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Tax Accounting For Foundations in Germany

Tax advantages for German foundations

Charitable foundations enjoy numerous tax privileges in Germany. The same applies for the person who establishes them. Since the beginning of 2007, for example, the founder can claim donations up to 20 percent of his income as deductible special expenditures on his income tax. Further, he can invest EUR 1 million in the foundation with favorable tax treatment. Married couples can generally donate double this amount.

Corporations are subject to similar provisions. The Corporate and Trade Tax Codes also provide for the deductibility of donations to foundations.

Complex regulations and exceptions for tax advantages

There are, however, some traps for the unwary: For example, all income tax advantages apply only with respect to foundations which were established during the founder's life. These income tax advantages do not apply to legacy foundations that take effect after the founder's death.

Different taxes on different types of foundations

Donations to charitable foundations have considerable advantages regarding German

  • income tax,
  • corporate tax and
  • trade tax

and are free from gift or inheritance tax.

Donations to non-charitable foundations, such as family foundations, do not enjoy tax advantages. Further, family foundations are subject to a little-known tax: The substitute inheritance tax. However, in certain cases, the establishment of a family foundation can nevertheless make sense in order to preserve the family's wealth over succeeding generations. Tax considerations can, in such cases, urge the creation of a family foundation that is later transformed into a charitable foundation.

Foundations are no tax shelter

Foundations present considerable advantages in terms of income, corporate, inheritance, and gift taxes. At the same time, foundations are not a classical tax shelter.

The reason is that, by establishing a foundation, the founder gives up control of his wealth. Of course, he can continue to exercise considerable influence over the foundation. He or she can, for instance,

  • dictate goals to the foundation,
  • put himself and his relatives in key positions in the foundation, and
  • provide close relatives with claims to share in the foundations' revenues.

However, once assets have been transferred to the foundation, there is generally no way to demand their return.

Our consulting services regarding foundation tax law

We provide

  • ongoing accounting work,
  • preparation of tax returns,
  • annual financial statements and
  • the preparation of the balance sheet for your foundation

on the basis of the usual statutory fees of the German Tax Consultant Remuneration Ordinance. We only charge separately on an hourly basis for work that goes beyond this. We thus offer our specialization in tax consulting and foundation tax law for German foundations at favorable and competitive conditions.

Your attorney for foundation tax law in Germany

Your legal experts for all issues related to tax accounting of German Private Foundations are

Please contact us by e-mail (info@winheller.com) or by phone (+49 69 76 75 77 80).

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