Germany: The foundation boom

?In 2007 alone 1250 new foundations have been created, meaning a 26% growth between 2006 and 2007?. Hans Fleisch, who is general secretary of the Association of German foundations that gathers about 15,500 ?Stiftungen?, explains the boom that Germany?s third sector is living.

What are the reasons for this trend?
One of the main factors has been the improvement of tax regulations. In the long term, however, the growth in numbers of German foundations can be explained by the fact that society is becoming more and more convinced that the State should not be entrusted with looking after the common good.

What legal changes have been introduced?
It has become easier to make donations. As of 2007 it has been possible for donors to give 20% of their annual income without having to pay tax on it, and for enterprises there now is a law that makes it easier for them to give generously. Moreover, it is now possible to deposit three times as much as before into a foundation without being taxed. While limit used to be 300 thousand euros, now individuals can give up to one million euros each.

So the key is the more inviting tax conditions?
People certainly don?t establish foundations to avoid taxes. What is donated is always more than what can be saved. The new fiscal environment has, however, encouraged the creation of bigger foundations.

Has the scandal in Liechtenstein had a bad influence on German foundations?
In Germany all foundations must be transparent, otherwise they wouldn?t exist. 95% of these serve public utility purposes. The government knows who is behind every foundation in Germany, how much money they have, and what the money is used for. The foundations in the Principality, however, must refer to a numbered account in Switzerland. Obviously this measure has been created in Liechtenstein because of fears that the money would end up elsewhere, like Austria, where excuses can be found for moving money around and escaping taxation.

How can these dodgy manoeuvres be avoided?
We don?t want social utility foundations to get a bad name because of it. We would be happy if entities created to avoid paying taxes were no longer called foundation, but something else. Like anonymous fund or numbered account.

How can foundations become more active at a European level?
Most German foundations work across border. The tax issue is a very important one. Can a citizen make a donation abroad and still have tax benefits? Can a foreign foundation based in Germany be subjected to the same taxes as a German one? To answer to all these questions the European Commission is deciding whether a new legal entity ? such as a European Foundation ? should be created. A consultation among experts has been established and I think that the answer will be affirmative. I think that in about three years time we will have something of this kind that will make cross boundary activities easier. However, it will take a lot longer for tax benefits for foreigners to be worked out. It will always be hard for the German tax office to be sure that all the requirements are being met. It may take some twenty years and a more stable European Union. But this is a long way away.

More info
www.stiftungen.org