Nonprofit organizations in the shadow of e-personal income tax
While in 2016, tax-liable private individuals disbursed nearly HUF 8.5 billion in relation to Personal Income Tax, in 2017 this sum is HUF 1 billion less, standing at HUF 7.5 billion; meanwhile, the number of employees and the average income in Hungary steadily increased. This all happened despite the fact that the opportunity for disbursing the 1% donation was given prominent visibility on the e-personal income tax platform.
From 2018, employers’ returns will also be removed from the Personal Income Tax returns options, so in this way, there will be even less room for a given company to draw the attention of its employees to this option. At the same time, besides the private individuals’ Personal Income Tax 1% supports, companies and enterprises also have the opportunity to assist the operation of NGOs carrying out nonprofit activities with donations.
Donations given to nonprofit organizations can entitle the company to tax relief
Although for the most part, this is not the primary aspect, still in relation to a support provided to an NGO by an economic organization the question does arise, whether the donor can offset as an expense the support, furthermore, whether this is associated with tax relief.
Under the provisions of the Act on Corporate Tax (Tao tv.),donations are defined as the support, allowance supporting the activity of a nonprofit organization without repayment liability, furthermore, the book value of an asset supplied without charge, or the cost value of a service provided. The appearance of the fact of support, furthermore, the announcement of the name of the donor, are not qualified as remuneration.
Under the provisions of the Act on Corporate Tax, the support qualified as donation given without repayment liability in the tax year can be offset at the donor as an expense arising in the interest of the enterprise. In addition, the donor requires a certificate issued by the nonprofit organization in order to reduce its pre-tax profit.
The type of tax base relief the donor is entitled to depend on the content of support
Support of a nonprofit organization entitles the donor to tax base relief equivalent to 20% of the sum of support. However, this may not exceed the sum of the pre-tax profit. There is no requirement to obtain a prior written agreement concerning the 20% relief.
In the case of a long-term contract of donation, the supporting company can assert a tax base relief equivalent to 40% of the support (again, up to the sum of the pre-tax profit). At the same time, the regulations pertaining to a long-term contract of donation are assigned.
Support can only be qualified as a long-term donation when:
- in a written agreement between the supporter and the nonprofit organization
- the donor undertakes,
- a certain financial sum as a donation
- for at least 1+3 years, for the organization annually, at least to the identical sum
- provided without remuneration.
Tax base relief – both the 20% and the 40% rate – can be asserted if the supporter received certification on the supports provided from the nonprofit organization. This certification must include the following:
- name, registered office and taxation number of the supporter
- name, registered office and taxation number of the supported organization
- the sum of the donation, and
- the purpose of the support.
If the support is not financial, then the cost value of a service provided, or the book value of the product delivered, must be taken into consideration and indicated. The NGO must issue the certificate to the supporter latest by the end of the tax year.
Instead of symbolic Christmas gift giving, this year we, too, have decided – in the name of our partners, our clients and ourselves – to help the work of nonprofit organizations with our support. One of the organizations chosen is the Heim Pál Children’s Hospital Development Foundation, providing a significant part of healthcare services for children living in Budapest and surroundings. Furthermore, we wish to assist the work of the Bliss Foundation, which dedicates itself to providing rehabilitation and development opportunities for children with special, complex communication needs. Using the assets procured from support, the two foundations improve the provision of children cared for in the institutions.
If you have the opportunity, you or your company can join our donation drive. Current regulations permit companies to offset this against tax and the tax base. Thank you for supporting this initiative.
Heim Pál Children’s Hospital Development Foundation | Tax No.:19650397-1-42 | Bank account No.: 10300002-20373229-00003285 or 11714006-20461191
Bliss Foundation | Tax No.: 18005426-1-43 | Bank account No.: 11712004-20070579