A common question regarding non-profit associations is whether they are subject to any kind of tax liability.
The most common thought is that they are not, however, this thinking is wrong because non-profit associations are subject to taxation.
The normal thing is that the income of the association is the fees paid by the members, but it is frequent that they have another type of income or carry out some economic activity and, in this case, they will pay Corporation Taxes for the benefit that is generated in said activity. What differentiates from another legal entity is that it must use those results for its purposes and cannot distribute them among its partners.
Therefore, if they produce a good or provide a service in exchange for a consideration, they will obtain economic results and must be taxed for it.
What do we mean by a Non-Profit Association?
It is a group of people who organize themselves to carry out a collective activity. It is an entity whose purpose is not the pursuit of an economic benefit but pursues a social, altruistic, humanitarian, artistic or community purpose.
There is a special tax regime for non-profit entities that is developed in Law 49/2002, of December 23. Article 2 lists the entities that are likely to be considered non-profit entities for the purposes of that Law.
- Associations declared to be of public utility
- Non-governmental development organizations (NGOs)
- Delegations of foreign foundations
- Spanish sports federations
- The federations and associations of the non-profit-making entities referred to in the preceding paragraphs.
It is necessary to differentiate the non-profit associations NOT declared of public utility from those that ARE declared as such. The declaration of public utility is a social recognition of the work done and enjoy significant tax benefits. For example, with regard to Corporation Tax, public utility associations are taxed at 10% (instead of 25%) on the income subject to this tax.
An association can carry out economic activities, which may be exempt some and others may not, so it is necessary to keep a separate accounting of income and expenses. On the one hand those of non-profit activity, and on the other those of economic activity.
The associations are considered entrepreneurs for VAT purposes, being equated to the rest of the entities when they carry out activities of a business nature. If the activity of the association is not exempt from VAT,it will be obliged to file declarations for the aforementioned tax quarterly, as well as the annual summary.
As for the Corporation Tax of an Association,they must declare all their income exempt and non-exempt, however, in the taxable base of the Tax only the income derived from the non-exempt economic exploitations will be included.
Exemptions for Non-Profit Entities
As for the
Corporate Income Tax
of Non-Profit Associations not declared of public utility,there is a possibility of non-subjection, when the total income does not exceed € 75,000 per year,of which, € 2,000 will correspond to the incomes that are not exempt that, in turn, must have been subject to withholding.
In general, the income obtained by the association from the fees paid by its members will be exempt when they are used for activities that constitute their corporate purpose or specific purpose, provided that the development of such activities does not determine the existence of an economic exploitation, that is, that the obtaining of a profit is not sought with the development of said activities.
Deductions from the Personal Income Tax quota
On the other hand, we also want to emphasize that donations made to associations declared of public utility can be deducted in the Treasury. The first 150 euros donated have a deduction of 80% in the full amount of Personal Income Tax. What exceeds 150 euros have a deduction of 35% in the fee, and can reach 40% provided that donations have been made for the same or greater amount to the same entity in the two immediately preceding tax periods.
Due to the boom in the constitution of associations in recent years, the Tax Agency is exercising greater administrative control of these organizations. These actions have been established through a resolution published in the BOE on February 1. The document breaks down the actions that the Tax Agency will carry out during this year in line with what was set out in the Strategic Plan 2020 to 2023.
Therefore, it is necessary to study the activities to be carried out by an association to avoid surprises with the Treasury and even possible sanctions.