Donations to NGOs that are tax deductible is a way of enjoying tax benefits for many organizations. In this article we will present all the tax benefits that arise from donating to social and cultural institutions.
According to the World Giving Index, Brazil ranks as number 91 in the list of the most generous country in the world in terms of donation value. Despite 23% of all Brazilians donating to Third Sector institutions, the medium value of monthly donations is still very low. The Institute for Development of Social Investing accounted for more than BRL 600 million in donations to third sector institutions in 2012.
Some civil society entities provide public services that compliment the ones the government are responsible for. To encourage and support these actions, the government benefits entities that aim to support the activities carried out by the Third Sector.
Whom to donate
The following types of entities are entitled to receive donations which will grant tax benefits to the donor:
- Entities of Federal Public Interest and Civil Society Organizations of Public Interest, the OSCIPs
- Funds of Rights for Children and Adolescents
- Educational and Research Institutions
- Institutions performing Cultural and Audiovisual Activities
Entities of Federal Public Interest and OSCIPs
Donations by companies to Entities of Federal Public Interest and OSCIPs - civil nonprofit organizations acting for the benefit of the community - can be deducted by up to 2% of the revenue if the company is subject to taxation arrangements known as Lucro Presumido. To benefit for the tax deduction it is mandatory that:
- Whenever donations are made in currencies, they are to be made via transfer to a bank account directly on behalf of the beneficiary entity
- The donor company keeps available to inspection the declaration of donation provided by the beneficiary, in which it agrees to fully apply the funds received in the achievement of its objectives and to not distribute any profits to managers, maintainers or associates, under any circumstances
- The beneficiary civil entity be recognized as a OSCIP by the Ministry of Justice
This system is named “shared incentive” because it allows the donation to be considered an operational expense. This way, the profit of the company is reduced and a lower base for Imposto de Renda da Pessoa Jurídica, Portuguese for Corporate Income Tax, the IRPJ. This is not exactly a direct tax rebate.
Funds of Rights for Children and Adolescents
The Funds of Rights for Children and Adolescents are referred to in the ECA, the Estatuto da Criança e do Adolescente, Portuguese for Statute for Children and Adolescents, and are controlled by the corresponding Boards for the Rights of Children and Adolescents, whether they be municipal, state or federal. The resources for these Funds come from government and private sources through donations from individuals and companies. Such donations are deductible from Income Tax payable by individuals and companies, under the following terms:
- Individuals are allowed to deduct the donated amount of up to 6% of their Income Tax
- Companies are allowed to deduct the donated amount of up to 1% of their Corporate Income Tax
Educational and Research Institutions
Donations to Educational and Research Institutions can be deducted of up to 1.5% from the Income Tax payable by individuals and companies, under the following terms:
- The creation of the Institution was authorized by Federal Law
- The Institution proves it’s for non-profit purpose
- The Institution applies the surplus funds in education
- The Institution ensures the allocation of its assets to another school, religious or philanthropic community or to the Government, in case of termination of their activities
Institutions performing Cultural and Audiovisual Activities
The Federal Law for Culture Incentive, popularly known as Rouanet Law established the Programa Nacional de Apoio à Cultura, Portuguese for National Program for Support of Culture - PRONAC, which provides mechanisms for investing resources in projects that meet at least one of the following objectives:
- Incentive to cultural or artistic formation
- Promotion of cultural or artistic production
- Preservation and diffusion of artistic, cultural and historical heritage
- Incentive to learning of cultural values
- Support to other cultural and artistic activities
The projects may be presented by individuals or companies. It is necessary that they also provide the display, use and public circulation of the resulting cultural activities that must be qualified as one of the following:
- Theatre, dance, circus, opera, mime or similar
- Cinematographic, videographic, photographic, discographic production or similar
- Arts, prints, posters, stamps or similar
- Folklore and crafts
- Cultural, architectural, archaeological, libraries, museums, archives and other collections
Radio and television, both educational and cultural, of a non-commercial character
It is worth mentioning that the projects must be previously authorized by the Ministry of Culture, thus considering it a project intended to produce culture or artistic goods.
Investing in the PRONAC
The mechanisms available for investing in the PRONAC funds are:
- Fundo Nacional da Cultura, Portuguese for National Fund for Culture, FNC, transfers funds directly to projects, up to 80% of the total value exclusively to non-profit legal entities other public legal entities
- Patronage - which allows the investment of resources in cultural projects approved by the Ministry of Culture, through donation or sponsorship from individuals and companies
The patronage mechanism is a kind of direct tax incentive because it allows the direct deduction over the Income Tax of donations made.
It is important to distinguish two types of patronage: despite both being a free transfer of funds, the sponsorship can be given to individuals or legal entities that seek profit as well as admitting promotional and institutional advertising. However, the donation can not be given to individuals or entities that seek profit and may not use the funds for advertising.
Individuals can deduct from their Income Tax:
- Up to 60% of the value invested as sponsorship
- Up to 80% of the value invested as donation
The tax relief for these individuals can match a maximum of 6% over their Income Tax.
Companies can deduct from their Corporate Income Tax:
- Up to 30% of the value invested as sponsorship
- Up to 40% of the value invested as donation
The tax relief for these companies can match a maximum of 4% over their Corporate Income Tax. Moreover, companies can declare their investments as operational expenses which will reduce the amount of tax payable.
In some areas the investors can deduct up to 100% of the value they invested as sponsorship or donation, but these amounts may not be declared as operational expenses and may not exceed 6% of deduction in Income Tax for individuals and 4% of deduction in Corporate Income Tax for companies. These specific areas are as follows:
- Performing arts
- Books of artistic, literary or humanistic values
- Classical or instrumental music
- Circulation of arts exhibition
- Donations of collections for public libraries and museums
The Audiovisual Law is a Brazilian law focused on investment in the production of films and audiovisual works and infrastructure for production and exhibition, with the condition that the project be approved by the Ministry of Culture.
Thanks to this Law, sponsors of the film can deduct up to 100% of the value invested in the film to a maximum of 3% over their Income Tax, whether it is an individual or company. Companies may also declare the value invested as operational expenses. The investments here may not exceed BRL 3 million. The investments, since they are authorized by the Securities Commission, are made via the purchase of Certificates of Investments which are representatives of the rights of:
- Commercialization of independent production films and of distribution projects
- Display and technical infrastructure