Lately, we have frequently been asked whether financial donations to the GOOD ANGEL system are tax-deductible from the viewpoint of the Income Tax Act, and what documentation the Good Angels will receive, and when. In this article, we will try to responsibly clarify all of your questions (last updated on January 5, 2016).
Is the activity of a GOOD ANGEL tax-deductible?
Pursuant to the Income Tax Act, individuals and legal entities may deduct donations (among other things) to legal entities with their registered office in the territory of the Czech Republic or an EU Member State for the social, humanitarian and charity purposes. The GOOD ANGEL foundation is only engaged in these activities; moreover, it verifiably passes all of the donations received from Good Angels on to families in financial distress. This is why it can be said that the donations from Good Angels are, without reservation, deductible from the viewpoint of the Income Tax Act. But of course, it is not that simple. Each donor may only deduct their donations subject to certain statutory conditions.
What types of records are provided as proof of donations?
By January 20th of each year, the GOOD ANGEL foundation issues to each donor - Good Angel - confirmation of the donations received for the previous tax period (i.e. the amounts credited to the GOOD ANGEL account by December 31st of the previous year), while such confirmations are sent electronically to the e-mail addresses of all Good Angels. There is just one exception, which is anonymous donations, i.e. donations made without registering in the GOOD ANGEL system. We can only send such confirmation once the donor has been identified. If a donor is only identified by an e-mail address, the confirmation of donations is tax non-deductible from the viewpoint of the tax authorities. In such case, it is necessary for the donor to fill in their identification data (name and address) in our client system and then write to firstname.lastname@example.org to ask for a new confirmation. Then what do you do with the confirmation?
What are the conditions for individuals?
If you are a donor-individual (whether employed or self-employed), you are subject to the provisions of Section 15(1) of the Income Tax Act. The decisive factors are the aggregate amount of your donations (i.e. the sum of all donations for the entire calendar year) and your tax base. Donations will be tax-deductible, provided that their value reaches at least 2% of your tax base or at least CZK 1,000. In aggregate, up to 15% of your tax base can be deducted. In practice, this means that if you have donated CZK 1,000 or more, you don’t have to verify whether it is at least 2% of your tax base. You just need to verify that the aggregate value of donations does not exceed 15% of your tax base. In some cases, you don’t even have to deal with filing a tax return. If you use what is called the “settlement of employment tax and fringe benefits tax”, in which case your payroll administrator files all the required papers for you, then you only have to deliver the donation confirmation to your payroll administrator, along with all of the other underlying documents (e.g. confirmation of interest paid, life insurance premiums paid, or supplementary pension premiums paid). If you prepare your income tax return on your own, then you deduct the amount of the donations made (to all organizations) in the same return, and you attach the donation confirmation to the return and file it with the tax authority having territorial jurisdiction.
What are the conditions for legal entities?
Donor-legal entities are subject to Section 20(8) of the Income Tax Act, pursuant to which donors may deduct donations starting from CZK 2,000 up to 10% of their tax base, reduced pursuant to Section 34 of the Income Tax Act. Again, all donations for the given calendar year are added together and deducted on the basis of the provided donation confirmation (or, as the case may be, donation agreement, when the Good Angel so requests). In such case, with a view to the complicated calculation of the tax base, the donations will be deducted by an accounting firm, or, more often, a tax advisor preparing the tax return.
Are there any special cases?
If you are a donor who is a tax resident of another EU Member State or a donor who is outside the EU, then it is necessary for you to consult your tax advisor with respect to the tax deductibility of donations to GOOD ANGEL.
Last, but not least, please note that the specific tax-deductibility of donations depends on the specific situation of the donor. Therefore, the GOOD ANGEL foundation cannot guarantee tax-deductibility in every individual case. In spite of this, we believe that, in the vast majority of cases, donors will be allowed to deduct their donations in their tax settlement and tax return, and that this article will at least generally assist you in orienting yourself in this regard.
Martina Hovorková, GOOD ANGEL