A Guide to Forming Your
A Guide to Forming Your Own Charity - Company Formations
INCO is familiar with the formation of charitable organisations of any size. In fact, we have launched our own charity in 2016 during the refugee crisis, called ‘Incubators for Immigrants’, which achieved national media attention.
It’s our aim to assist any person or group, who is planning to start a charitable organization, to ensure a smooth corporate and legal process, so they can focus on the actual cause of the charity. Rather then on the formalities.
INCO has developed a straightforward process to start your Dutch NGO, and low costs, and with clear information on how to obtain a charitable status (if necessary at all!).
In this guide, we will explain the basics of how to form your own charity, and to form the company required for this.
What is an NGO?
What type of legal entity is required (or preferred)?
The best country to form your charity!
What legal requirements should be considered before forming your charitable entity in The Netherlands?
What are the Dutch Accounting requirements of your charitable organization?
What is an NGO, and the difference with a charitable organisation
An NGO (non-government organisation) can be any organization(non profit or profit!) that typically consists of people who share a (social) cause and the resources to perform services (or provide goods) to reach their goals.
A NGO, which is typically a legally formed entity, operates without any participation or involvement of any government, although indirectly it might depend on government support.
An NGO could be financed via government grants or subsidies, but the NGO maintains it non-governmental status by excluding government officials to become part of the organisation.
In many countries, the formation of an NGO is free of any restrictions.
Many NGO’s take the form of a charity, which is an organisation that exists to fulfil a particular social goal or cause, which involves providing a service.
The global NGO-sector is now the eighth largest economy in the world worth over EUR 1 trillion a year globally. About 20 million paid workers are employed by NGO’s, and many more volunteers.
The definition ‘Non Government Organisation, or NGO’ was first used just after the Second World War, as the United Nations sought to differentiate between inter-governmental specialized agencies and private organisations. But the concept of the NGO is much older.
The Bill and Melinda Gates Foundation is world's biggest Non Government Organisation (also considered a charity) , being funded for more than $29 billion.
When does a charitable organisation forms a legal entity?
It is advisable to set up a legal entity for your Dutch (or international!) charitable organization , when your activities rise above the “kitchen table” and your annual fundraising income exceeds 50,000 euros. A legal entity is also eligible to apply for fiscal (ANBI) & social (SBBI) recognition, which might provide benefits for the donors (or even for the charity itself, since it will have a better reputation, nd will be able to attract grants and subsidies).
A charity has many tax incentives, and regulation exemptions might apply. But in return, there are certain restrictions on what it can do, and it typically should provide more transparency then regular companies.
Whats the best country to start your charitable organization or NGO?
The Netherlands is a very popular jurisdiction to consider, when forming a charitable organization or company. The Dutch Foundation and the Dutch Association are very interesting vehicles, and much easier to incorporate, then it’s equivalents in for example Germany, Belgium, France, etc. In general, it's also considered much cheaper then the formation of an Charitable NGO in Switzerland.
There is no capital deposit requirement for a Foundation in The netherlands, while in countries like Germany, such requirement is quite high.
As opposed to Switzerland, the Dutch Foundation is cheap and easy to incorporate, and will obtain a tax-free status by default! Even without the charity status being granted.
What should you consider before starting your charitable organisation/entity?
There is no capital requirement for setting up a foundation, there are no members, no shareholders and no background checks are carried out.
The Foundation requires the appointment of only 1 director. Some would argue that the Dutch Foundation is easier to start,
then the Dutch Private Company (BV). But this will depend on the complexity of your case.
A foundation is a legal form, and the foundation has full legal capacity. This means that the foundation is an independent bearer of rights and obligations. Directors are therefore not jointly and severally liable (unless there is mismanagement or other gross misconduct).
Foundations may not make distributions to founders or directors. Nor to other persons, unless these benefits fall within the ideal or social goal that the foundation pursues.
In order to collect grants or subsidies, it might be important that your NGO is structured in a legal entity (for example to obtain government grants from the European Commission). The Dutch Foundation is very suitable for this situation.
To establish a foundation, statutes must be / must be drawn up. INCO can provide draft version of the statutes (also called the Formation Deed, or the Articles of Association of the Dutch Foundation). If you like to implement your overseas/currently available Deed, the Dutch notary will amend the texts to make sure it will be compliant with the Dutch Company Laws.
If a foundation achieves ANBI (Algemeen Nut Beogende Instelling) status, donations and legacies without a threshold (thresholds on tax deductions typically apply!) are exempt from income tax. This also applies to the SBBI status, which is easier to obtain for social NGO’s.
In case you apply for the ANBI status, which is the most reputable charity status in the Netherlands, you should consider that the board of a foundation must consist of at least 3 (three) persons if the foundation. The majority of the board members may not belong to one family. This requirement is not applicable to the SBBI status.
Even if your Dutch Foundation has not obtained a Charity Status, it will be considered tax-free for corporate income tax purposes. However it should not complete with any businesses in the open market, and/or it’s profits should be below 17.500 EUR. Our tax consultants can assist you to structure your Dutch charity, to avoid any taxes!
Statutes (also called the Formation Deed, or the Articles of Accosiation)
If you want to set up a (charity) foundation, you must have the (draft) statutes of your foundation. You can have these articles of association drawn up by or in consultation with your notary, but of course there are costs involved. Based on our model statutes , you can prepare a first version almost effortlessly. These statutes must at least state:
The name you want to give to the foundation. This name must contain the word 'foundation' and must be unique. So do the required research in advance, for example by searching the Internet for existing foundations. That prevents disappointments.
The location. This location must be a Dutch municipality. The place of business is called 'seat'.
The aim of the foundation: an idealistic or social goal. Of course you have very clear ideas about this goal. It is wise, however, to formulate the formal objective somewhat more broadly; if you wish to pursue other activities in the future, you do not have to amend the articles of association immediately.
The manner in which board members and other officers (such as members of the Supervisory Board) are appointed and dismissed.
The way in which funds are spent when the foundation is dissolved at any time, or a description of how this is determined.
For cost reasons, it is advisable to prepare an initial version of the articles of association yourself before visiting the notary.
You do not have to record everything in the articles of association. A number of things can also be described in the By-laws/Policy Plan for the Foundation.
The question immediately arises: what do I put in the articles of association and what in the internal regulations? The choice is simple: put in the articles of association what is really essential for your foundation, and what will not or will not change soon.
Changing the articles of association means that you have to engage a notary again: an amendment to the articles of association costs money. Therefore, save changes to the articles of association: this prevents you from having to turn to the help of a notary every so often. You lay down matters that may be subject to change in the internal regulations: you can then change them by means of a board decision.
Accounting issues for Dutch Charities and NGO’s
How do you avoid paying any taxes for your Dutch NGO? When setting up a Dutch Foundation, the legal entity can be registered at the Chamber of Commerce (Kamer van Koophandel) with a ‘non-profit’/operational’ status. This will ensure that the Dutch Foundation will not have to file any corporate income tax return, and therefore will not pay any Dutch corporate taxes. However, conditions apply.
Many charities and NGO’s are engaged in fund raining in some way. They might have individual donors, or attract government grants and subsidies.
Dutch tax regulations allow charitable organisations to receive donations, without being taxed on this income. In fact, if a charity is operated via a Dutch Foundation (Stichting), which is not competing on the open market (when delivering it’s services or goods), it can obtain a tax-free status. Within this tax-free status it’s allowed to generate a profit of upto 17.500 EUR per year.
This tax-free status is not available for regular Private Companies, such as the Dutch B.V. A charitable organisation which makes use of a Dutch BV is bound to apply for a charitable status, in order to avoid taxation on any profits.
FAQ: Can a Charity aim to make a Profit?
Yes, Dutch charities and NGO’s are allowed to perform profitable activities, and can make a profit. Such profits will not be taxed, if they don’t exceed the amount of 17.500 EUR (annually). Please note that the provision of such services or goods, might be liable for VAT purposes. INCO’s tax consultants can provide a Tax Memorandum to confirm whether your activities are taxable, or not. (for any kind of tax).
FAQ: Are Charitable organisations in The Netherlands required to charge VAT on its goods and services?
Yes, Dutch charities and NGO’s might be liable for VAT, if they provide goods or services. Read more about VAT requirements for Dutch NGO’s here.
YOUR BUSINESS TOOLKIT
FREE ACCESS TO ALL THE THINGS YOU NEED TO KNOW
Our experts have combined their knowledge and strengths to create a tool we call the Business Toolkit.
The Business Toolkit will help you and entrepreneurs from around the globe to truly understand the Dutch market, regulations and laws. And will enable you to take a deep-dive the many business-related topics.
Make sure to check out our handy checklists, explainer video's and extensively written Whitepapers too!