Founding of a Non-Profit Foundation in Germany

A foundation must pursue exclusively charitable purposes to be classified as a non-profit foundation. Non-profit foundations are solely dedicated to charitable, benevolent, or ecclesiastical purposes, as defined in Sections 51 et. seq. of the German Fiscal Code (AO). These foundations enjoy several tax advantages in Germany:

• Exemption from various types of tax: no corporation tax, trade tax, VAT, capital gains tax, or property tax must be paid.
• Your assets are not affected by the inheritance tax due every 30 years.
• No gift tax when setting up a non-profit foundation, as stipulated in Section 13 para. 1 no. 16 letter b of the German Inheritance Tax Act (ErbStG).
• Tax liability only for economic activities: If the foundation carries out economic activities and exceeds specific tax-free amounts, it must pay taxes on them.

People who wish to donate to non-profit foundations also enjoy tax benefits:

• Individuals can deduct donations to non-profit foundations up to an amount of 1,000,000 euros from their taxes as special expenses. This applies to the establishment of new foundations and additional donations to existing foundations.
• Donations to non-profit foundations can be deducted as special expenses up to 20% of total income or up to 4 per mille of total annual turnover and wages following Section 10b (1) of the German Income Tax Act (EStG).

Non-profit foundations in Germany acquire legal capacity when they are recognised by the district government or the German Ministry of the Interior of the respective state. They are subject to strict foundation supervision. The strict legal requirements are intended to ensure that the purposes set by the founder and the German foundation law regulations are complied with. The foundation’s board of directors must submit an annual statement of accounts and a report on the fulfilment of the foundation’s objectives within nine months of the end of the year. The specific requirements vary depending on the federal state of Germany.

When setting up a non-profit foundation in Germany, the first thing to consider is whether it should be a foundation with or without legal capacity. In Germany, there are different legal requirements for founding a foundation, depending on the type of foundation. In principle, German foundation law does not standardise any fixed foundation amounts for non-profit foundations. However, specific minimum amounts have been established in practice that can be required by the German foundation authorities. For example, a trust foundation can be established without a fixed minimum amount, whereas the foundation authorities generally require a minimum amount of €50,000 for the establishment of a non-profit foundation with legal capacity.

As a full-service law firm specialising in German foundation and tax law, we support you every step of the way, from choosing the right type of foundation to drafting the foundation statutes. Our legal experts will support you in communicating with the relevant authorities in Germany (tax office, foundation supervisory authority) to ensure the legally compliant establishment of your non-profit foundation.

The non-profit foundation with legal capacity is the classic form of a non-profit foundation in Germany. It is characterised by the fact that it can itself be the bearer of rights and obligations under German foundation law. It can, therefore, conclude contracts itself and participate in legal transactions as an independent legal entity. A non-profit foundation with legal capacity is subject to the supervision of the foundation board. The responsibility of the foundation authority is determined by the applicable foundation law in Germany and is a matter for the federal states. As already mentioned, a distinction must be made between the requirements and regulations of the individual federal states in Germany.

In contrast to an independent non-profit foundation, a non-profit foundation without legal capacity is not a legal entity in its own right. A non-profit foundation without legal capacity, also known as a trust foundation, therefore does not manage its own assets. Instead, the founder’s assets are transferred to a trustee, who must invest them and use them for the purposes specified by the founder. The trustee also acts on behalf of the trust foundation in legal transactions.

The trust foundation is not subject to state supervision in Germany. On the one hand, this gives it great flexibility, but on the other hand, it is particularly susceptible to abuse. Before setting up a trust foundation, the interests of the managing trustee should be examined in detail so that the risk of abuse can be minimised as far as possible.

The establishment of a non-profit foundation in Germany requires thorough planning and preparation. As setting up a foundation usually involves an enormous amount of organisational and legal work, we recommend that you consult an experienced lawyer.

At Schlun & Elseven, our lawyers will be happy to inform you about the various legal forms for setting up a non-profit foundation and their respective advantages and disadvantages in Germany. We will provide you with careful legal advice tailored to your specific situation. Our experienced lawyers will also support you in drafting the foundation charter, managing your foundation, and utilising tax advantages.