Crowdfunding is a relatively new way of raising funds. It is well known that tax legislation generally lags behind social reality. This is also the case with crowdfunding. In a decision issued in response to a Freedom of Information Act request, the Ministry of Finance that a descriptive document on crowdfunding will not be finalised in the near future.
Crowdfunding
From a tax perspective, there are broadly speaking two types of crowdfunding:
- those used to collect donations or sponsorship;
- those involving the raising of equity or debt capital.
Donations
What is the difference between donations and sponsorship? A donation is an act of generosity. The donor does not expect anything in return. Sponsorship, on the other hand, involves a quid pro quo. This often takes the form of advertising.
For a business owner, sponsorship costs are generally tax-deductible. This is, of course, subject to the condition that they clearly serve the business’s commercial interests.
Sponsorship by private individuals does not qualify for tax relief.
When collecting donations It is important to note whether these funds are deductible for the donor as a charitable donation (or, in the case of business owners, sometimes as business expenses). A deduction as a charitable donation applies when the funds are provided to:
- ANBI (public benefit organisation) or an SBBI support foundation;
- an association with legal personality and at least 25 members (only in the case of regular donations).
The responses to the WOB request focus primarily on so-called ‘intermediary organisations’. Such organisations collect funds and pass them on to other organisations. An (online) crowdfunding platform is often one such intermediary organisation. Donations made via an intermediary organisation will often not qualify as a tax-deductible donation. The intermediary itself does not usually qualify as an ANBI.
Equity or debt capital
Regarding the provision of equity This applies where the recipient is a business and no agreement has been reached with them regarding the obligation to repay the funds provided. Naturally, there are different types of borrowed capital which are issued under circumstances such that they are treated as equity for tax purposes.
The provider of the funds must assess whether the funds provided should be classified as:
- income from employment and property (Box 1);
- income from savings and investments (Box 3).
For the time being, the Ministry of Finance’s position appears to be that capital provided or money lent through crowdfunding is taxed under Box 3.
Where crowdfunding is provided by a company, the capital and/or loan forms part of the company’s assets in principle.
Clarity?
Do you have any doubts about the tax treatment of your crowdfunding? Please get in touch with one of our advisers.