Foundations play an important role in supporting public benefit activities. However, their operation is closely linked to a set of statutory obligations that must be adhered to. Meeting deadlines, accurately publishing documents, and maintaining records of received funds are all aspects that require a meticulous approach and a strong accounting background.
Financial Statements: A Statutory Obligation That Cannot Be Skipped
A foundation, like any accounting entity, is obliged to prepare financial statements for each accounting year.
Unlike commercial companies, not every foundation is required to publish its financial statements separately in the Register of Financial Statements. They are disclosed only as part of the annual report. Nevertheless, this does not mean they can be neglected. They are crucial for the accurate preparation of the annual report, for internal governance, and potential audits by donors or regulatory authorities.
Tax Return: When a Foundation Files One
A foundation is obliged to file a corporate income tax return if it generates taxable income (e.g., from rent, advertising, sale of assets, or other business activities). If it has no such income, this obligation does not apply to it.
Annual Report: An Obligation and a Foundation's Calling Card
For a foundation, the annual report is more than just a statutory obligation. It is also a manifestation of transparency towards the public, donors, and supporters. It must be compiled no later than June 30 of the year following the year for which the annual report is prepared and published by July 15 in the Register of Financial Statements. It also includes the financial statements.
Use of 2% of Tax: Responsibility Towards Donors
The portion of paid tax can be an essential source of funds for a foundation. However, with it comes responsibility. The law stipulates the purposes for which these funds can be used. This includes areas such as health, education, sports, science, environmental protection, or the support of volunteerism.
Should the foundation use these funds for any other purpose, it would constitute a breach of financial discipline. This is precisely why it is essential to have an overview of the received 2% and its use – ideally through transparent and reliable record-keeping. This should be consistent with the accounting records and prepared to serve as proof of transparent management of public resources.
Specification of the Use of the 2% Tax Designation if it Exceeds EUR 3,320
Suppose a foundation receives more than EUR 3,320 in one year from the portion of paid tax (collectively from natural and legal persons). In that case, another statutory obligation arises. Within 16 months of publishing the annual overview of recipients, it must publish a specification of the use of the received portion. This document is published in the Commercial Gazette, and the foundation must then notify a notary of the issue number and year of the Gazette's publication. This is a step that requires accuracy, record-keeping, and correct timing, which is why it is advisable to have an experienced accountant on hand who will draw attention to this obligation and help fulfill it.
When an Audit of Financial Statements is Required
The obligation to have financial statements and the annual report audited by an auditor applies to foundations for two reasons: as recipients of a portion of the paid tax and as non-governmental, non-profit organizations with higher financial turnover.
An audit is generally mandatory when the foundation in the given accounting period:
- receives and simultaneously uses a portion of paid tax amounting to over EUR 35,000,
- obtains an amount exceeding EUR 200,000 from public sources or the portion of the paid tax,
- or if its total income from various sources exceeds the threshold of EUR 500,000.
In such cases, the financial statements must be audited within one year of the end of the accounting period. The audited financial statements are then a mandatory part of the annual report and, in some instances, also of documents published in public registers. Given the time-consuming nature of an audit, it is recommended to consider this obligation in advance – ideally in cooperation with an accountant and auditor who will safely guide the foundation through the entire process.
A Good Accountant is Key to Certainty
There are more than enough obligations, deadlines, and details to manage. And although a foundation is established out of goodwill and a desire to help, its operation must be equally responsible towards the law. This is precisely why regular and active cooperation with an accountant has proven effective, as they will ensure the accurate accounting of expenses, prepare documents for the annual report, and ensure the timely and flawless fulfillment of all disclosure obligations.
The key to public trust is transparency. A good accountant will ensure it.
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