Dr. Johannes Fiala and Frank M. Strobelt*
Trust foundations have a tradition in Germany that goes back more than a thousand years. Many foundations established hundreds of years ago are still operating today. The state explicitly acknowledges the commitment of donors with generous tax breaks and benefits related to the law of public benefit. Positive effects for the foundation system are now to be expected from the “Law for the Further Strengthening of Civic Commitment”, which came into force retroactively on 1 January 2007.1 Founders can now deduct 1 million euros in special expenses (2 million euros for married couples) within ten years. The general donation deduction has been standardized and increased to 20 percent of annual income. The deductions for corporate donations were even doubled. I. Improving creditworthiness and increasing liquidity The charitable foundation can significantly improve the liquidity situation for wealthy individuals with a corresponding tax burden. The value of assets contributed to the charitable foundation, such as real estate, securities, collections, cash assets constitute special expenses up to certain maximum limits (cf. a.o. §10b Abs.1 Satz3 EStG, §10b Abs.1 a EStG) in the private tax return of the founder and can significantly reduce the taxable income (see table at the end of the article). There is also the possibility of entering tax allowances on the income tax card or reducing advance income tax payments. This gives the founder a certain amount of creative freedom and allows him to decide for himself what should be done with his tax capital. II. Self-realization of the founder At the end of their professional life, many citizens see their own trust foundation as a new task in life and an opportunity for self-realization. The founder himself determines the charitable purpose to be supported and decides who, how or what is to be supported. Part of the foundation’s income is used directly or indirectly to fulfil the charitable purpose. Here, the founder can choose whether he wants to fulfill the foundation’s goals himself with his own activities or by passing on financial means to other non-profit organizations. New ideas can be put into practice quite quickly via the foundation. The trust foundation enables unbureaucratic help for many areas of life and new meaningful structures for the community. The provisions hitherto contained in the Annex to §48 Para.2 EStDV as worthy of promotion have now been included in the catalogue of §52 Para.2. Tax Code and supplemented by further purposes. III. income taxes The assets within the foundation operate tax-free in the tax-privileged asset management; there are no income taxes here. This is an enormous advantage, especially since from 2009 onwards the interest income tax in the amount of 25% plus VAT will apply. solidarity surcharge is levied on income from capital assets outside the foundation. The tax-free sale of assets via the charitable trust foundation is also possible; the proceeds of the sale then flow tax-free into the foundation. If the foundation has sufficient capital resources, the founder is able to work in the non-profit sector within the framework of a permanent employment relationship and to pursue the foundation’s purpose at home and abroad. However, the founder may also exercise the statutory pension entitlement for himself and his dependants vis-à-vis the founder. of the charitable foundation. According to this, in principle up to one third of the income can be used for the living expenses of the beneficiaries. But also the preservation of the memory of the founder of the foundation as well as the care of the grave can be financed by the foundation (cf. §58 No.5 AO). IV. Inheritance tax and real estate transfer tax Married couples and singles without heirs or distance to relatives can appoint their own charitable foundation as heir. It is advisable to set up the foundation while the beneficiary is still alive and to endow it with a small amount of assets. Moreover, up to 24 months after the occurrence of the succession, heirs may inherit assets from the estate of the charitable foundation free of inheritance tax (cf. §29 Abs.1 No.4 Inheritance Tax Act). In the case of the transfer of real estate assets to a charitable trust foundation, no real estate transfer tax (cf. §3 No.2 GrEStG) are due.
V. overview: Increase in special expenses for married persons2
(For graphic please see pdf-file)
The total tax savings amount to approximately 539,093 . in the next 5 years from 2008 to 2012. The charitable foundation is endowed with assets in the amount of 867,600 . endowed, with the assets coming from separate holdings of the couple. All assessable assets can be brought into the foundation
* Dr. Johannes Fiala, MBA, is senior partner (Munich) of the law firm Fiala & Weber RA, mediator, StB, WP. Frank M. Strobelt is Managing Director of the Gesellschaft für Stiftungsförderung e.V. (GfS). (GfS) and Vice President of the European Business and Finance Academy (EWFA). References: Fiala, Geldanlagen für Stiftungen und Stifter – Grundlagen – Instrumente – Optimerung, 2005; Strobelt, Die gemeinnützige Stiftung, 2006. See also www.fiala.de; www.stifter.org. 1 BGBl. I 2007, 2332. 2 Tax calculation basis: founder, married, 2 children, with tax class III, income tax and solidarity surcharge, no church tax. Calculation made with the tax calculator of the Federal Ministry of Finance, the tax table 2007 was taken into account. This is a sample calculation. All information without guarantee. Different tax and calculation values may result in individual cases.
(NotBZ 5.2008, 1)
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About the author
PhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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