Donations or sponsoring
Donations (grants)
In the context of tax law, one does not speak of "donations", but of "contributions". Contributions are:
- voluntary
- gratuitous expenses
- for the promotion of tax-privileged purposes
It is important that the donor is actually and definitively economically burdened. This means that the donation must not flow back into the donor's assets in any form. The donation must go directly and immediately into the tax-privileged sphere, i.e. it must not flow into commercial business operations. There are various types of donations, including
- Money donations:Financial contributions to charitable organizations.
- Donation of goods:Donations in the form of goods or objects.
- Expense donations:Waiver of reimbursement of expenses incurred for charitable purposes.
- Returned donations:Waiver of payment of fees or other remuneration claims.
Sponsoring
Sponsoring is fundamentally different from donations. According to the German Federal Ministry of Finance (BMF), sponsorship is the granting of money or non-cash benefits by companies to support individuals, groups and/or organizations in various socially significant areas, such as
- Sport
- Culture
- Church
- Sience
- Social
- Ecology
In contrast to donations, sponsoring also regularly pursues its own company-related advertising or public relations objectives. Sponsoring is usually based on contractual agreements in which benefits and consideration are defined.
For non-profit organizations (NPOs), income from sponsorship is considered either taxable income in business operations or tax-free income in asset management. However, VAT must be taken into account.
For the sponsor, the expenses for the sponsorship are deductible as business expenses within the meaning of Section 4 (4) EStG without limitation, and the sponsor can claim the input tax deduction.
Intensity of consideration for donations and sponsoring
| Passive “Thank you” | < Consideration from the NPO < | Active advertisement |
|---|---|---|
|
Income tax-free "thank you" |
Asset management |
Economic business operations |
|
Simple acknowledgement/decent mention of the sponsor (possibly with logo, without highlighting/advertising slogan) in the exhibition catalog, program booklet, foundation magazine, on posters - also vice versa: simple reference by the sponsor to support (≠ active marketing)
|
Transfer of naming/advertising rights (logo), long-term lease of advertising space to advertising companies (website, magazine), simple naming of a hall after the sponsor
|
Reference to sponsor with logo incl. advertising slogan, link to sponsor's website, advertisement in foundation magazine, allocation of advertising space, advertising statements about the sponsor, inclusion of the company's name in the name of an event |
|
VAT: Not taxable because no exchange of services
|
VAT: 19% - subject to VAT/trade tax |
VAT: 19% - subject to VAT/trade tax |
Passive sponsoring
In passive sponsorship, a non-profit organization (NPO) allows a sponsor to use its name and logo for advertising purposes without actively participating in the advertising measures.
- Use by the sponsor:The sponsor uses the name or logo of the NPO in its own advertising or to promote its image and indicates its support.
- Tolerance by the NPO:The NPO permits the sponsor to use its name and logo for advertising purposes. This can be done through simple acknowledgements, but further measures, such as a link from the NPO's website to the sponsor's website, are not permitted.
Why "passive"? The NPO merely makes its name and logo available without actively advertising. This constitutes a passive advertising service.
Tax consequences:
- Income tax: Income from the use of the sponsor's own logo is considered tax-free income from asset management. This is not an economic business operation (wGb) in accordance with the Application Decree to the Fiscal Code (AEAO) on Section 64 (1) No. 10. For trade tax purposes, this is not a taxable item in accordance with Section 2 GewStG.
- Value added tax:The provision of the name and logo constitutes an exchange of services (Section 1.1 (23) sentence 3, sentence 4 of the German VAT Application Decree (UStAE)). The amount of the sponsor's contribution is therefore a taxable transaction. The VAT rate is 19% and the NPO must issue an invoice for this.
Active sponsoring
In active sponsorship, the NPO actively participates in the sponsor's advertising measures or carries out advertising for the sponsor itself. Examples:
- The NPO draws attention to the sponsor's support on posters, flyers, etc. and emphasizes it in particular
- The NPO links from its website to the sponsor's website
- The NPO allows the sponsor to place advertisements in its print or online media or to advertise products at NPO events
- The NPO advises the sponsor on its own advertising measures, designs marketing material, etc.
Why "active"? The NPO actively promotes the sponsorship or plays an active role in shaping the sponsor's advertising measures.
Tax consequences:
- Income tax: Income from active sponsoring is considered taxable income from commercial business operations (AEAO to Section 64 (1) No. 11)
- Value added tax: The relationship is characterized by the exchange of services. The amount of the donation is therefore a taxable turnover. The VAT rate is 19% and the NPO must issue an invoice for this.
Social Sponsoring
Social sponsoring is a mixture of sponsorship and donation. For tax purposes, it is regarded as sponsorship, but there is a mismatch between the service and the consideration.
Legal consequences:
- The (partial) non-deductibility of business expenses for the sponsor, as the (partial) sponsorship expenses can be reclassified as non-deductible private living expenses (Section 12 no. 1 sentence 2 EStG) or as a hidden profit distribution (Corporate Income Tax Guidelines (KStR) R 8.5).
Solution approaches:
- Contractual breakdown into donations and sponsoring services
- License models with corresponding contract design that suggest an operational connection (e.g. license payments staggered according to sales)
Taxation of non-profit corporations
| Ideal area | Asset management | Special-purpose operation | Taxable business operations | |
|---|---|---|---|---|
Income taxes (corporation tax, trade tax) |
free |
free |
free |
obligatory (exemption limit 45 kEUR) |
Value added tax: |
not taxable & no VAT deduction |
19%* (despite § 12 para. 2 no. 8 a UStG) |
7%* |
19%** |
Conclusion
Sponsorship offers added value for both sides, but requires careful tax planning. Companies should decide whether passive or active sponsorship is better suited to their objectives. Important points are:
- Definition and clarification of details
- Determination of the period
- Contractual fixation of the agreements
- Is passive sponsorship "enough" for the company or should it be active sponsorship?
