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Taxation of charity donations to EU public benefit organisations in Spain

Table of contents
  1. Would a corporate legal entity in your jurisdiction be entitled to make a corporate income tax deduction in respect of donations made in favour of a public benefit organisation based in the EU outside of your jurisdiction (“EU PBO”)? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  2.  Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  3.  Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?
  4.  Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?
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Donations are considered to be non-deductible expenses for corporate income tax (“CIT”). However, CIT taxpayers shall be entitled to deduct an amount of 35% of the basis for the deduction. Since the general tax rate is 25%, note that there is a 10% saving on the amount donated under this system.

In the two immediately preceding tax periods, if donations, gifts or contributions with the right to deduct have been made in favour of the same entity for an amount equal to or greater, in each of them, than in the previous tax period, the percentage of deduction applicable to the deduction base in favour of the same entity shall be 40%. The tax saving here would generally amount to 15%.

The amounts corresponding to the tax period not deducted may be applied in assessments for the tax periods ending in the immediate and subsequent 10 years.

2. Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?

Personal income tax payers will be entitled to deduct an amount of 80% for the first EUR 150 donated, and 35% for the rest of the amount donated.

In the two immediately preceding tax periods, if donations, gifts or contributions with the right to deduct have been made in favour of the same entity for an amount equal to or greater, in each of them, than the donation of the previous year, the deduction percentage applicable to the deduction base in favour of the same entity that exceeds EUR 150 shall be 40%.

The limit of the base of this deduction is 10% of the taxpayer’s net taxable income.

3. Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?

Yes. As per the amendments introduced as of 1 January 2021, the same tax treatment must apply to certain income obtained by foreign non-profit entities (particularly, an EU PBO) and to certain contributions to those entities, allowing them to benefit from the same exemptions as Spanish non-profit entities (this on the basis that they meet the requirements set out under article 3 of Law 49/2002).

In addition, it shall be noted that corporations are not a taxable subject under Spanish Gift Tax.

4. Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

As of 1 January 2021, Law 49/2002 was amended to include in the scope of the list of entities that are considered non-profit, amongst others, entities resident in an EU member state or other EEA state, but not non-EU charities (i.e. US public charities).

Therefore, it will be suitable to make donations to an EU PBO directly. If channelled through the US, donors would not be able to deduct these amounts because Spanish law makes no reference to entities resident outside the EU.