Tax Advisory Firm: Civil Law Foundations and Tax Treatment of Associations

Associations shape social and cultural life and are an important part of society. The majority of associations are non-profit and therefore tax-privileged. This recognition is associated with various tax law consequences. This article highlights the civil law foundations and the tax treatment of associations.

Civil Law Foundations

The essential legal foundations for an association arise from the Civil Code (BGB) and the association's bylaws. The latter is of particular importance as it can deviate from the provisions of the BGB. Therefore, association law is often referred to as bylaw law.

Formation of the Association

The formation of an association occurs when at least two founders agree to establish an association. Through a founding meeting, at least seven founding members decide on the founding bylaws and elect a board. The legal capacity of the association is obtained through registration in the association register. It then bears the suffix "e.V." (registered association). This is not synonymous with non-profit status.

Bylaws of the Association

The bylaws of an association are significant both legally and tax-wise. They regulate the rights of the association and its members, as well as whether the association can be recognized as tax-privileged. The content design of the bylaws is partially prescribed by law. The bylaws must contain information such as the name, location, purpose of the association, as well as entry and exit regulations and membership fee obligations.

Members of the Association

The members are the heart of an association and form the center of association life. The rights and duties of the members must be laid down in the bylaws and contain clear regulations. Especially with regard to financial obligations such as admission fees, contributions, and levies, clear regulations must be established.

General Meeting

The general meeting is a decisive body in an association and clear regulations regarding the general meeting should be included in the bylaws. In addition to legal requirements, the tasks and powers of the general meeting should be defined to avoid disputes over competencies.

Board

The board is the mandatory body of an association and represents the association legally and extrajudicially. It is responsible for the management of the association and must fulfill the tax obligations.

Management/Representation Powers

The board is generally unrestricted in its representation powers and is responsible for the management of the association. Restrictions require a basis in the bylaws and registration in the association register.

Dissolution of the Association

The dissolution of an association can occur by resolution of the general meeting and requires a certain majority of votes cast. Provisions for determining liquidators and the asset binding clause must also be included in the bylaws.

Tax Foundations

How is the Association Assessed for Tax Purposes?

An association is a legal entity and is generally subject to corporate and trade tax. However, it can be exempted from these taxes.