New Exemption Limit for Legal Entities with Non-Profit Objectives in Direct Federal Tax

Since January 1, 2018, profits of legal entities up to an exemption limit of CHF 20,000 are not taxed, provided they pursue a non-profit purpose. This only affects federal direct tax, not the cantonal profit tax.

The new regulation

‍As of January 1, 2018, the new Art. 66a DBG has come into effect. It states that profits of legal entities with a non-profit purpose are not taxed if they amount to no more than 20,000 francs. Furthermore, the profit must exclusively and irrevocably benefit this purpose. The cantonal profit tax is not affected by this. The exemption limit of 20,000 francs is intended to keep the administrative effort for the cantons as low as possible. If the profit exceeds the exemption limit, it must be taxed regardless of the purpose of the legal entity.

‍The "non-profit purpose"

‍What exactly constitutes a non-profit purpose can hardly be conclusively defined. In his message on the amendment to the law, the Federal Council referred, among others, to the indications in Art. 60 Para. 1 of the Swiss Civil Code. Accordingly, an indicator of a non-profit purpose is a political, religious, scientific, artistic, charitable, or social activity. Furthermore, all non-economic activities are an indicator of a non-profit purpose. A non-profit purpose can also be assumed if an economic activity is pursued, but this is only a means to an end and of subordinate importance. As an example, the operation of a coffee bar during a football match is mentioned.

The non-profit purpose is denied if the activity of the legal entity provides economic and/or monetary benefits to its members or related persons.

The Federal Council notes in the message that it will take some time and experience before a well-established practice takes hold. It will be interesting to follow what this practice will look like. Findea helps you keep your taxes simple and hassle-free.