From 2024, the tax deduction for donations made by a private limited company will be abolished. Which expenses will remain deductible?
PLEASE NOTE: this change has been removed from the draft legislation by means of an amendment. It will therefore not be implemented. The current arrangements remain in place.
Are expenses costs?
Expenditure incurred by a private limited company (BV) may qualify as business expenses or as a withdrawal. Subject to statutory deduction limits, expenses are deductible from the private limited company’s profits. Expenditure incurred by the private limited company qualifies as an expense if it is incurred in the interests of the business.
The essence of a donation is that it is made out of generosity; that no consideration is received in return. Consequently, in most cases, donations will not qualify as expenses (deductible from profit), but as a withdrawal from the private limited company’s capital (not deductible from profit). In many cases, the private limited company’s donations will be (primarily) motivated by the shareholder’s personal charitable concerns.
Approval
At the moment, therefore, there is a approval that donations made by a private limited company are not regarded as a withdrawal if and in so far as the donations:
- have been made to an ANBI or to an SBBI support foundation and
- must not exceed 50% of the private limited company’s profit (up to a maximum of €100,000).
These donations are deductible from profit. This is provided for in Section 16 of the Corporation Tax Act 1969. The Tax Plans for 2024 provide for the repeal of this section of the Act. As a consequence, the approval will also be abolished.
Deductible
However, from 2024 onwards, not all “donations” made by private limited companies will be non-deductible. The parliamentary explanatory notes explicitly state that expenditure in support of charitable causes through sponsorship or advertising will remain deductible. The same applies to expenditure in the context of corporate social responsibility. In both cases, after all, the expenditure is incurred with a view to the business interests of (the company of) the private limited company, and therefore constitutes (deductible) costs.
No dividend
Donations made by a private limited company, which will no longer be tax-deductible from 2024 onwards, qualify as a withdrawal. The parliamentary explanatory notes explicitly state that this withdrawal is not a dividend payment. If that were the case, the withdrawal would be subject to dividend tax or income tax in box 2 for a holder of a substantial interest. A donation by the private limited company therefore has the tax advantage, after 2023, of reducing the substantial interest claim to be settled in the future.
It naturally follows, too, that the director/shareholder may not claim the donation – which has been treated as a withdrawal from the private limited company but not as a dividend payment – as a deductible donation in his income tax return.