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Taxation of charity donations to EU public benefit organisations in the United Kingdom

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  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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The Charitable Donations relief is regulated primarily by the Corporation Tax Act 2010. This relief is applicable only if such donations are made in favour of a charity, the criteria and definition of which are set by the Finance Act 2010. The definition of a charity is set in s. 1 pt. 1 of Schedule 6 of the Finance Act 2010:

“For the purposes of the enactments to which this Part applies “charity” means a body of persons or trust that:

  1. is established for charitable purposes only,
  2. meets the jurisdiction condition,
  3. meets the registration condition, and
  4. meets the management condition.”

The jurisdiction condition broadly requires that the charity is subject to the control of the UK High Court’s jurisdiction. Factors which indicate that a charity is subject to UK High Court jurisdiction include:

  • your governing document adopts the law of England and Wales to govern it
  • most of your trustees live in England and Wales
  • most of your organisation’s property is in England and Wales
  • your organisation’s centre of administration is in England and Wales.

Until recently the jurisdiction condition was also satisfied where a charity was subject to the control of court in the exercise of a corresponding jurisdiction under the law of a relevant territory, i.e. any EU member state.

On 15 March 2023 the Spring Budget was announced, setting the key tax policy measures to be included in the Spring Finance Bill 2023. One of the changes restricts charitable reliefs to UK charities (i.e. deleting provisions allowing charities to be subject to any court in the exercise of a corresponding jurisdiction under the law of a relevant territory).

The changes have significant impact on tax implications for donation/gifts to EU charities. In particular, the Charitable Reliefs will continue applying only to donations/gifts made in favour of:

  • non-UK charities that have asserted their status for charitable tax reliefs before 15 March 2023 - until 1 April 2024
  • UK charities.

The Charitable Donations relief will not apply to donations/gifts to non-UK charities that have not asserted their status for charitable tax reliefs before 15 March 2023.

Until 1 April 2024 a corporate legal entity will be entitled to a tax deduction for donation made in favour of an EU PBO only if this EU PBO has asserted its status for charitable tax reliefs before 15 March 2023.

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)?

The Gift Aid relief in the UK (“Charitable Reliefs”) is regulated primarily by the Income Tax Act 2007 applies to donations made in favour of a charity as described in question 1.

As a corporate legal entity, an individual would be entitled to a tax deduction for donation made in favour of:

  • an EU PBO only if this EU PBO had asserted its status for charitable tax reliefs before 15 March 2023 – until 1 April 2024
  • UK charities.

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?

No, unless such EU PBO had asserted its status for charitable tax reliefs before 15 March 2023. The same treatment will be applicable until 1 April 2024.

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?

We would recommend considering the following options:

  • using a UK charity as a “conduit” (it is acceptable in the UK market to use existing charities which are geared up to receive gifts from UK resident donors and to make grants to other entities, potentially including foreign charities if that corresponds with their charitable activities), or
  • establishing a separate UK charity.