1. Foundations and their financing in Germany Dr. Stefan Stolte Stifterverband für die Deutsche Wissenschaft April 6th 2009, Warsaw

2. 2 Sources of funding German foundations‘ capital: 50 – 70 billion €

3. 3 Assets („Stiftungsmittel“) Additional endowments („Zustiftungen“) Initial endowment („Stiftung“ / „Anstiftung“) Donations Endowments Timely disbursement Income (asset management / economic activity) Income (asset management / economic activity)

4. 4 Income from donations  No legal barriers regarding  type of foundation  form of fundraising  But: Only public benefit foundations can issue tax receipts!  „Earmarked“ money must fit with the foundation‘s statutes  Accepting additional endowments may require an explicit permission in the foundation‘s statutes

5. Income from asset management The principle of capital sustainment  Endowment cannot be spent  „Value“ must be preserved  According to tax law this means „nominal value“  Statutes can demand preservation of „real value“ Asset classes, nationalities, professional vs. non profession asset management etc. Has an impact on

6. 6 Magic triangle of asset management Return on investment Safety Liquidity Principle of capital sustainment

7. 7 Income from economic activity (1/2)  Economic activity = permanent activity aimed at generating income (not necessarily profit!)  Economic activity ≠ asset management (exception: „influential shareholding“!)  Civil law: economic activity can be the main purpose  Tax law makes a difference between „related“ and „unrelated“ economic activity  Federal Ministry of Finance: „theory of imprint“: When foundation is public benefit, unrelated economic activity cannot be „dominant“  Federal court of finance: Unrelated economic activity does not endanger tax exemption as long as income is used for public benefit purposes

8. 8 Income from economic activity (2/2)  No special permission needed for economic activity, but positive prognosis on rentability is needed (principle of capital sustainment!)  Additional reporting according to commercial law may be needed  Income must be spent on public benefit purposes; expenditures for maintaining and developing economic activity are allowed if „commercially acceptable“

9. 9 Income: spending vs. accumulating No (absolute) minimum payout rule, but: Rule of timely disbursement (of actual income) Exceptions: 1. Accumulation of income as an „earmarked reserve“  Project-based reserve (income of 3-5 years)  Operating expenditures reserve (income of 1 year) 2. General contingency reserve (up to 1/3 from asset management-profits plus donations not exceeding 10% of donations and profit from economic income) 3. Accrual reserve for newly established foundations (3 years) 4. Reserves for maintenance of economic activity/asset management (must be justified by a concrete reason and commercially acceptable)

10. 10 Income: spending on statutory purposes vs. spending on administration  No explicit and generally binding ratio between cost for statutory purposes and cost of administration  maximum allowance depends on individual case:  new foundation vs. old foundation  operating vs. grant-making foundation  etc.  „principle of proportionality“

11. 11 Taxation of a public benefit foundation Donations Asset management Economic activity Related e. g. museum Related e. g. museum Unrelated e.g. museum- shop Unrelated e.g. museum- shop e. g. donations, endowments, legacies e. g. dividends, lease & rent etc. 7% (lease & rent) 0% capital investment 7% (in some cases 0%, e.g. hospitals) Full taxation if > 35.000€ 19% Income tax Income tax VAT Inheritance / gift tax 0 %

12. 12 Individuals & companies Tax deduction: 20% of taxable income Alternatively: 0,4% of annual turnover plus wages Can be carried forward ad infinitum Donors (donations = timely disbursement!) Only for private individiuals 1 million € (in addition to the abovementioned 20%) Can be spread over 10 years Founders (endowments = capital sustainment!) Generally no taxation of income from scholarships, grants etc. Beneficiaries

13. How to receive tax deduction (as a donor / founder)  Donations and endowments exceeding 200€: Official form must be issued by foundation („tax receipt“)  Below 200€: receipt by donation or bank statement is sufficient  In kind-donations: value report may be necessary  Receipt must be filed with donor‘s tax return 13

14. How to receive (and maintain) tax exemption (as a foundation)  No general „tax exempt status“, because statute and actual management must meet criteria for tax exemption; can only be evaluated ex post  Final tax exemption is granted only with respect to a concrete tax year (in retrospect)  To issue tax receipts: „preliminary declaration of tax exemption“ is needed  Annual tax reports (in practice: every three years = sufficient)  But: No binding rules on transparency with regard to the general public 14

15. To keep in touch: 15 Dr. Stefan Stolte Stifterverband für die Deutsche Wissenschaft Barkhovenallee 1 45239 Essen Tel. (+49) 201 8401-116 stefan.stolte@stifterverband.de www.stifterverband.de