead to the personal liability of those responsible.
Our services for the recognition as a nonprofit organization
We are your competent partner if you wish to establish a nonprofit organization or have an existing organization recognized as a nonprofit organization. Your advantage: As a broad-based team of tax advisors and attorneys experienced in German nonprofit law, we can advise your organization on all tax and civil law issues. Does your organization operate internationally or is it planning to do so in the future? That's no problem either. Thanks to our international network, you can count on us as a reliable partner who will be happy to provide you with all legal and tax services from a single source.
Our range of services is diverse and includes, for example
- selection of the appropriate legal form
- drafting the articles of association, including coordination with the tax office and the responsible (register) authority
- planning of optimal nonprofit and tax structures
- tax advice, such as the preparation of annual financial statements and tax returns
- development of donation compliance management systems
- implementation and support for restructuring, in particular spin-offs
- drafting employment and management contracts
- advice and representation in communication with the tax authorities in the context of tax audits and objection proceedings
- ongoing assistance on call with all legal and tax/nonprofit issues
- support in limiting the liability of management boards
- expert opinions on legal and tax/nonprofit law issues and issues relating to association law, foundation law and the law governing charitable LLCs (gGmbHs)
Your attorney for the recognition of charitable status in Germany
Would you like to set up a nonprofit organization in Germany? Would you like to have your existing organization recognized as charitable? Have you already applied for charitable status for your organization, but the tax office refuses to recognize it?
We can help you and look forward to hearing from you! The easiest way to reach us is by e-mail (info@winheller.com) or by phone (+49 69 76 75 77 85 24).
Do you need support?
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