Many people think that non-profit organisation (NPOs) benefit from more advantageous taxation than companies, but is this really true? Well, it depends!
NPOs are subject to either income tax on legal entities (IPM) or corporation tax (ISOC), depending on their specific situation. In addition, some NPOs are liable for the annual patrimonial tax on NPOs.
IPM ou ISOC : what's the difference?
🧾 Corporation tax (ISOC)
For corporation tax (ISOC), the generally applicable rate is 25% on all profits generated by the NPO. However, in the case of a small or medium-sized enterprise, the rate applicable to the first €100,000 of profit is 20%.
🧾 Income tax on legal entities (IPM)
For income tax on legal entities (IPM), NPOs are, in principle, not taxed on their profits. For example, profits from the sale of chocolates to finance the NPO's activities are not taxable. Therefore, they do not need to be declared in the IPM tax return.
That said, some income must be declared. Such as:
- certain property income (rent, capital gains on the sale of land or buildings, etc.)
- dividends and capital income
- benefits of any kind
- …
How do I know whether my NPO is subject to IPM or ISOC?
This is a complex issue that needs to be assessed on a case-by-case basis. We recommend that you contact a tax lawyer to determine the tax regime that applies to your NPO.
However, to help you better understand the criteria involved, we've put together an introduction to the main elements identified by case law, which can give you an initial indication of the tax regime for your NPO.
In practical terms, you need to ask yourself two questions to find out whether your NPO falls within the scope of corporation tax: 👇
1) Is the NPO primarily engaged in for-profit operations?
✅ If you answered "yes", the following rule applies: NPOs that are primarily engaged in profit-oriented activities are always subject to corporation tax, unless they are listed among the exceptions in Article 181 of the Belgian Income Tax Code, CIR 92.
❌ If you answered "no" to the first question, you need to ask yourself a second question.
2) Does the NPO use industrial or commercial methods to engage in its for-profit operations?
In other words, if the NPO's for-profit operations are secondary, you then need to ask whether the NPO uses industrial or commercial methods to carry them out. If so, then the NPO is subject to ISOC.
✅ If you answered Yes -> the NPO fells under ISOC
Examples of situations where the Court deemed that the NPO was applying industrial or commercial methods
- The NPO carried out advertising to find customers and even acted as a sponsor. In this context, it argued that the NPO's working method was highly customer- and objective-oriented. (Ghent, 27 October 2020)
- The NPO applied rational management methods based essentially on the concepts of costs, results and profitability. (Antwerp, 15 September 2020)
- An NPO running a youth hostel that adapted its prices in line with the market prices and implemented commercial initiatives (e.g. discount vouchers).
- Every year, the NPO organised a highly professional three-day music festival.
❌ If you answered No, -> the NPO fells under IPM
Examples where the NPO was not applying industrial or commercial methods
- The NPO did not employ salaried staff and catered exclusively to municipalities, public administrations and their affiliated NPOs. It did not interact with the private commercial sector, which reflects a mode of operation distinct from the usual practices of commercial enterprises.
⚠️ Elements not included in the analysis:
- The use of (several) volunteers (Ghent, 23 April 2024);
- The social purpose set out in the articles of association;
- The fact that profits earned are not distributed to members;
- The fact that the NPO does not remunerate its directors;
- The fact that the NPO chooses not to maximise its profits (the fact that it pursues a non-profit goal does not prevent it from carrying out for-profit operations ‒ and therefore the application of ISOC).
➡️ In conclusion, it will always depend on how the NPO actually operates, how it is organised and how it sells its products/services.
Annual patrimonial tax on NPOs
Some NPOs are liable for the annual patrimonial tax on NPOs (Art. 147 et seq. of the Inheritance Tax Code) . It is a compensatory tax for succession duty.
💶 Progressive rate : between 0,15% and 0,45%
📦 Applies to the total value of the NPO's assets (vast concept in this case): real estate, movable property, copyrights,...
⚠️ Not applicable if the value of the NPO's taxable assets is less than €50,000.
🔎 To find out more, please visit the dedicated page on the FPS Finances website.