Does an association have to pay tax?
Fundamentally an association has to pay tax too. A tax exemption can be given when the association pursues a public or charitable purpose. Not for profit associations can take advantage of a lower turnover threshold for VAT.
An association is a legal entity and therefore, is fundamentally obliged to pay taxes. It is subject to the profit and capital taxes in the canton where it is headquartered as per the statutes (Art. 20 Para. 1 Steuerharmonisierungsgesetz [StHG] or Tax Harmonisation Legislation).
Tax Exemption
The association is exempt from tax if it is dedicated to public or charitable purposes, or it pursues cultural aims (Art. 23 Abs. 1 section f and g StHG).
1. Charitable purposes:
- The association must pursue charitable aims, i.e. the activity must be for the common good. For example, this includes charitable, health supporting, ecological, educational, scientific or cultural activities.
- The circle of recipients of the services must be as open as possible.
- Commercial activities intended to make a profit are not permitted.
- The members must make a sacrifice without which the activity of the association would not be possible. This could be financial, in terms of donations, or unpaid work.
- There must be no pure self interest. The purpose of the association must not be solely to satisfy the personal interests of the individual members.
2. Public purposes:
- A public role must be fulfilled, which would otherwise be carried out by the community
- The transfer of the role to the association must be based on a public-legal act.
3. Cultural purposes:
- Cultural purposes include the maintenance or support of a common religious creed in teaching and services at a canton or Total Switzerland level.
- Creeds which are important in the region of Switzerland are regarded as valid in Total Switzerland.
A partial tax exemption may be possible if other purposes are pursued as well as the charitable purposes. In the area of sport, associations may be charitable if their aim is to support sport for all, for example. If the conditions are met, the association will be exempt from direct tax at the federal, canton and municipality level (in particular profit and capital taxes)
Value added tax
According to the Mehrwertsteuergesetz [MWSTG] or Value Added Tax legislation, “Not-for-profit, sports and cultural associations” receive a benefit (Art. 10 Para. 2 section c MWSTG). The turnover threshold leading to a tax obligation is raised from the usual 100,000 CHF to 150,000 per year.
Other reliefs
If an association pursues recognised charitable of public aims, voluntary donations form donors can be deducted from amounts in the accounts.
Tax reliefs also exist for associations which do not fulfil the stated conditions. Membership contributions, for example, are not accrued to taxable profit (Art. 66 Para. 1 DBG). If an association makes less than 5,000 CHF profit, there is no tax liability (Art. 71 Para. 1 DBG).
Associations must direct their request for tax exemption to the canton’s tax authorities, and observe their requirements.
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