1. Would a corporate legal entity in your jurisdiction be entitled to make a corporate income tax deduction in respect of donations made in favour of a public benefit organisation based in the EU outside of your jurisdiction (“EU PBO”)? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  2.  Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  3.  Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?
  4.  Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

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There are several requirements that must be met to be entitled to make a tax deduction:

  • EU PBOs can only be recognised if they structurally correspond to a corporation under German law (so-called comparison of legal types).
  • EU PBOs must comply with the formal statutes of sec. 60a (1) s. 1 FC in the case of direct donations. This means that the German tax authorities must be able to verify from the statute alone whether the corporation meets the requirements for tax exemption, cf. sec. 60 (1) s. 1 FC.
  • Beneficiary purposes may be non-profit and charitable purposes.
  • A domestic connection (Inlandsbezug) is required. Since Germans or residents are not to be favoured here, it depends on whether the activity of an EU PBO is suitable to contribute to the reputation of the Federal Republic of Germany abroad. In the case of a German corporation, this would be assumed; in the case of an EU PBO, it must be proven. How proof of an EU PBO succeeds in practice, however, is questionable. The documents submitted can be from the year of the donation or the two preceding years. They may have to be translated into German.
  • According to the requirement of the non-profit asset commitment, the assets of an EU PBO may in principle only be used for tax-privileged purposes in the event of its dissolution or annulment or in the event that tax-privileged purposes cease to exist. From a practical point of view, it is necessary to refrain from naming the intended beneficiary (as would be permitted) and merely list the specific purposes for which the assets are to be used.
  • In addition, further requirements must be met. These include selflessness, exclusivity and immediacy.

In the case of a direct donation, the donor itself must prove that an EU PBO is non-profit within the meaning of German law.

Companies can claim donations for tax purposes. Simplified, companies can deduct up to 20% of their income or 4% of the total of turnover plus salaries as a donation. Otherwise, the same applies as for individuals, i.e. donations in excess of this can be carried forward and the receiving EU PBO must fulfil the requirements, mentioned in Q2, if necessary issuing a donation receipt for more than EUR 300.

2. Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?

In principle, donations reduce taxable income by the corresponding amount. The tax advantage is therefore measured by the individual (marginal) tax rate of the donor. In total, however, no more than 20% of income (total amount of income, sec. 2 (3) GITA) of a natural person may be deducted as a so-called special expense (Sonderausgabe) in the year of the donation, sec. 10b (1) s. 1 no. 1 GITA. If the donation exceeds 20% of income, the special expense is carried forward to the following years, sec. 10b (1) s. 9 GITA. Usually, the amount of the donation is likely to be far below this.

Donations to an EU PBO without tax liability in Germany are deductible if an EU PBO would fictitiously be non-profit in Germany and an administrative assistance and support agreement exists with the country of domicile, sec. 10b (1) s. 2 no. 3 GITA.

For the donation itself, a transfer receipt from the bank, for example, is sufficient up to EUR 300, sec. 50 (4) no. 2 b) GITA Implement Regulation (“GITAR”). Above EUR 300, the donor generally needs a donation receipt from an EU PBO in accordance with the official form. Since EU PBOs without tax liability in Germany cannot and are not allowed to issue donation confirmations (using the form), such a confirmation does not have to be submitted for donations to them, sec. 50 (1) s. 2 GITAR.

3. Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?

Yes, the treatment of EU PBOs would be equal to German non-profit organisations, but only if EU PBOs met legal requirements and would be fictitiously accepted as non-profits in Germany.

No, EU PBOs that fulfil the legal requirements are exempt from gift and inheritance tax with regard to donations, sec. 13 (1) no. 16 c) German Inheritance and Gift Tax Act. In individual cases, exemption according to no. 17 is still possible if the use of the donation for exclusively non-profit or charitable purposes is ensured.

4. Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

No, because direct donations to charity foundations outside the EU/EEA are generally excluded from the deduction of donations.

However, there is an option to channel the donations to a German funding corporation in order to direct them to a third country-based charitable foundation. Then, if the purpose of the German funding corporation is exclusively to pass on funds to another PBO, this must be provided for in the statutes, sec. 58 no. 1 s. 4 FC. Nevertheless, at least one other non-profit purpose should be specified, e.g. precisely the purpose that the recipient organisation wishes to promote.

The obligation to cooperate remains, but it is no longer the donor who is subject to this obligation, but the German funding corporation. It must prove that the donations are and were used by a foreign PBO for – from the perspective of German law – non-profit purposes. However, this is made easier by the fact that the foreign recipient corporation does not have to be fictitiously accepted as a non-profit organisation in Germany, but only has to pursue tax-privileged purposes according to German legal understanding.

As a result, the funds may be passed on worldwide. The funds may also be passed on again by the recipient to another charity foundation if this foundation meets the same requirements as the recipient (chain of onward transfer).

The decisive factor is that the recipient corporation is equivalent to a German corporation, estate or association of persons according to a comparison of legal types. The domestic connection is also presumed, since the funding corporation is a domestic corporation. Finally, it must be proven that the recipient corporation abroad uses the funds in accordance with the statutes. The funds must then be used by the foreign corporation in a timely manner, sec. 55 (1) no. 5 FC, but this should not be a problem.