Tax relief for nonprofit corporations
Nonprofit corporations must pay income tax on any business income they receive and on some of the income received from real estate property. Full or partial tax relief may be given to the nonprofit corporation. This requires that an application has been submitted expressly in order to obtain relief.
This tax relief does not extend to VAT or real estate taxes.
The Tax Administration’s decision, issued in response to an application for relief, is not a decision on whether your corporation is a nonprofit or whether the income it receives is subject to income tax. Decisions that address status are made during tax assessments every year. If you need to check whether a corporate entity is a nonprofit for purposes of taxation, you can examine the tax decision for the latest tax year.
Requirements for the tax relief
Non-profit corporations that pursue an activity of social significance can be granted the tax relief – for example, it can be granted to an activity for providing physical education, for operating a sports team for young people, for rendering aid to those in need, and for a local trade-union.
To be granted relief, it is required that the activity can cover all regions of Finland or that other factors indicate the activity is extensive and long-established. However, coverage of all regions of Finland is not required if your corporation is a local chapter of a larger organisation that covers all regions of Finland.
An association or foundation must primarily spend its money and income on an activity promoting the public good.
If the tax relief is for business income, it is required that the applicant’s activities cause no disruption of competitive neutrality i.e. the activities must not cause difficulty to others who conduct business in the sector. For example, if a nonprofit corporation provides goods or services in the same market as others, the fact that the corporation has been granted relief from income tax is likely to cause a disruption.
A similar example is a situation where a public tender procedure has been organised: the applicant cannot be given an advantage for the tender competition because of the tax relief.
If the relief is for rental income (from real estate), it is required that more than half of the applicant’s real estate is in public use or non-profit use. The proportions of how real estate is used are normally evaluated by the square metres used or by the time spent. A unit of real estate is in public use if the building serves as a school, library, an agency of the State of Finland or as a hospital. A unit of real estate is in non-profit use if the nonprofit corporation itself is its user, if the corporation rents it out to non-profit use by another corporation, association or foundation that also has the status of a nonprofit organisation promoting for the public good.
How to request relief?
We recommend that the application for this tax relief be submitted when your entity’s accounting year has ended; at the latest, you should submit it by the time when four months has elapsed from the accounting-period end date. The applications are not processed before the end of the accounting period for which the relief is requested. If you are requesting the tax relief for several accounting periods, it is enough that the first one of the accounting periods has ended.
Illustration: If the end date of a nonprofit corporation’s accounting year is 30 June 2022, the deadline for the application is 31 October 2022.
If you do not have the opportunity to submit the application electronically, use the paper form (only in Finnish and Swedish).
A charge is collected on the decision. The maximum duration of the tax relief is 5 years after every submittal of the application for relief.
The necessary contents for the application
Enclose the following documentation concerning your association or foundation:
- The statutes
- Latest budget
- Plan of activities
If your application for relief concerns rental income, i.e. income derived from real estate:
- Enter the property identifier or the name of the real estate unit and its address.
- Indicate the proportional size of the real estate in use for a non-profit purpose.
- Additionally, enclose precise information on who utilises the real estate and for what purposes. Provide a breakdown, user for user, of the parts of the total square metres that the users have had at their disposal, the times when used, and the purposes of use.