Crowdfunding from a tax perspective

When financing projects through crowdfunding, tax aspects must also be taken into account.

In crowdfunding, many people contribute different amounts to finance specific projects, products, business ideas or plans. As always, when money flows, the taxman is not far behind. The German Federal Ministry of Finance has answered the Bundestag's questions on the tax treatment of commercial crowdfunding campaigns and has issued an administrative instruction providing details on how to assess them as donations.

From an income tax perspective, crowdfunding income that arises in connection with a business activity is generally business income and must be recognized in profit. However, insofar as the crowdfunding is a repayable loan, the inflow of assets naturally does not affect profit. Conversely, the repayment is then also not an operating expense.

Under sales tax law, income from crowdfunding without corresponding consideration by the receiving entrepreneur is irrelevant due to the lack of an exchange of services. If, on the other hand, the entrepreneur provides a service in return in the sense of value-added tax, there is regularly a taxable exchange of services, unless a value-added tax exemption applies.

As far as gift tax is concerned, the payment does not trigger any tax liability in the vast majority of cases, because in many crowdfunding campaigns a consideration is provided by the initiator (e.g. delivery of the product after completion), which in turn rules out enrichment by the recipient. In addition, the gift tax allowance for gifts between strangers is only very rarely likely to be exceeded in a crowdfunding campaign. Whether and to what extent the requirements for a gift are met ultimately depends on the specific structure of the respective crowdfunding campaign.

Payments made in the context of classic crowdfunding are not deductible as donations, because a donation must be paid to a beneficiary without the expectation of a special benefit. The donation deduction therefore regularly fails in the case of classic crowdfunding because the recipient is either not tax-privileged or because the donor receives a consideration for his or her contribution. The relationship between the service and the consideration is irrelevant.

Even if the crowdfunding campaign serves solely to support charitable purposes, a donation deduction is only possible if either the initiator itself or the crowdfunding portal is a tax-recognized charitable institution that may issue donation receipts. In such a case, however, the recipient must carry out the financed project within the scope of its tax-privileged purposes and it must be possible to allocate the donations to the respective donor without any doubt.