In Italy, many organizations are created through private initiative in order to satisfy common needs and interests, without the aim of making a profit. This is the world of “non-profit”, also known as the third sector, which contains all those entities that do not have the creation of wealth as their motive. Rather they are dedicated to pursue other goals such as solidarity, socialization, humanitarianism, culture, art, environmentalism, sport and similar. The main characteristic is that they are primarily non-commercial and non-profit, aimed at satisfying socially relevant needs through shared actions.
For example, an association can promote the knowledge of foreign languages, teach cooking, promote sports, or provide social or health assistance for the group.
How to set up an association
Setting up an association is not very complicated and does not necessarily have to involve a notary. Once the association’s objective has been defined (culture, sport, promotion, solidarity, etc.), it is necessary, in the presence of at least three members, to:
- Prepare the constitutional act and associational statute in duplicate, including all the requirements and elements called for by Civil Code and fiscal regulations.
- Obtain the fiscal code (CF);
- Register the constitutional act and statute at the Agenzia delle Entrate, paying the necessary taxes and stamps.
Fiscal benefits for associations in Italy
A properly established and registered association can benefit from various fiscal advantages. All activities carried out on behalf of the members, if they are inherent to pursuit of the association’s aims, are considered non-commercial. These earnings are not subject to taxation. In practical terms, an association can receive payments from the members for their participation in the association’s activities (for example, courses, seminars, trips, conventions, sporting events, etc.), without any special fiscal obligations. To obtain and maintain these fiscal benefits, however, the association needs to have a correctly drawn-up statute, which should include the requirements and limitations called for by the tax laws: and a correct management of the association, involving participation and transcription of the acts of association (reports from the Board of Directors and member’s assemblies, estimated and corrected annual balance sheets).
Comercial activities and associations in Italy
Associations can also carry out commercial activity with non-member third parties, receiving payments (compensation) for the activities carried out. In these situations, care must be taken; the commercial activity towards third parties should be marginal and never preponderant in comparison to the institutional activity carried out for and with members.
An association’s commercial activity includes those activities that do not enter into the specific aims established by the association statute (for example, a sports association that organizes music lessons), which are paid for both by the members and by outsiders, and all those activities aimed at and paid for by non-members (courses, seminars, conventions, health services, etc.). The following activities are considered commercial by definition: new goods produced for sale, meal, beverage and hotel services, transportation and depositories, management of spaces and cafeterias, travel and tourism organization, commercial fairs and expositions, and commercial advertising.
When the association begins to pursue commercial activity, even marginally, it must have a partita IVA (VAT position) and must use this for accounting and fiscal requirements.
Associations and their non-profit identity
Care must be taken so that the association does not lose its identity as a non-profit. If commercial activity is carried out habitually and professionally, and earning from these activities exceed those from normal institutional activity versus members, the association may lose its non-commercial status and become considered, for fiscal purposes, as a business, obligated to meet the fiscal requirements of a business and held to ordinary fiscal reporting procedures. They only exception is for non-professional sports, which can be commercial even in a prevalent way.
Naturally, the money brought in by the association should not be considered earnings to be divided among the members. But nothing precludes the association from using this money to remunerate its own administrators and members working on behalf of the association itself.
Associations can, in a relatively simple way, satisfy important interest and common needs. However, it is a good idea to consult professional experts in the sector, both to set up and to manage the association, in order to avoid fiscal errors and sanctions.
This article was originally published in Tuscany’s Grapevine Magazine apvine-september-2016 with the title “The Hows and Whys of Associations in Italy”. September 2016’s issue describes the main regulatory issues in Italy, and also presents some types of associations and their management.