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Inter­na­tio­nal clients

Below you find an intro­duc­tion to Ger­man non-pro­fit law and our ser­vices in this field . Fur­ther­mo­re, this page pro­vi­des use­ful exter­nal resour­ces to help you imple­ment your pro­ject in Ger­ma­ny.

Ger­man Non-Pro­fit Law 101

Intro­duc­tion to Ger­man non-pro­fit law

In Ger­ma­ny, public-bene­fit, cha­ri­ta­ble and reli­gious enti­ties can app­ly for the non-pro­fit sta­tus, a tax pri­vi­le­ge which exempts them both from paying cer­tain taxes and allows them to char­ge redu­ced VAT rates.

Non-pro­fit sta­tus is requi­red for various types of public fun­ding and busi­ness spon­sor­s­hips. In addi­ti­on, non-pro­fit foun­da­ti­ons are restric­ted to fun­ding qua­li­fied indi­vi­du­als and other non-pro­fit organizations.

The­re are no spe­cial non-pro­fit legal per­sons in Ger­ma­ny. Rather, the sta­tus can be gran­ted to the fol­lowing types of entities:

  • asso­cia­ti­ons (Ger­man: “Ver­ein”, sec­tions 21 ff. of the Ger­man Civil Code “Bür­ger­li­ches Gesetz­buch”, — plea­se note that the offi­cial trans­la­ti­on is from 2013 and the­re­fo­re outdated)
  • foun­da­ti­ons (Ger­man: “Stif­tung”, sec­tions 80 ff. of the Ger­man Civil Code)
  • several types of cor­po­ra­ti­ons (“Unter­neh­mer­ge­sell­schaft”, “Gesell­schaft mit beschränk­ter Haf­tung”, “Akti­en­ge­sell­schaft”)

Many non-pro­fit orga­niz­a­ti­ons run their own pro­jects while others limit their acti­vi­ties to pro­cu­ring and pro­vi­ding fun­ding for other orga­niz­a­ti­ons or ser­ve as umbrel­la orga­niz­a­ti­ons for smal­ler non-pro­fits. Lar­ger non-pro­fits often com­bi­ne two or all of the­se fiel­ds into one organization.

In gene­ral, non-pro­fit enti­ties in Ger­ma­ny bene­fit from several advan­ta­ges: many public and pri­va­te fun­ding pro­grams accept only non-pro­fit app­li­cants, dona­ti­ons to tax-exemp­ted non­pro­fits can redu­ce indi­vi­du­al inco­me tax loads and reco­gni­zed non-pro­fits are exemp­ted from pro­fit taxes and can app­ly redu­ced VAT rates.

The­re are a few thre­ats to mana­ge as well: all expen­ses need to be “appro­pria­te”, assets may not be dis­tri­bu­t­ed to an entity’s princi­pals and the­re are limi­ta­ti­ons on reser­ve for­ma­ti­on. Howe­ver, this does not mean that an enti­ty may not be pro­fi­ta­ble. It just has to obser­ve spe­ci­fic com­pli­an­ce rules for the tax-exempt allo­ca­ti­on of profits.

How to form a new legal enti­ty (asso­cia­ti­on, foun­da­ti­on, corporation)

Under Ger­man law, all of the abo­ve enti­ties requi­re sta­tu­tes, a board, and — with the excep­ti­on of an asso­cia­ti­on — a mana­ging direc­tor. In addi­ti­on, spe­ci­fic requi­re­ments app­ly to each indi­vi­du­al legal enti­ty (such as cer­tain amounts of seed capi­tal, voting pro­vi­si­ons etc.).

In order to found a new legal enti­ty, the assi­s­tance of a nota­ry is man­da­to­ry. He or she cer­ti­fies the act of incor­po­ra­ti­on, the memo­ran­dum of asso­cia­ti­on and the appoint­ment of the entity’s lea­ders­hip. The nota­ry assists with the necessa­ry regis­tra­ti­on as well (tra­de regis­ter / regis­ter of asso­cia­ti­ons / foun­da­ti­on over­sight aut­ho­ri­ties of the states).

Cor­po­ra­ti­ons begin to exist as full legal enti­ties as soon as they are regis­tered and their regis­tra­ti­on is announ­ced in the Ger­man Federal Gazette.

After incor­po­ra­ti­on, new enti­ties are requi­red to regis­ter with the tax aut­ho­ri­ties and request that their non-pro­fit sta­tus is confirmed.

If they run a for-pro­fit busi­ness, they need to regis­ter with the respon­si­ble muni­ci­pal tra­de aut­ho­ri­ty and all employees must be signed up for several so-cal­led “social insuran­ces” (pen­si­on, unem­ploy­ment, disa­bi­li­ty, acci­dents) as well as health care.

How to obtain the non-pro­fit status

All non-pro­fit enti­ties in Ger­ma­ny have to inclu­de cer­tain, very spe­ci­fic pro­vi­si­ons in their sta­tu­tes. In par­ti­cu­lar, they have to exclu­si­ve­ly pro­mo­te one or several objec­ti­ves from a list of offi­cial­ly reco­gni­zed objec­ti­ves in the Ger­man Fis­cal Code (“Abga­ben­ord­nung”).

The­se objec­ti­ves inclu­de but are not limi­ted to the pre­ser­va­ti­on of natu­re, edu­ca­ti­on, sup­port for the nee­dy, pro­mo­ti­on of art and cul­tu­re, rese­arch, sports (see sec­tions 51 ff. of the Ger­man Fis­cal Code,–01-01-fiscal-code.html — plea­se note that the list of reco­gni­zed pur­po­ses was updated as recent­ly as Jan. 1, 2021, so the offi­cial Eng­lish trans­la­ti­on is not complete).

Befo­re incor­po­ra­ting, any new enti­ty should approach the tax aut­ho­ri­ties to ensu­re that their sta­tu­tes ful­fill the fis­cal requi­re­ments for non-pro­fit orga­niz­a­ti­ons. It should also pre­pa­re all steps of the incor­po­ra­ti­on pro­cess. In this way, it avoids addi­tio­nal board mee­tings and other admi­nis­tra­ti­ve cos­ts to amend alrea­dy nota­ri­zed statutes.

Exis­ting enti­ties can app­ly for non-pro­fit sta­tus if both their sta­tu­tes and their actu­al ope­ra­ti­ons meet the fis­cal requi­re­ments (the­re are cer­tain limits on staff remu­ne­ra­ti­on and other expen­ses). If necessa­ry, the sta­tu­tes should be adap­ted befo­re han­ding in the app­li­ca­ti­on for non-pro­fit status.

How to main­tain the non-pro­fit status

Non-pro­fit orga­niz­a­ti­ons need to ful­fill cer­tain requi­re­ments in their day-to-day manage­ment (all expen­ses and actions must ser­ve the sta­tu­to­ry objec­ti­ves of the orga­niz­a­ti­on, expen­ses are limi­ted to “appro­pria­te” levels, book­kee­ping standards.)

In Ger­ma­ny, com­pli­an­ce with the­se requi­re­ments is veri­fied through regu­lar tax decla­ra­ti­ons (every 3 years and year­ly if the orga­niz­a­ti­on does not employ a tax con­sul­tant or runs a for-pro­fit side business.)

Renoun­cing or losing the non-pro­fit status

If the non-pro­fit sta­tus of an enti­ty is ter­mi­na­ted – whe­ther by choice or becau­se the enti­ty vio­la­ted essen­ti­al non-pro­fit regu­la­ti­ons – the enti­ty loses its tax pri­vi­le­ge for the past 10 years. All tax exemp­ti­ons from that peri­od will be revo­ked and need to be paid in full. If public fun­ding or other grants have been awar­ded, they may also have to be refunded.

Some­ti­mes orga­niz­a­ti­ons cho­se to renoun­ce their non-pro­fit sta­tus for busi­ness rea­sons (tax requi­re­ments can be limi­t­ing), but in most cases, the loss of tax pri­vi­le­ges is an exis­ten­ti­al thre­at to an orga­niz­a­ti­on. This sce­n­a­rio is one of several key lia­bi­li­ty issu­es for the mana­ging direc­tor and board against which the orga­niz­a­ti­on should be insu­red (D&O insuran­ce, orga­niz­a­tio­nal lia­bi­li­ty insurance.)

What we do

We coun­sel the third sec­tor with a focus on civil socie­ty actors, wel­fa­re pro­vi­ders and social busi­nes­ses and empha­si­ze our cli­ents’ data pro­tec­tion, risk manage­ment and com­pli­an­ce. Our spe­cial­ty is non-pro­fit law with the rela­ted tax exemp­ti­on being based on one or more of three pos­si­ble orga­niz­a­tio­nal objec­ti­ves in Ger­man tax law: “public bene­fit”, “cha­ri­ty” or “reli­gi­on”, each with several subdivisions.

We coun­sel in all rele­vant areas

  • sta­tu­te formation 
  • com­pa­ny law and labor law
  • tax law
  • grants, dona­ti­ons & sponsoring
  • public fun­ding and public-private-partnerships
  • liti­ga­ti­on
  • Euro­pean and Ger­man data pro­tec­tion regulations

… with a focus on civil socie­ty actors and social wel­fa­re organizations.

Excerpt of our services: 

  • NPO start-up consultancy
  • stra­te­gic plan­ning for Ger­ma­ny-based sub­si­dia­ries and spin-offs of inter­na­tio­nal NGO’s
  • inter­na­tio­nal coope­ra­ti­ons and rela­ted contracts
  • staff deploy­ment and inter­na­tio­nal hires
  • finan­cing, grant con­tracts and grant law
  • inter­na­tio­nal donors, EU-fun­ded pro­jects (sub-con­tracts)
  • inter­na­tio­nal NPO tax law staff deploy­ment and inter­na­tio­nal hires
  • rest­ruc­tu­ring, spin-offs, mer­gers and board law
  • con­tract, sta­tu­te, minu­te drafts and com­mit­tee organization
  • data pro­tec­tion law, risk and com­pli­an­ce manage­ment with a non-pro­fit focus
  • legal opi­ni­ons on Ger­man NPO law
  • exe­cu­ti­ve trai­nings and work­shops on legal & com­pli­an­ce topics

Our cli­ents are

  • NGO’s and associations
  • cha­ri­ties and public authorities
  • umbrel­la organizations
  • foun­da­ti­ons and trusts
  • social entre­pre­neurs

What you can expect from us

An initi­al con­sul­ta­ti­on typi­cal­ly ser­ves to get to know each other, learn about the poten­ti­al client’s legal needs and cla­ri­fy how we can be of service.

We offer an esti­ma­te of the nee­ded hours for any man­da­te and will detail the requi­red legal cour­se of action befo­re we take on a new client.

We use remo­te solu­ti­ons in our dai­ly work, espe­cial­ly with but not limi­ted to inter­na­tio­nal clients.

 Con­ta­ct us:

Exter­nal infor­ma­ti­on about legal enti­ties, foun­ding and working in Germany

A very good over­view of the legal requi­re­ments for self-employ­ment of for­eign per­sons in Ger­ma­ny is pro­vi­ded by the IQ pro­ject “Start a busi­ness in Ger­ma­ny” of the Euro­pean Union.

Char­ting a busi­ness plan is an extre­me­ly use­ful pre­pa­ra­ti­on for the estab­lish­ment of a tax-pri­vi­le­ged com­pa­ny in Ger­ma­ny. This is essen­ti­al for the for­ma­ti­on of the legal enti­ty, but also for the app­li­ca­ti­on for sub­si­dies or loans. The “Busi­ness Plan Work­book” hel­ps to pre­pa­re busi­ness plans accord­ing to Ger­man stan­dards. The down­load is free of charge.

The requi­re­ments for start-ups in Ger­ma­ny are diver­se. You should know the most important terms. The free “Glos­sa­ry for start-up sup­port” con­tains the most important terms and exp­lains them in an under­stand­a­ble way.

Com­pa­ny start-ups are often accom­pa­nied by the inte­gra­ti­on of peop­le from for­eign coun­tries into the Ger­man labor mar­ket. The IQ pro­ject of the Euro­pean Uni­on offers a lot of use­ful infor­ma­ti­on for foun­ders in this context.