German tax law is very complex and also plays an important role in fundraising. For example, the donor can deduct his donation up to a maximum amount as a special expense in his own tax return. And indeed, saving taxes is a major driver for many taxpayers to donate to charitable organizations. While this is usually a no-brainer for donations to domestic nonprofit organizations (NPOs), it becomes more complicated for donations to foreign charities. Giving abroad will be tax-deductible for the German donor only if certain requirements are fulfilled.
The reason for the German tax authorities' reluctance to recognize donations abroad for tax purposes is obvious: German government loses its tax revenue by making donations tax-deductible. In the case of charities located in Germany, this effect is intended: After all, the recipient organizations usually use these funds to take on public benefit tasks that would otherwise be the responsibility of the government. A donation to a foreign charity, however, deprives the German state of tax revenue as the foreign NPO usually does not develop any activities in Germany. The donation just goes abroad and benefits charitable projects elsewhere in the world.
Therefore, donations to foreign NPOs can be deducted under certain requirements, only:
The German donor is required to prove that the foreign recipient of his donation fulfills the above mentioned requirements of the German nonprofit law by submitting suitable documents to the German tax office. In particular, the following documents are suitable for this purpose:
In practice, it is often difficult to provide suitable documents to the tax office as most documents are either not available at all or not available in German. However, the German authorities typically require that documents in foreign languages will be translated at the taxpayer's expense, which discourages many potential donors.
International nonprofit organizations wishing to collect donations in Germany should engage a domestic law firm to prepare a legal opinion confirming the tax deductibility of the donations received from German donors. This approach has the following advantages:
The result: The foreign charity can collect donations from German donors which are tax-deductible for them, as if the foreign NPO was a Germany based entity. Thus, the foreign organization receives another means of fundraising, without having to establish a German subsidiary.
What does that mean in specific terms?
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The measures described above do not help with donations to organizations located in countries outside the European Union or the European Economic Area (EEA). Direct donations to these countries are never tax-deductible under German nonprofit tax law. However, these NPOs can alternatively establish a supporting organization in Germany which is a nonprofit subsidiary in Germany that collects donations on behalf of the foreign parent organization and forwards the donations to the parent organization under a grant agreement. Donations to such a supporting organization are tax deductible for German donors.
For years we have been advising and assisting foreign NPOs in all questions of national and international donation law. We are also happy to be your contact for your international fundraising projects and offer you all legal and tax consulting services from one source - our international network makes this possible.
Our services in the field of donation law are manifold and include: