WHEN IS IT WORTH OBTAINING A DECLARATION OF ASSOCIATIONS OF PUBLIC UTILITY FOR MY ASSOCIATION?

José DutilhManaging Partner, LeQuid, The J.Dutilh Law Firm For Social Impact

What is an association?

An association is a NON-PROFIT entity made up of a number of partners or members in the stable pursuit of a goal and with democratic management. Furthermore, the association normally has LEGAL PERSONALITY, so as from its foundation it has a different personality from the members themselves. It has its own assets, initially provided by the members, which it can use to pursue its goals as laid down in its articles of association.

Many Nong Gubernamental Orgnisations use this legal entity. Also some Social Enterprises use hybrid structures: an Association (for non lucrative activities)  and a Limited Company (for lucrative ones).

ASSOCIATIONS NOT DECLARED AS BEING OF PUBLIC UTILITY

Associations NOT DECLARED AS BEING OF PUBLIC UTILITY must keep accounts that provide a true and accurate picture of capital, results, the entity’s financial situation and activities carried out, as well as an inventory of its assets. These associations are not obliged to file Corporation Taxes if they meet the following requirements:

  • They have not earned more than 75,000 euros in one year.
  • Their income corresponding to non-exempt income subject to withholding does not exceed 2,000 euros per year.
  • All non-exempt income obtained is subject to withholding.

ASSOCIATIONS DECLARED AS BEING OF PUBLIC UTILITY

Associations DECLARED AS BEING OF PUBLIC UTILITY must keep accounts in compliance with the accounting plan for non-profit entities (Decision of 26 March, 2013, of the Accounting and Auditing Institute), which involves greater complexity and greater internal control.

The MAIN ADVANTAGES of an association declared as being of public utility:

  • TAXATION, as they can benefit from the more favourable tax regime laid down under Act 49/2002, regarding the tax regime of non-profit entities and tax incentives for sponsorship, provided they meet the requirements set forth in the Act itself and they file model 036 with the Tax Agency.
  • Enjoy FREE LEGAL ASSISTANCE as the Registry of Associations usually responds to the queries they make.
  • Most CALLS FOR SUBSIDIES do not explicitly require a declaration of public utility, but it is true that the objective evaluation criteria sometimes include the requirements laid down by law to obtain them, which makes it possible to achieve a higher score.
  • DEDUCTIONS: membership and donor fees in personal income tax or corporation tax. This must take into account that:

Being granted recognition as a Public Utility allows, only as from when it is granted, and never before, for donations to be deductible for donors from Personal Income Tax or from Corporation Tax (the association must have adopted the tax benefits of Act 49/02 and have declared this to the Tax Agency through model 036).

The MAIN DISADVANTAGES of an association declared as being of public utility:

  • They are obliged to present annual accounts to the Registry of Associations within the 6 MONTHS FOLLOWING THE END OF THE FINANCIAL YEAR, using either a standard model (audit by the Autonomous Communities), abbreviated model, using the model for small and medium-sized non-profit entities or the simplified model.
  • They are subject to MORE STRINGENT MANAGEMENT CONTROLS than those of a normal association.
  • They must present the ANNUAL ACCOUNTS AND THE ACTIVITY REPORT to the Tax Authorities and in the corresponding Registry.
  • There are HIGHER ADMINISTRATIVE COSTS FOR CONTROL AND PREPARATION, as from receiving invoices, regarding the information to be included in the annual accounts.
  • There exists the need to carry STRICT CONTROL TO JUSTIFY SUBSIDIES received to include any information necessary in drawing up the Activities Report.
  • The Public Authorities must be provided with the REPORTS THEY REQUIRE, in relation to the activities carried out in achieving their goals.
  • They must COMPLY WITH THE DECLARATION OF DONATIONS, prior to 31 January of the following year, stating name, ID or Tax ID number, address and amount of the partner or donor.
  • Comply with Act 10/2010, regarding the prevention of money-laundering and terrorist financing.

PROCEDURE IN ORDER TO BE DECLARED AN ASSOCIATION OF PUBLIC UTILITY

Organic Act 1/2002, of 22 March, regulating the right of association, establishes article 32.1 e) which stipulates that, in order for an association to be declared of public utility, it must meet the following requirement:

  • That it is established and registered in the corresponding Registry, at least for the two years immediately prior to presenting the application and does not have negative net worth.

Documentation to present to request public utility

Request or application (this may be downloaded from the Interior Ministry’s web page) by the entity’s representative.

The application must also clearly and succinctly state the reasons for the request, a report justifying the association’s goals so it may be considered to be of public utility, with special reference to its activities of general interest, in accordance with the terms set forth in article 32.1.a) of Organic Act 1/2002, of 22 March, regulating the Right of Association.

 

  • If the association is regional or smaller, or is regulated by special laws (for example, sports associations), the application shall be presented in the corresponding Registry of Associations where the association is registered.

Activities Report of the association corresponding to the two financial years (separately) prior to the one in which the application is presented. This report must be signed by the members of the entity’s board of directors or representative body and must refer in detail to the terms laid down in article 2.4 of Royal Decree 1740/2003, of 19 December, regarding procedures relative to associations of public utility.

Annual accounts for the last two accounting periods ended, comprising the balance sheet, the income statement and the financial report. These documents must be presented separately and signed by the members of the board of directors or representative body.

Information on cash flows: this shall only be obligatory for entities that draw up their balance sheet and financial report using the standard model.

Certification from the State Tax Administration Agency stating that it is up to date in compliance with tax obligations and that no tax-related debts are outstanding with the State during the term of execution.

Certification from the General Social Security Treasury that it is up to date with its Social Security obligations.

Certified copy, where applicable, of registration in the corresponding section of the Tax on Economic Activities.

Certification of the agreement by the competent association body by which the declaration of public utility is requested.