Non-profit organisation

What it means

A non-profit organisation is not one legal form but a family of them: the civic association, the foundation, the non-investment fund and the organisation providing public-benefit services. Each has its own act and its own rules of formation, so what a given organisation may do depends on which form it took.

Non-profit does not mean profit is forbidden. It means the profit is not shared out to founders or members but has to be spent on the purpose the organisation was set up for and carries in its statute.

Being non-profit is a property of the legal form, not a decision of the owners. An s. r. o. that never distributes its profit and invests it in a public-benefit project remains a business with every tax consequence that brings; the advantages of the non-profit forms, such as the tax assignation or exemption of income from the core activity, do not apply to it.

How it works in practice

The registers of non-governmental non-profit organisations are kept by the Ministry of the Interior. The organisation keeps books under the rules for entities not established for business and files its statements in the Register of Financial Statements like anyone else.

Income from the activity it was founded for is usually exempt, but grants, rent, advertising and business activity each have their own tax treatment. To receive the tax assignation, it has to register in the notarial list of recipients before the year ends.

Some forms, typically smaller civic associations, may keep single-entry bookkeeping if they meet the statutory conditions. We therefore check every year whether the conditions still hold: when income grows or business activity starts, the switch to double-entry has to be made in time, or the financial statements do not comply with the law.

What to watch out for

The most expensive mistake is staying silent about how the assignation was spent. A recipient whose yearly total of assigned tax exceeds the statutory amount must publish the specification of use in the Commercial Bulletin within the set period; otherwise the notary leaves it out of next year’s list and the organisation loses a whole year of assigned tax.

An organisation that starts letting premises or selling advertising has taxable income and must file a tax return, even if it has never filed one before. The tax administrator finds the missing return from data reported by payers and assesses the tax together with a penalty for late filing.