When a payment is made to a non-profit organization, a distinction should be made regarding whether the payment has to do with donation or sponsoring.
The main difference between donation and sponsoring is as follows:
- A donation constitutes a payment to a non-profit organization without reciprocation of any kind.
- Sponsoring can however involve an obligation to a service in return. For example, if an automobile company pays a licensing fee to a non-profit organization, and in return is allowed to use the logo of the non-profit organization to the company’s image advantage in a television campaign, it is considered a trade of services rendered.
Statute and procedure regarding donations
The donated amount may be claimed as a deduction by the donor for income tax, corporate income tax and trade tax, but only to a certain extent.
Deductible is 20 % of the total sum of revenue or 4 per thousand of the turnover as well as of the expended wages and salaries in a calendar year (Sec 10b subsec 1 EStG (German income tax act), Sec 9 subsec 2 KStG (German corporate tax act), Sec 9 No 5 GewStG (German trade tax act)). As an example.: a company has a turnover of 90,000 euros and pays 10,000 euros wages and salaries per year, the total revenue amounts to 1,500,000 euros: the deductible donation would amount to 400,000 euros. This corresponds to (90,000 euros + 10,000 euros) x 4 per thousand (20 % of the total amount of revenue would in this case only amount to 300,000 euros).
Statute and procedure regarding sponsoring
Sponsoring expenditures can be claimed as deductions without limit as operating expenditures.
Fiscal considerations regarding the Non-Profit Corporation
Receipt of donations is in principle exempt from income tax. Revenue in line with commercial business operations due to sponsoring is, however, basically liable for income tax.
There are many exceptions and specifics concerning classifications in this regard. An evaluation of each individual case is absolutely recommended.