In good company

With another year over, another year-end campaign for charities has ended. For many people, the end of the year is a time of giving. In Germany, donations are not restricted to domestic recipients and, often, Germany-based donors give to charities based abroad.

Foreign charities in Germany

This might be a reason for foreign charities to extend their reach to Germany, with the aim of improving fundraising in Germany, both public and private, or they may be interested in conducting their charitable work in Germany. In both cases, establishing a separate, German legal entity may prove helpful. In particular, it might enable or simplify fulfilment of the requirements for (public) funding and the tax deductibility of donations. [1]

The gGmbH

The German charitable limited liability company (gemeinnützige Gesellschaft mit beschränkter Haftung, gGmbH) might be a suitable instrument for charities who are looking at Germany. The gGmbH combines the flexibility of German limited liability company law with a beneficial tax status under German tax law.

In order to set up a gGmbH, a minimum share capital of EUR25,000 is required and the articles of association need to comply in particular with the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG) and must be notarised. The gGmbH then has to be registered in the German company register.

From a tax perspective, the articles of association have to fulfil the requirements of German charity law in order to qualify for tax exemption. This means that the articles of association must set out purposes required by law in order to be considered tax exempt and include some additional mandatory provisions.[2]

Once the company is registered, the tax office will check whether the articles of association meet the statutory requirements for tax exemption. If tax-privileged status is acknowledged, the gGmbH is exempted from corporate income tax, including dividend withholding tax, trade tax, inheritance and gift tax, and property tax, if the property is used for tax-privileged purposes.

The gGmbH is operated by at least two corporate organs: the shareholders’ meeting and a managing director. The managing director administers and manages the company. The shareholders are inter alia responsible for appointing the managing director, monitoring their work and removing them. Although the managing director/s must be an individual or individuals only, shareholders of the gGmbH can be either natural or legal persons. It should be remembered that some (public and private) sponsors might prescribe certain additional requirements regarding the operational management of the gGmbH in order to be eligible for funding, such as the company being controlled by persons with a specific nexus to Germany or having experience with the activities for which funding is being applied.

In any case, charities considering taking up or extending Germany-related activities should be aware of German laws and taxes. The rules might create hurdles, but can also offer useful options for improved charitable output. The German gGmbH can be a useful instrument, but it is worth noting it is just one of many options available.

[1] Some of the advantages and disadvantages of both options for foreign charities establishing a presence in Germany were presented in the past by POELLATH professionals Dr K Gollan and Dr J Fisher in an article for Trusts & Trustees. Their article had a focus on UK-based charities in light of Brexit at that time. Read the article

[2] See s.51ff of the German Fiscal Code, Abgabenordnung