Insights
TAX & BUSINESS
Financial reserves of associations
Tax benefits for charitable or benevolent associations are contingent on the association serving, according to its statutes and actual management, exclusively and directly the promotion of its entitled purposes. When building reserves or accumulating assets, entitled associations must therefore observe special rules.
Charitable or benevolent associations enjoy special tax advantages in Austria, as their income or turnover are, under certain conditions, exempt from corporation tax and VAT. Entitled associations must also have no profit‑making intention in their activities. Any profits that nevertheless arise (incidental profits) must be used immediately for the entitled purpose. However, it is not detrimental to the benefit if the association does not use all income in the same calendar year.
The holding of a financial reserve equivalent to an average year's requirement of necessary funds (operating assets) can, according to a decree of the Ministry of Finance, still be regarded as permissible. Accumulation of funds beyond this, however, requires proof of the specific objectives for which the association is saving the funds and the timeframe in which the realisation of these projects is planned. This proof must be documented by an appropriate board or members' resolution. The accumulation of an unreasonably high asset base otherwise leads to the loss of the tax benefits for the association.
KESt exemption declaration for charitable associations
Associations can avoid the deduction of capital gains tax (KESt) on interest and dividend income by submitting a business‑related, digital KESt exemption declaration to their bank. This applies only to that capital assets which belong to the necessary operating assets; it does not apply to the core association area (membership fees, donations).
For associations, operating assets are, for example, present in an indispensable auxiliary activity ("purpose‑realisation operation", e.g. concert performances of a charitable choir).
Such an indispensable auxiliary activity exists if the following conditions are met:
Tip: Through the KESt exemption declaration to the bank, the association achieves a final tax exemption on its capital income. The condition is that this capital asset can be clearly allocated to the indispensable auxiliary activity. It is therefore advisable to maintain a strict separation of bank accounts and securities holdings between the association side and the operating side.
The holding of a financial reserve equivalent to an average year's requirement of necessary funds (operating assets) can, according to a decree of the Ministry of Finance, still be regarded as permissible. Accumulation of funds beyond this, however, requires proof of the specific objectives for which the association is saving the funds and the timeframe in which the realisation of these projects is planned. This proof must be documented by an appropriate board or members' resolution. The accumulation of an unreasonably high asset base otherwise leads to the loss of the tax benefits for the association.
KESt exemption declaration for charitable associations
Associations can avoid the deduction of capital gains tax (KESt) on interest and dividend income by submitting a business‑related, digital KESt exemption declaration to their bank. This applies only to that capital assets which belong to the necessary operating assets; it does not apply to the core association area (membership fees, donations).
For associations, operating assets are, for example, present in an indispensable auxiliary activity ("purpose‑realisation operation", e.g. concert performances of a charitable choir).
Such an indispensable auxiliary activity exists if the following conditions are met:
- The indispensable auxiliary activity must be directed overall towards the fulfilment of the charitable, benevolent or ecclesiastical purposes.
- These purposes may not be achievable by any means other than the indispensable auxiliary activity.
- The auxiliary activity must not compete on a larger scale with taxable activities of the same or similar kind than is unavoidable for the fulfilment of the purposes.
Tip: Through the KESt exemption declaration to the bank, the association achieves a final tax exemption on its capital income. The condition is that this capital asset can be clearly allocated to the indispensable auxiliary activity. It is therefore advisable to maintain a strict separation of bank accounts and securities holdings between the association side and the operating side.