Yes, foundations and associations can also be subject to corporate income tax. Association boards do not always give this enough thought. You can read about this tax, as well as the other taxes relevant to foundations and associations, in our comprehensive note Tax liability of foundation and association. Naturally answering we We will gladly answer all your questions or carry out a tax check for the foundation or association you manage.
Corporate tax
Corporate income tax, abbreviated as Vpb, is levied on legal entities. Legal entities are the NV, the BV and the cooperative association. But foundations and “ordinary” associations can also be subject to Vpb.
Corporate income tax is charged on the profit earned by the legal entity. The rate is 25%, but “only” 20% Vpb is due on the first €200,000 of the taxable amount. In the Tax plans 2019, pending before Parliament, a substantial reduction in these rates will be arranged. Rumours are that the space freed up in the public finances by not abolishing dividend tax will be used for an even further reduction in corporate income tax rates.
Exemption
For foundations and associations, the Vpb includes an exemption. This exemption applies when the company's profit per year is less than €15,000 or over a 5-year period less than €75,000 (with profit in loss years set at nil).
The exemption applies automatically if the conditions are met. Foundations and associations can choose not to apply this exemption. In that case, they must request this when filing their corporation tax return.
This exemption has been clarified by the Secretary of State for Finance in a decision. For example, how to deal with foundations and associations that have been in existence for less than five years. Finance states that the limit of €75,000 should then be applied in proportion to the number of years of existence. For a foundation that has existed for 2 years, the limit is: 2/5 * €75,000 = €30,000. In the year in which the business activity is terminated, the final settlement profit counts for assessing whether the profit threshold has been exceeded. And the decree contains rules on offsetting losses over an exempt period.
The amount of profit must be determined applying all “normal” tax rules. Subject to conditions, notional fundraising costs and notional labour costs of volunteers can be deducted. Cultural institutions and SBBIs (Social Interest-Bearing Institutions) may, under conditions, form a re-spending reserve from their surplus balances.
Entrepreneur
By mentioning the exemption first, we ignore the order of the law. This is because the exemption applies only to the extent that a foundation and association, runs an enterprise. This must therefore be established before the exemption is assessed. In practice, this order is sometimes lost sight of. A direct test against the exemption then leads to the conclusion that the foundation or association is subject to corporate income tax. However, this conclusion is incorrect if there is no enterprise.
An enterprise, for the purposes of corporation tax, exists in the case of:
- an organisation of capital and labour;
- with which to participate in economic life;
- with the aim of making a profit (profit motive).
Case law somewhat objectifies the profit motive. It is stipulated that there is a profit motive if a foundation or association generates structural surpluses. Even if these surpluses are used to maintain the non-entrepreneurial activities of the foundation or association.
If the aforementioned criteria for entrepreneurship are not met, there is nevertheless the running of a business for corporation tax purposes if:
- with an activity externally corresponding to an enterprise;
- in competition;
- with individuals or entities subject to income or corporate tax.
Subjective exemptions
The exemption described above is a so-called gerneric exemption. This means that the exemption applies to all foundations and associations, which meet the conditions. Regardless of the nature of the corporate activities carried out.
The Vpb also has a number of subjective exemptions. We mention some of them:
- recognised estates;
- certain pension bodies;
- hospitals, old people's homes and the like;
- public reading rooms and libraries.
VAT
Perhaps your sports foundation or association is facing the consequences of the announced widening of the sports exemption. See our articles Commercial sport remains in the BV and Subsidy scheme to stimulate construction and maintenance of sports facilities.
Perhaps your foundation or association is liable to VAT without you even realising it. Last week, his Parliamentary questions asked about after-tax VAT levies imposed by the tax authorities on supporters associations of music clubs.