Charity Nonprofit

What this file is

A sector overlay for charities, nonprofits, foundations, NGOs, religious organisations, and social enterprises.

Section 1 — Common entity types and exemption regimes

1.1 United States

[T1] IRC §501(c) categories

Code	Type	Notable
§501(c)(3)	Charitable, religious, educational, scientific, literary	Donations deductible; public charity vs private foundation
§501(c)(4)	Social welfare; advocacy organisations	Donations NOT deductible; political activity permitted
§501(c)(6)	Business leagues, trade associations	Member dues deductible as business expense
§501(c)(7)	Social clubs	Member-only
§501(c)(19)	Veterans organisations
§4947(a)(1)	Charitable trusts

• Public charity vs private foundation - public charity — Public charity: significant public support (>1/3 from broad public or government); fewer restrictions ([T1])
• Public charity vs private foundation - private foundation restrictions — Private foundation: typically family-funded; subject to 5% minimum payout (§4942), self-dealing rules (§4941), excess business holdings (§4943), prohibited investments (§4944), taxable expenditures (§4945) ([T1])
• Net investment income excise tax — 1.39% percent (previously 2% / 1% two-tier; flattened by TCJA + Inflation Reduction Act amendments) (§4940)
• Filing requirements — Form 1023 / 1024 application; Form 990 (public charity) / 990-PF (private foundation) / 990-EZ (small) / 990-N (smallest); Form 990-T for UBI; Schedule A (public support test); Schedule B (large donors) ([T1])

1.2 United Kingdom

• Charity (CIO / trust / company limited by guarantee) — Charitable Incorporated Organisation — CIO, or trust, or company limited by guarantee (Charities Act 2011)
• Public Benefit Test — Purposes must be charitable and operate for public benefit (post-Charities Act 2006 affirmation) ([T1])
• Charity Commission — Registers and regulates charities ([T1])
• Charity tax exemptions — Trading income generally exempt if primary purpose trading; ancillary trading limit per Extra-Statutory Concession C4 ([T1])
• Gift Aid top-up — 25% percent (top-up on donor donations (HMRC reclaims basic-rate tax)) ([T1])
• Charities SORP — Statement of Recommended Practice under FRS 102 — sector-specific accounting ([T1])

1.3 Germany

• Gemeinnützige Körperschaft — Charitable corporation under §§51-68 AO ([T1])
• Spendenrecht — Donations deductible by donor up to 20% AGI / 4 per mille turnover (companies) ([T1])
• Categories — gemeinnützig (charitable), mildtätig (relieving distress), kirchlich (religious) ([T1])
• Filing — Steuererklärung + verbindliche Bestätigung from Finanzamt ([T1])

1.4 EU foundation regimes

[T1] Country-specific; harmonisation limited. Major regimes:

• Netherlands — ANBI (Algemeen Nut Beogende Instelling)
• France — Fondation d'utilité publique; Association loi 1901
• Italy — Onlus (now ETS — Ente del Terzo Settore under reform 2017)
• Spain — Fundación under Ley 50/2002
• Belgium — Fondation reconnue d'utilité publique
• Switzerland — Stiftung under Civil Code Art. 80
• Luxembourg — Fondation d'utilité publique; ASBL

1.5 Other major jurisdictions

Other major jurisdictions status table

Country	Status
Canada	Registered Charity under Income Tax Act; T3010 annual filing
Australia	DGR (Deductible Gift Recipient) endorsement
South Africa	PBO (Public Benefit Organisation) §30 ITA; Section 18A donations deductible to donor
India	§12A / §80G registration
Singapore	IPC (Institution of a Public Character)
Hong Kong	§88 Inland Revenue Ordinance
Japan	Public-interest incorporated foundation

Section 2 — Fund accounting

Fund category definitions ([T1])

Fund category	Definition
Unrestricted (net assets without donor restrictions — US ASC 958)	Donor-imposed restrictions exhausted or never applied
Donor-restricted (with restrictions — US ASC 958)	Donor specifies purpose or time
Endowment	Donor specifies permanent or term capital preservation
Quasi-endowment	Board-designated for long-term investment but not donor-restricted

• UK Charities SORP parallel categories — UK Charities SORP has parallel categories (unrestricted general funds; designated funds; restricted income funds; endowment funds — permanent and expendable). ([T1])

Section 3 — Unrelated Business Income (UBI) — US

• UBI corporate tax — Tax-exempt organisations pay corporate income tax (21%) on income from any unrelated trade or business regularly carried on. ([T1] IRC §511-514)
• §512(a)(6) silo rule — UBI computed separately for each unrelated trade or business (post-TCJA "silo" rule) ([T1] §512(a)(6))
• §513(c) advertising — Advertising as unrelated business ([T1] §513(c))
• §514 debt-financed income — Debt-financed income (rental income from leveraged property partly UBI) ([T1] §514)
• §511(b) split-interest trusts — Split-interest trusts subject to UBI on the unrelated portion ([T1] §511(b))
• UBI exceptions — Volunteer-labour exception; Convenience exception; Donated goods exception; Bingo (in some jurisdictions); Royalties (passive royalty income generally not UBI) ([T1])
• Form 990-T — UBI return

Section 4 — VAT / GST for charities

Charity VAT treatment by country ([T1])

Country	Treatment
UK	Charity-specific zero-rated supplies (zero-rated charity sales of donated goods); reduced rate on fuel/power for charity buildings; relief on capital goods for charity buildings
EU	Article 132 PVD: exempt activities including health, education, social, cultural, sport, religious — but exemption is mandatory for the activity, not optional, and may not align with the charity's profitable activities
US	n/a (sales/use tax state-level; many states exempt nonprofit purchases)
Australia	GST-free supplies for charity (e.g., gifts received, donated goods sold)

Section 5 — Self-dealing and minimum distribution (US private foundations)

• §4941 Self-dealing — A per-se prohibition on most transactions between the foundation and "disqualified persons" (substantial contributors, foundation managers, families). 10% excise on disqualified person + 5% on manager. ([T1] IRC §4941)
• §4942 Minimum distribution — 5% of average net investment assets must be distributed annually for qualifying charitable purposes; 30% excise tax on undistributed amount. ([T1] IRC §4942)
• §4943 Excess business holdings — Limits private foundation ownership of business enterprises to 20% (or 35% with limited exceptions); 10% excise. ([T1] IRC §4943)
• §4944 Jeopardising investments — Investment that risks the foundation's carrying out its exempt purposes (highly speculative investments) — 10% excise. ([T1] IRC §4944)
• §4945 Taxable expenditures — Certain prohibited expenditures (lobbying, voter registration, grants to non-charitable, etc.) — 20% excise + 100% if not corrected. ([T1] IRC §4945)

Section 6 — Donor-Advised Funds (DAFs)

• Donor-advised fund — A charitable account held at a sponsoring organisation. Donor receives immediate tax deduction; gets non-binding advisory right over investment and distribution. ([T1])
• §4966 DAF distributions excise — Distributions from a DAF to certain disqualified persons or to non-public-charity grantees attract excise tax. (US §4966)

UK has limited DAF equivalents through Charities Aid Foundation and others.

Section 7 — Cross-border philanthropy

• US cross-border deduction rules — Deduction generally only for §170(c) US charity; foreign equivalent only via "friends of" intermediary or §4945 expenditure responsibility ([T1])
• EU cross-border case law — Persche/Stauffer case law extended deduction to equivalent EU charities (subject to equivalency determination) ([T1])
• UK equivalency requirements — HMRC equivalency requirements for foreign charities ([T1])

Section 8 — Self-checks

• Entity correctly classified within country's exempt regime
• Public charity vs private foundation status confirmed (US)
• Public benefit test satisfied (UK)
• Restricted vs unrestricted funds segregated in accounting
• UBI computation per silo rule (US §512(a)(6))
• Form 990 / 990-PF / 990-T per applicable status
• 5% minimum distribution met (US private foundation)
• Self-dealing transactions reviewed
• Donor-restricted funds released only when restriction satisfied
• Charities SORP applied (UK)
• VAT charity reliefs claimed where applicable
• Output flags every [T2]/[T3] item for reviewer judgement

Section 9 — Disclaimer

Charity / nonprofit accounting and tax are sector-specific. Outputs must be reviewed by credentialed nonprofit-sector practitioners. The most up-to-date version is at openaccountants.com.