Taxation of Nonprofit Civil Partnerships in the case that they engage in commercial activity as well
In this article we are going to discuss a topic that concerns all Nonprofit Civil Partnerships in reference to their taxation. We will be focusing mainly on the issue of their taxation when part of their income derives from donations and part of it from business/commercial activity.
Let’s recall which income is taxable. Net income deriving from commercial activities or freelance jobs linked to Nonprofit Civil Partnerships consists of income deriving exclusively from commercial activities or from working a freelance job (e.g. public events, newspapers publication, films projection, rent, deposit interest rates, etc.). On the contrary, members’ subscriptions and registrations, as well as sponsorships and donations to NGOs, are not considered as net income, therefore these all are nontaxable.
During their operation, Nonprofit Civil Partnerships’ expenses include all costs deriving from their operation in general and not just the expenses linked to their activity and sector. These expenses, such as rent, electricity, wages, etc. should be shared in accordance to taxable income and gross taxable income.
The expenses, falling on taxable activity, constitute a real issue that has to be proved in every control. For example, when it comes to a Nonprofit Civil Partnership whose commercial activity involves selling books, there is no doubt that the cost deriving from the buying of books or the cost deriving from the shipping of books or the employee who sells these books is an expense that relates to business activity, exclusively. On the contrary, all other expenses, such as public services and utilities bills (DEKO), the payroll, the wage of the accountant, are not clearly defined in relation to business activity.
When it comes to expenses that refer to nontaxable income, according to the aforementioned way of sharing, then these are covered by this type of income, but the part of the expenses that cannot be covered has an impact on the final outcome. In other words, if expenses related to nontaxable income are less than that income, then they won’t be taken into account when calculating the profit or loss of the partnership.
Example: In the case that there is a NPCP “X” whose gross taxable income is estimated to be 21.000€, income deriving from donations is estimated to be 30.000€, commercial activity expenses are estimated to be 15.000€ and other expenses are estimated to be 26.000€.
Since there are expenses which is not clear whether they are related to taxable or nontaxable income, we should proceed to sharing them according to our income. In order to apply the sharing of income according to gross income first we have to define the percentage related to taxable and nontaxable income to shared expenses:
30.000/51.000=58,82%
21.000/51.000=41,18%
Thus, the amounts corresponding to shared expenses (26.000€) are:
26.000€ x 58,82% = 15.294€ expenses that correspond to nontaxable income
26.000€ x 41,18% = 10.706€ expenses that correspond to taxable income
Calculating profit or loss:
Gross taxable income 21.000€
-Commercial activity expenses -15.000€
Commercial activity outcome = 6.000€
Moreover, a percentage is removed from shared expenses:
26.000€ (shared expenses) x 41,18% = -10.706€
Thus, the final outcome is (6.000€-10.706€) = -4.706€
Having analyzed this example we should understand how this is imprinted on the income statement. The statement has certain codes which refer to each and every expense and the final outcome results from them.
More extensively:
Total income: 51.000€
Minus commercial activity expenses: 15.000€
Minus shared expenses: 26.000€
Equals usage profit: 10.000€
In case of profit nondeductible expenses do not fall on taxable activity: 15.294€
Equals total profit: 25.294€
In case of profit, income which is not liable to taxation is removed: 30.000€
Equals loss during the tax year: 4.706€
Thus, following this procedure we apply our example to the tax form.
We should underline that since nontaxable income deriving from donations is more than the expenses related to it (15.294€), there is no further loss. If there was a negative difference then this difference would have increased loss from commercial activity.
In conclusion, Nonprofit Civil Partnerships are subjected to taxation only in the case that their income which derives from commercial activity is more than their expenses (expenses related to nontaxable income included).
Jenny Fetokaki
Accounting Specialist
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HIGGS Newsletter Team
