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Reinier W.L. Russell, LL.M. contributed the revised chapter on the legal framework of charity law in the Netherlands to the practical handbook Charity Law. A Global Guide from Practical Law, published by Thomson Reuters. This handbook “provides a high level practical overview of the global charity law sector, covering 20 key jurisdictions. It is an ideal starting point for charities and their advisers in navigating cross-jurisdictional charity law and practice.
Written by leading lawyers, the guide provides a structured overview of the key practical issues in each jurisdiction, including the legal framework, principal sources of law, forms of organisation used for charitable purposes and the formalities to set these up, main regulatory authorities, management, accounting/financial reporting requirements, tax and how overseas bodies can operate and fundraise.”
The book could be consulted at Thomson Reuter’s website and was updated regularly. You can read the most recent version of the chapter on charity law in the Netherlands below.
The Netherlands has a long and rich philanthropic tradition that is still prominent in the many almshouses, orphanages and hospitals adorning the townscape of the old cities. In the Middle Ages care for the poor and other weak members of society was funded by donations of private individuals, either to the church, the town or to their own foundations. They did so for the glory of God and the well-being of the neighbour, even if the prestige of the city and the reputation of the family also played a role. As early as in the Middle Ages the city authorities took over such tasks, but they were primarily funded by the income from donated land and gifts. Moreover, this was merely a supplement; the prime responsibility rested with the churches and the citizens.
In the 19th century the role of the authorities remained limited. At that time the state was considered as a night guard, whose responsibilities were limited to police, justice and militia, although the government provided education as well. The care for the poor and sick, and the cultural life, were left to private initiative. Many of these private organisations were founded based on religious beliefs.
Over time, the government took over more tasks and from the 1950s the welfare state took shape by the introduction of a system of benefits and subsidies. Funding of social objectives was almost entirely taken over by the government. This was only possible because the government could benefit from natural gas revenues, low wages (and thus also low benefits) and the introduction of a state loan as a financing tool in the 1970s. Due to state aid the Dutch non-profit sector became the biggest in the world, which employs 14% of the working population. Now that the government cuts down on these tasks, philanthropic organisations are gaining more importance.
As early as in the Middle Ages, foundations and brotherhoods were established that supported the poor locally and maintained almshouses. The most important types of charity organisations, foundations and associations, therefore have a long tradition. The most important difference between these two organisations is that, unlike an association, a foundation does not have members. Historically, the most frequently used type of charitable organisation was the foundation as this was in line with traditional charity based on funds that were formed by bequests. Associations were better suited for the introduction of new activities for which the support of society was necessary.
Even though foundations fulfilled a very important social function, for instance regarding care for the poor, statutory regulations for foundations were lacking. This was introduced in 1956 and substituted in 1976 by a new regulation in the overall review of the Dutch Civil Code.
The law of associations had been introduced a century earlier, mainly because this type of organisations was also used for political activities. An association was therefore only granted legal personality when it was acknowledged by the government. This acknowledgement depended on the assessment of the objectives of the associations. In 1976, when the law of associations was included in Book 2 of the Dutch Civil Code, this prior assessment was abolished.
In The Netherlands there are many charitable organisations that are prominent in society, for instance by collections, lotteries and other public campaigns. In 2015, about 65,000 good causes were active in The Netherlands that received over EUR5.7 billion in donations, which equals an average amount of more than EUR335 per citizen. About 70% of the Dutch people donate money to good causes each year. This places the country in the top ten donors in the world. The non-profit sector, also including education and healthcare, is mostly funded by government subsidies (however, that is taxpayers’ money). Charitable organisations mostly fund special projects falling outside the scope of general funds or for which no subsidies are available. The government tries to cut down more and more in these areas. Therefore, charitable organisations are gaining importance and also the requirements placed on these organisations.
The most important developments within the philanthropic sector in The Netherlands are the increased transparency and professionalism. Both, the government and the donors make greater demands regarding the registration of donations and subsidies, partly as a result of reports on misuse of donations for other objectives than what they were donated for and on abuse of tax benefits by businesses. Therefore, since 2014, charitable organisations must disclose information on themselves on their website (see Question 5). The government offers organisations fulfilling these increased demands extended tax benefits.
Directors of charitable organisations have a key role in this. Over the past few years, the Dutch legislator has taken initiatives to ensure that the requirements for directors of charitable organisations are better in line with those for directors of other types of companies, even when they work on an honorary basis (see Question 14).
To promote the further professionalism of the charity sector, different types of training have been developed. For directors of charitable organisations, a co-organised post-graduate training programme of the Free University Amsterdam and the Erasmus University Rotterdam on Governing Charitable Funds offers young professionals the necessary training to act as a professional director of a charitable organisation. This programme further aims to promote continuity, diversity and expertise within charitable organisations.
Young professional directors, who successfully completed the course on Managing Philanthropic Funds, can join the Network Young Philanthropic Professionals (NYPP) (www.nypp.nl). The NYPP facilitates continuing training, seeks to bring together young professionals and is a platform for young philanthropic professionals to exchange experiences.
The Dutch legislator has developed a specific vocabulary to distinguish between different types of charity and to tailor the rules to different types of charitable organisations. There are three types of charitable organisations, each with a specific aim:
Public Benefit Organisation. A PBO must be almost entirely dedicated to the “general good”, which the legislator has divided into the following 13 separate aims:
Particular types of PBOs are almost entirely dedicated to cultural aims. These organisations are referred to as Cultural PBOs (Culturele ANBI), and additional tax benefits are available to them (see Questions 5 and 10).
Organisation Representing Social Interests. Whereas PBOs are focused on the general good, ORSIs are focused on the social interests of a selected group, usually its members. At the same time, an ORSI must contribute to society by engaging in activities promoting:
ORSIs include, for example, youth associations, choirs, sports associations, music groups, and so on.
Foundation Supporting an ORSI. The sole purpose of a Foundation Supporting an ORSI is to provide temporary financial support for an ORSI for the occasion of a jubilee. These foundations are recognised for a maximum of one year in order to support a particular jubilee. A Foundation Supporting an ORSI must be active in the field of sports or music.
In practice, the terms “charity” or “philanthropy” are used regularly. Therefore, where in the remainder of this chapter any reference is made to charity or philanthropy, this will mean the general good and/or social interests, unless stated otherwise.
Charity law in The Netherlands relates in particular to the conditions under which a charity is recognised and the specific tax (deduction) rules that become available and/or are applicable. In this regard, the following laws are of particular importance:
As the Dutch charity sector is characterised by a high degree of self-regulation, the legal framework is limited and the sector itself has developed various soft law instruments to provide guidance for directing charitable organisations. This includes for example the SBF Code for Good Governance 2015 (SBF-code Goed Bestuur).
In principle, there are two legal forms that are most suitable for a charitable organisation: the foundation (stichting) and the association (vereniging).
Foundations by law must have a board of directors. Therefore, only directors take the decisions, although in practice often in co-operation with a supervisory board, which is optional. The foundation does not have members. The focus is on its objective, and the assets of the foundation are used to achieve this objective. Any profits made must be used for the objective of the foundation.
There are the following advantages to foundations:
There are the following disadvantages to foundations:
In addition to foundations, associations are also frequently used legal forms for charitable organisations. Besides members, an association has directors and often a supervisory board (optional). They co-operate to achieve the association’s objective without the intention to make profit. Any profit made must be used to achieve the objective of the association.
There are two types of associations:
Associations with full legal capacity are, just like foundations, incorporated. This also means that in principle, directors cannot be held directly liable. However, this requires that the association is established by notarial deed.
This is different for associations with limited legal capacity. Such an association is not incorporated and therefore the directors are personally liable for all obligations of the association. For the establishment of such an association no notarial deed is necessary.
It is recommended and also quite common to establish a charitable association by notarial deed. Therefore, subsequent references to associations in this article will relate to associations with full legal capacity (unless stated otherwise).
Advantages of associations include:
Disadvantages of associations include:
There are also other types of legal entities in The Netherlands, such as partnerships, private limited companies and public limited companies. These are meant for profit-making entities and therefore less suited for good causes, and they are not permitted if an entity wants to be acknowledged as a charitable organisation.
Besides foundations and associations, churches usually employ charitable activities as well. Although a different legal regime applies to the legal form and organisation of churches, they can be recognised by the Dutch Tax Authority as charitable organisations (usually as a PBO) if they pursue charitable purposes. In The Netherlands many churches are recognised as charitable organisations.
Under Dutch law it is possible to set up a separated private fund (Afgezonderd Particulier Vermogen (APV)), which could encompass also the Anglo-American trusts. The capital of APVs is used for private purposes and therefore, in principle, they cannot be registered as a PBO or ORSI.
Foundation. A foundation (Articles 2:285 et seq., Dutch Civil Code) is established by notarial deed, by one or multiple persons (either natural or legal persons). This deed must be in Dutch and filed with the Chamber of Commerce. The deed of incorporation contains the articles of association which must include the following:
In addition, the foundation may not aim at making profit.
Association. Associations (Articles 2:26 et seq., Dutch Civil Code) with full legal capacity are established, just like foundations, by notarial deed, by at least two or more persons (either natural or legal persons). This deed, in Dutch, must be filed with the Chamber of Commerce. The articles of association included in the deed must contain the following:
In addition, the association cannot have the purpose to distribute potential profit among its members.
For a foundation or association to be recognised as a charitable organisation, an application for the PBO status, ORSI status, or Foundation Supporting an ORSI status can be made with the Dutch Tax Authorities.
PBO status. To obtain and maintain the PBO status, the following requirements must be met:
Further, a PBO must disclose specific information on a website, including:
To obtain the Cultural PBO status, the charitable organisation must fulfil the requirements for PBO status and be almost entirely dedicated to cultural objectives. These could be in the fields of visual arts, architecture, heritage, dance, film, music, theatre, and so on.
ORSI status. To obtain and maintain the ORSI status, the following requirements must be met:
Foundation Supporting an ORSI status. These charitable organisations can only be a foundation. Further, to maintain the Foundation Supporting an ORSI status, the following requirements must be met:
The legislative framework for charitable organisations is characterised by self-regulation. Therefore, the national legislator only provides a basic legal framework. In this regard, to obtain a PBO status, ORSI status or Foundation Supporting an ORSI status, an application must be made with the Dutch Tax Authorities.
In addition, sector organisations have developed various codes of conduct on good governance for charitable organisations. The most prominent sector organisations are:
The national legislator provides a limited framework for the:
The Dutch Tax Authorities not only decide on approval or rejection of applications for a PBO status, ORSI status and/or Foundation Supporting an ORSI status, but also execute continuous supervision on recognised charitable organisations with regard to the applicable criteria. If a charitable organisation fails to meet these criteria, the Dutch Tax Authority can decide to withdraw a previously provided status.
Sector organisations have developed codes of conduct which are applicable to its members. Certain organisations in the sector provide accreditation of charitable organisations, such as the CBF. As of 1 January 2016, a new system for accreditation of charitable organisations (validatiestelsel) has been adopted by the sector. The applicability of these codes of conducts by sector organisations is optional. There are separate codes for large and small charitable organisations
In governing a charitable organisation, a distinction is made between three different roles in the Dutch charity sector:
There are different ways in which these roles can be designated to certain bodies/persons within the organisation. This depends also on whether the charitable organisation is a foundation or an association. These bodies/persons can include:
A board of directors is the only mandatory body of a foundation (Article 2:291, Dutch Civil Code). Regarding an association, a board of directors and a general meeting of the members are mandatory (Articles 2:40 and 2:44, Dutch Civil Code). Though recommended, a separate supervisory board is not obligatory for a charitable organisation. In a foundation, the different roles could therefore be allocated to the board of directors alone. In associations, the general meeting will usually supervise the board. The bodies of the organisation and their roles are usually defined in the articles of association.
The Dutch Civil Code provides that the board’s task is to manage (Articles 2:44 and 2:291, Dutch Civil Code) but the articles of association may contain limitations to this task. Directors must manage a charitable organisation in a proper way to discharge their duties. This general requirement has been further developed by jurisprudence (see below).
In particular, the board must keep financial records and prepare the balance and state of assets and expenditures after the end of each financial year (Article 2:10, Dutch Civil Code).
In addition, directors must comply with the articles of association. If they do not do so, they run the risk of dismissal (Article 2:298, Dutch Civil Code).
The regulations on PBOs identify in particular certain additional requirements for the directors of charitable organisations:
For other requirements applicable to PBOs, ORSIs and Foundations Supporting an ORSI, see Question 5.
Further requirements for directors depend to a large extent on the codes of conduct that the charitable organisation imposes on itself. This will usually relate to issues such as:
Dutch law requires directors to carry out their management duties in a proper way. If one or more directors fail to so, they can be held jointly and severally liable by the charitable organisation for the damage it suffers as a result (Article 2:9, Dutch Civil Code). This type of liability is known as “internal director’s liability”, because only the charitable organisation itself (the other directors of the foundation or association, and for the association also the general meeting) can file a claim against the inadequately performing director(s). An example of improper behaviour by a director is a situation in which he or she represents the charitable organisation and enters into a transaction where he or she has a conflict of interest. Consequently, this director can be held jointly and severally liable by the charitable organisation for any damage it suffers.
Although the associations and foundations are incorporated, one or more of its directors can be held jointly and severally liable towards creditors of the charitable organisation. This type of liability is called “external director’s liability” (Article 6:162, Dutch Civil Code). The special conditions necessary to establish external director’s liability are as follows:
The burden of proof rests with the creditor(s).
Not only directors, but also persons who are not officially registered as a director can risk director’s liability when they act as a de facto director.
Directors must ensure that there is an accurate administration of the charitable organisation. To maintain the PBO, ORSI, or Foundation Supporting an ORSI status, an entity must have an administration which clearly provides:
Although recommended from a governance perspective, in principle there is no obligation for charitable organisations to prepare annual financial reports. This would be different when the charitable organisation is operating a commercial business.
To assist charitable organisations, the Dutch Accounting Standards Board (DASB) (Raad voor de Jaarverslaggeving (RJ)) has developed guidelines for preparing financial reports. In particular, the Guidelines RJ640 for non-profit organisations and RJ650 for fundraising organisations are relevant. These guidelines consider, among others, the preparation of the annual report, the balance sheet and the statement of income and expenditures.
Foundations and associations can, in principle, be exempted from paying tax on income, as long as they do not manage a business.
Not applicable.
The common rules for tax on capital gains also apply to charitable organisations. A 30% tax rate is levied on annual capital gains, based on fixed rates ranging from 2.871% to 5.39%, depending on the total amount of capital. A small amount of the organisation’s capital is exempted from tax on capital gains.
Foundations and associations can, in principle, be exempted from a VAT return, as long as they do not manage a business. This means they cannot request to receive (or be requested to pay) the outstanding balance that results from deducting the VAT received from the VAT that was paid in the VAT return.
Furthermore, the sales of products/services by a charitable organisation can in certain cases be exempted from VAT.
When a charitable organisation is recognised by the Dutch Tax Authority, several tax exemptions can be applied. The main tax exemptions are as follows:
Tax benefits are available for gifts both by companies and individuals to charitable organisations that have been recognised by the Dutch Tax Authority. The benefits available to a donor depend on the type of:
The Dutch legislator has restricted the tax benefits for donors to two specific types of gifts:
Periodic gifts, among others where a fixed donation is made for at least five years, are fully deductible from the taxable income tax. In other cases, the gift is regarded as an ordinary gift. These gifts are deductible from income tax, but a minimum and maximum threshold is applicable.
PBO. The following rules apply to PBOs:
ORSI. The gifts of donors of an ORSI are deductible from the taxable (corporate) income.
Foundation Supporting an ORSI. The gifts of donors of a Foundation Supporting an ORSI are deductible from the taxable (corporate) income. As a Foundation Supporting an ORSI is recognised for a maximum of one year, donors can only deduct gifts under the rules for ordinary gifts.
In the charity sector, some of the main disadvantages of being recognised by the Dutch Tax Authority as a charitable organisations are as follows:
PBOs. The main disadvantages of PBOs are:
ORSIs. The remuneration for directors of an ORSI must be restricted to an expense allowance or a minimum attendance fee.
The above disadvantages, in particular regarding the publication requirements, are the main reason why only a limited amount of private capital funds in the charity sector have applied to have their status recognised with the Dutch Tax Authorities.
Charitable organisations that are registered in another jurisdiction can, under certain conditions, be recognised by the Dutch Tax Authority and receive the same tax benefits as domestic charitable organisations. Charitable organisations can be recognised by the Dutch Tax Authority if they are domiciled in:
Also, on an ad-hoc basis, individual foreign charitable organisations are granted the PBO or ORSI status. In these cases, to obtain the PBO status, the Dutch Tax Authority will assess whether they meet certain additional requirements. In principle, these charitable organisations must provide, on an annual basis, information to the Dutch Tax Authority to verify whether the organisation still meets the requirements for recognition as a PBO. The charitable organisation must ensure that this information is credible, for example, by providing an audit report from a registered accountant.
It is possible to register a charity in another jurisdiction. The Dutch government has also agreed certain tax-related treaties relevant to charitable organisations (see Question 12).
A legislative proposal is pending (Management and Supervision of Legal Persons Bill (Wetsvoorstel bestuur en toezicht rechtspersonen)) to further align the rules on management and supervision of, among others, foundations and associations with those rules that already apply to limited liability companies. This reform is particularly relevant as requirements and the liability regime currently applying to directors and members of the supervisory board of companies will become applicable also to directors and members of the supervisory board of foundations and associations. In addition, the law will provide more extensive rules on possibilities for dismissal and suspension.
Besides, the Dutch Accounting Standards Board (DASB) (Raad voor de Jaarverslaggeving) has revised the financial reporting guideline RJ650 for fundraising organisations on 1 January 2017.
W https://verdragenbank.overheid.nl/en
Description. Official website of the Dutch government including the legislative text of all acts and regulations referred to in this article. International treaties are also available in English via the Verdragenbank (Treaty Database).
T +31 55 538 53 85
Description. Dutch Tax and Customs Administration. The website is available mainly in Dutch and partly in English.
Reinier W.L. Russell, LL.M. contributed the chapter on the legal framework of charity law in the Netherlands to the practical handbook Charity Law. A Global Guide from Practical Law, published by Thomson Reuters. This handbook provides a high level practical overview of the global charity law sector, covering 20 key jurisdictions.
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