Securities Accounting for Foundations in Germany
German foundations fulfill their charitable purposes from funds to be used in a timely manner. In addition to donations, these funds also come from the income from their asset management.
When does a foundation speak of asset management?
According to §14 of the German Tax Code (Abgabenordnung, AO), asset management occurs when capital assets are invested at interest or immovable assets are rented or leased out.
Investment guidelines for foundations in Germany
Specific investment guidelines are a subsidiary regulation to the foundation statutes. In the investment guidelines, the founders or the foundation bodies and committees specify the guidelines for the investment of assets. Investment guidelines include the
- investment strategies,
- investment objectives and
- investment limits for individual asset classes.
Investment strategies, investment objectives and investment limits
As part of strategic asset allocation (SAA), foundations formulate certain return expectations combined with a willingness to take certain risks. This usually involves diversifying investments in various asset classes.
Securities in accounting for foundations
Where assets are invested in securities, the differentiation of investments in accordance with investment guidelines and active asset management represent a major challenge for foundations in Germany. In the accounting of actively managed high-volume securities accounts, a large number of business transactions during the year must be recorded.
Each asset class has its own requirements for the ongoing booking of transactions. Business transactions can include
- share purchases and sales as well as dividend payments,
- bond purchases and sales taking into account accrued interest,
- fund purchases and sales as well as fund income.
They are initially measured at acquisition cost including incidental acquisition costs.
Subsequent measurement of securities is required as part of the preparation of the annual financial statements. The legal requirements for the subsequent valuation of securities depend on whether they are classified as fixed or current assets. Depending on this, either the moderate or the strict lowest value principle is applied under commercial law. Accrued interest on bonds held in the securities account must be recognized as income when preparing the financial statements.
Statement of reserves and statement on the use of funds
The result of securities accounting is included in the profit appropriation for foundations. As part of the profit appropriation, a permissible reallocation reserve can be formed so that capital gains from securities transactions are not subject to the prompt use of funds. In addition, free reserves permitted under nonprofit law can be formed depending on the result of the sphere, e.g. the calculated surplus from asset management.
Our consulting services for foundations
Our experienced NPO consultants support you with all relevant tasks in connection with financial accounting and the preparation of your annual financial statements. Among other things, we take on the following tasks for you:
- Preparation of ongoing financial accounting for grant-making foundations and operating foundations
- Preparation of securities accounting for securities accounts
- Preparation of annual financial statements for grant-making foundations and operating foundations
- Application for non-assessment certificates in accordance with Section 44a (4) and (7) EStG
- Application for reimbursement of foreign withholding tax
- Optimization of the formation of reserves permitted under German nonprofit law
- Preparation of the statement on the use of funds required under nonprofit law
Your advisors for securities accounting for foundations in Germany
The easiest way to reach our advisors for questions about securities accounting for foundations is by e-mail (info@winheller.com) or by telephone (+49 69 76 75 77 85 21).
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