Non-Profit Organizations: Aspects of Belgian Law

1. Executive Summary

The objectives of an NPO structure may be the following:

  • To collect donations with the aim to assist an individual via a new vehicle (“SPV” or Special Purpose Vehicle);
  • To have the SPV managed by persons that will outlive the donors (the trustees);
  • To benefit from an attractive tax regime for both the donor and the SPV/donee.

A common proposal consists in the :

  • Setting up of a Non-profit organization (NPO’s) : A.S.B.L. or Foundation;
  • Collaboration with an eminent Belgian foundation, e.g. the King Baudouin Foundation.

The advantages of the proposed structure include the following:

  • favorable tax treatment of the donations made to the NPO’s: possible no registration duties (or 7%) on contributing assets to the NPO, possible tax deduction of the donations by the donor, possible absence of any tax on the donation themselves and no tax due by the NPO’s on the donation received.

2. Considered Structures

Belgium is a very attractive jurisdiction to set up a vehicle to collect donations.

In order to exercise non-profitable activities, one normally considers setting up either an A.S.B.L./A.I.S.B.L. or a Foundation (both referred to as : non-profit organizations or “NPO”).

Belgium is a very attractive jurisdiction for setting up NPO’s : as of today, roughly 110.000 NPO exist, 2.000 of them being international NPO’s (“Associations internationales sans but lucratif”) and 380 Foundations of general public intrest.

Moreover, a law enacted on 2 May 2002 has greatly simplified the legal regime of the NPO’s, e.g., re : accountancy and donations made to the NPO’s. This law has also provided the Foundations with a comprehensive legal framework and brings their regime closer to the one of commercial companies.

The major difference between an A.S.B.L. and a Company is that if both gather partners or members to achieve a certain statutory goal, the objectives of an A.S.B.L., contrary to those of a company, may not be lucrative. Also, the A.S.B.L. may not seek to achieve a personal enrichment of its founders or members.

If a Foundation shares the same non-profit goal, it differs from an A.S.B.L. as it does not gather members or even founders but rather allocates special assets to the achievement of certain goals defined by the founder. Hence, contrary to an A.S.B.L., a foundation has no partners or members.

Finally, the law of 2 May 2002 has also simplified the regime of International NPO’s. Those NPO’s must have an international public interest objective and, contrary to the ‘national’ NPO’s, must be recognized by Royal Decree.

The tax on the donations or inheritances may greatly vary depending on various conditions. Hence, it requires an extremely careful tax planning to attain the desired goal  of tax optimization via the choice of the least taxed route [1].

3. Tax Regime

3.1. Belgian income tax on non-profit organisations (IPM)

The NPO’s are taxed on two major sources or income :

  1. Cadastral income of real property located in Belgium: The NPO’s are taxed on the fictious rental value of the buildings owned in Belgium (the so called ‘cadastral-income’). The tax is equal to the real property withholding tax. The basic rate of this tax ranges between 1.25% to 2.25% of the cadastral income.
  2. Income from personal property income and from certain miscellaneous income: The taxable income of such non-profit organizations includes, inter alia, income from personal property such as dividends and interest. The tax owed by foundations on such income is equal to the personal property withholding tax, i.e., 25% on dividends and 15% on interest. Capital gains on significant shareholdings, i.e., a participation representing more than 25% of the capital of the company, are taxable at 16.5%.

Also, the NPO’s are taxed on :

  1. Income from real property located abroad, unless such income would have been exempt from the legal entities income tax had the property be located in Belgium;
  2. The net amount of rentals and rental charges relating to real property located in Belgium which exceeds the cadastral income of such property (unless the property is rented to an individual for private habitation purposes)….

It follows from the above that a Belgian NPO’s is in principal only taxed on the income from real property (buildings) and movable property (shares / bonds) it owns.

In other words, the NPO’s are not taxed on income made ouf of the donations they receive or the profits generated by their activities.

3.2. Various other taxes not related to the income of the NPO’s

  • A tax at the rate of 0,17% is levied on all the assets owned by the NPO’s except certain of its elements, the most important being the subscriptions of the NPO’s members and the working capital; and
  • A tax ranging between 8,8% to 1,1% is levied on the donations that may also include the contributions in cash or in kind ; and
  • A tax of 100 EUR is levied on the donations or contributions made by another NPO’s; and
  • Legacies made to NPO’s located in the Brussels Region are subject to a rate of 25% or 12,5%.

All donations to NPO’s above the sum of 100.000 € have to be authorized by royal decree. As the law does not provide for an annual maximum amount for the donations, one may simply divide its one-shot donation (above 100.000 €) into multiple donations of maximum 100.000 €.

It should be noted that gifts from hand to hand, missing public notary acts, ARE NEITHER subject to the 8.8% nor to the 1.1% tax. Hence, provided the donations is made by bank transfer, sale with a waiver of debt, life insurance OR is made before a public notary abroad, no tax is due on the donation and the NPO’s is also not taxed on this donation. This only applies to movable goods, not to real estate.

3.3. Possible deduction of the donations made to NPO’s

The Belgian income tax code provides for a possible deduction of 45 pc from your taxes of all donations made by individuals of at least 40 € made to recognized NPO’s (with a maximum of 10% of the taxable income of the taxpayer and 365.950 € for income year 2012).

For companies, the donations must be of at least 40 € with a maximum of 5% of the taxable income and 500.000 EUR.

This recognition is only available to certain NPO’s that are active in certain sectors : cultural, scientific or in the charity sector.

Scientific research institutions, Institutions that assist victims of war, disabled, elderly, minors protected or indigent people and Institutions that assist developing countries must engage in activities that:

  • are carried out throughout the territory of one or more members of the European Economic Area where these institutions are active, or refer to the centralization and coordination of local and regional activities or activities in several member states; and
  • are performed directly in the field of scientific research, assistance to disadvantaged people (victims of war, disabled, elderly, protected indigent and minors) or assistance to developing countries; and
  • are complementary activities to those of the Belgian government or international organizations of which Belgium is a member practicing in the above mentioned areas.

Our experience with this recognition process is that it is rather time consuming and may take between 6 to 18 months.

Nevertheless, the status is retroactive as of the first day of the year for which it is requested.

Also, the application has to be filed before 31 December of the year before which the status is requested (with a ‘stand-still’ period of 3 months following the setting up of the NPO).

However, our office has assisted clients to obtain the recognition of special projects by one of the leading NPO’s in Belgium : the King Baudouin Foundation (www.kbs-frb.be).

The international organization “Giving in Europe” (www.givingineurope.org)  provides for Cross-border philanthropy.

The assistance of the King Baudouin Foundation offers roughly the same tax advantages as described above but may also be of interest in case non-belgian tax residents would donate to the NPO. Via various bi-lateral agreements and the Giving in Europe network, donations made by foreign residents to the NPO may also be tax deductible in their home country.

Moreover, the assistance of this eminent NPO greatly supports the fund raising operations.

As regard fund raising, our office has experience setting up tombolas, an extremely strictly regulated operation in Belgium that may prove to be of interest.

4. “Corporate” Regime

In a nutshell, the corporate regime of NPO’s ressemble those of companies, with a separate personal and tax singularity (as of the day of the deposit of the NPO’s file at the court of first instance), general assembly meetings, boards of directors, managing-director or general manager,…

As a Foundation has no partners nor members, no general assembly meetings are possible, only board of directors meetings. Hence, one should appoint directors that are also trustees from a say moral viewpoint and clearly state in the foundation deed all the basic requirements regarding allocation of the funds and fulfillment of the goals.

The Belgian law does not provide for any limitations on the transfer of monies by NPO’s to foreign persons. The partners of an A.S.B.L. may either be Belgian or foreign, no requirements of having a minimum number of Belgian nationals as either partner or director are applicable.

5. Time Constraints

Setting-up a non profit-organization according to the law of 27 June 1921 only requires depositing the articles of incorporation before the commercial court [2]. Under the new regime, the A.S.B.L. may be entitled to rights and obligations that arose up to two years before its existence.

Should the Directors be non-residents of the EEA, an application for a professional card must be filed at the Belgian Consulate or Embassy of the place of last residence.

 

[1] Under the classic simulation theory of the Supreme Court (the so-called “Brepols doctrine”), there is no prohibited simulation and consequently no tax fraud when, in order to benefit from a more favourable tax treatment, the parties, while complying with the principles of freedom of contract and without infringing any legal obligation, conclude transactions of which they accept all the consequences, even if these transactions are accomplished with the sole purpose of reducing the tax liability (Cass., June 6, 1961, Pas., 1961, I, p. 1082; March 22, 1990, FJF, 90/95).

[2] With cost : 134,07 € TVAC.