Christmas season: tax tips for charitable donations
by Pierre Willemart, Antoine Druetz, Alix Degrez and Elise Theys December, 2017
It is a well-known fact that charitable donations increase at the end of the year. The Christmas season therefore can be important for non-profit organisations (hereafter: “NPO”) to attract new donors and encourage donations. For most people, donating is just a matter of goodness and generosity. However Belgian law foresees in a tax incentive that can be meaningful, i.e. a tax relief. Consequently, adequately informing your donors on how to obtain this tax relief may persuade them to donate even more to your NPO.
As the end of the year is approaching, KOAN would like to provide you with the principles of this tax incentive, and inform you what your NPO can do so that its donors can reduce their income tax through a donation.
Tax deductibility for donations in Belgium Conditions
The requirements, foreseen in the Belgian Income Tax Code and set out below, have to be met cumulatively, implying that non-compliance with one of these will result in loss of the tax benefit.
- Donations to recognised entities
Only donations to “recognised entities” qualify for tax relief. In this respect, recognised entities concern entities that are either explicitly included in the list as prescribed by the relevant provision within the Belgian Income Tax Code (for example: cultural entities, entities aiming to protect and conserve monuments or sites, entities devoted to nature conservation or environmental protection), or entities that are recognised by the Minister of Finance via a separately published list. As regards donations to entities from another Member State in the European Economic Area, this condition will deemed to be met to the extent that the foreign entity is comparable to a Belgian recognised entity and that it has been recognised in a similar manner by the other Member State.
- Donation in cash of at least FUR 40
The donation made to the recognised entity should at least amount to EUR 40 per calendar year, per recognised entity, and, as the Belgian Income Tax Code explicitly mentions, should be made in cash. However, a derogation from this rule has been accepted for donations in the form of artworks. The latter shall also be able to enjoy the tax deduction provided that (1) such works are donated to State Museums, Communities or Regions, Provinces, Municipalities or the Public Social Welfare Centres, (2) the artworks have been recognised by the Minister of Finance as being movable cultural property or internationally renowned and (3) the value has been determined by the Minister of Finance.
Collective donations and funds collected on behalf of the NPO however are not eligible for tax deduction, as these cannot be attributed to one individual donor.
- Recognised entity must issue a tax certificate
Finally, but equally important, the recognised entity must issue a tax certificate to the donor indicating the amount of donations made to the NPO for the calendar year concerned. The amount mentioned on this certificate shall be taken into account when determining the below tax benefit.
Donations that comply with all the above mentioned conditions shall give rise to a tax relief of 45% of the amount actually paid and mentioned on the tax certificate, when made by a natural person. The total tax deduction for donations can however never exceed the higher of (i) either 10% of the total net income or (ii) EUR 376,350 (for fiscal years 2017 and 2018).
On the other hand, the amounts donated by a legal entity subject to corporate income tax can be fully deducted from its profit made in the taxable period concerned (with a maximum of (i) either 5% of the taxable income or (ii) a threshold of EUR 500,000).
In case the result of the income tax is zero (as the taxable person has little or no income), the donor will not be entitled to tax relief. Furthermore, should the total amount of payable income tax be lower than the tax relief, the latter will be limited to the amount of the income tax. This implies that the tax authorities will not allow to transfer the tax benefit to the next fiscal year, nor will reimburse the difference as a tax credit.
Are you a recognised non-profit entity?
If this is the case, we recommend you to check your database to verify which donors have not reached the threshold of donating EUR 40 in cash. Informing the respective donors thereof will be interesting for your NPO, as it will receive a higher amount of donations, as well as for your donors, as it will allow them to fully or partially benefit from the tax relief related to their donation in the Belgian income tax.
Are you not a recognised non-profit entity?
Unfortunately it is too late for this year. Nevertheless, it can be interesting for next year to obtain approval from the Minister of Finance to qualify as a recognised entity as this will encourage your members and third parties to donate to your NPO.
In this case, first verify whether your NPO can be categorised as, or, in case it concerns a foreign entity, is comparable to, an entity included in the list mentioned in the Belgian Income Tax Code or determined by the Minister of Finance.
Furthermore also assess whether your members or third parties would be interested in donating to your NPO. If yes, also verify whether in general they would be able to meet the conditions for the application of the regime for tax relief related to donations.
Can your NPO not be categorised as such an entity, it could be interesting to verify whether another related (foreign) NPO can qualify for, and is willing to obtain, recognition. Donations can then be tax-favourable made to this (foreign) entity, which in turn will distribute the collected funds among the other NPO’s of the group.
To introduce an application for recognition, it is required that your organisation has the legal personality, is established in Belgium, and does not pursue any profit purpose. The application furthermore should be filed at the latest by 31 December of the last year prior to the period for which approval is sought. Subsequently, after examination of the conditions, the Minister of Finance will provide its approval for a period of six years.
For further information, please do not hesitate to contact KOAN Law Firm’s Tax and Non-profit and Trade Associations teams.