In every democratic country, there is the third sector, i.e. non-governmental non-profit associations. They often represent the state, public or self-governing institutions where they do not have sufficient flexibility or ability to act. Civil society is a viable and non-negligible force that can move still waters in many areas of our lives. Today we will look at the obligations of civic associations in terms of taxes and accounting.
Civic association and business
Non-profit organizations operate in Slovakia mainly according to Act no. 83/1990 Coll. on the association of citizens. It recognizes the status of non-profit associations as organizations that they were not established or set up for business. However, no one has the right to forbid them from doing business. From the point of view of Act no. 595/2003 Coll. on income tax, taxpayers who are not established for business purposes are considered to be legal entities established under special regulations.
Non-profit organizations should not be primarily engaged in business activities. But everyone in the third sector knows that this is often a necessity. Funds from membership fees, donations, grants, subsidies or 2% of donations from paid tax are often not enough to sustain a civic association. Thus, under certain conditions, civic associations can do business and the funds thus obtained should be used for the activities of the association. However, entrepreneurship cannot be the main activity of a civic association.
Did you know ? …
... can the Ministry of the Interior, which registers civic associations and keeps their register, refuse to register a non-profit organization that wants to engage primarily in business? Similarly, Interior Ministry officials can dissolve an already registered civic association if they find that instead of their goals and activities, they are engaged in business as their primary activity.
Business conditions of civic associations
the business must be stated in the statutes of the civic association
other conditions are identical with other business entities
the civic association must be authorized to conduct business
they must also be registered with the income tax administrator
Registration of a civic association with the tax administrator
Civic associations carrying out their main activity and at the same time not doing business are not obliged to register with the tax office. An exception is the obligation to deduct tax or tax advances if the non-profit begins to employ and pay employees.
If a civic association wants to do business after changing the statutes – if it does not have a business activity in them – and obtaining a business license, it will be required by law to register with the income tax administrator. With a deadline of a maximum of the end of the calendar month after the end of the month in which it obtained the right to do business. If the non-profit gets a trade on 13.8.2021, it is obliged to register by 30.9.2021.
Tax return of a civic association
According to the Income Tax Act, a civic association does not have to file a tax return and pay tax in the case of income:
which are not subject to tax
from which the tax is levied by deductions
from tax-exempt membership fees
from advertising up to € 20,000 for the tax period
If a civic association obtains income from business activities that are subject to tax, it must file a tax return in the same way as all business legal and natural persons. The only exception is the case where the civic association is authorized to conduct business but has not received any income from business activities in the relevant tax period. Then he is not obliged to file a tax return.
We must commend the experts from the Financial Administration who have prepared detailed information material for the business not only of civic associations, but of all taxpayers not established for business. We can consider it as an interpretative basis for tax and accounting issues of non-governmental governments.
Non-profit and business…
… they are not antonyms, so they are not mutually exclusive. It is clear that civic associations will not do business according to the classic motto: “buy cheap, sell expensively”. The business of non-profits is usually related to the areas of their activities and may not be their main activity, but secondary, supporting the primary goal. The civic associations that do business are legal entities and also have tax obligations. Practically the same – with a few exceptions – as other business entities. If you need advice on tax and accounting issues for a civic association, we are at your disposal.