The basics of third sector organizations in Italy


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  1. Introduction
  2. What third sector organizations are
  3. The requirements to be considered a third sector organization
    1. Business activities
    2. Allocation of assets
    3. Registration with RUNTS
  4. Financial statements and reports of third sector organizations
  5. Tax benefits for third sector organizations
    1. Distinction between commercial and non-commercial TSOs
    2. The determination of flat-rate income tax for non-commercial TSOs
    3. Other tax benefits for TSOs

On June 18, 2016, the Official Gazette of the Italian Republic announced the entry into force of Italian Law 106/2016. This law empowers the government to reform the third sector, leading to the issuance of three implementing decrees: one relating to the institution of the “Five per thousand” donation (Italian Legislative Decree 111/2017), one relating to the reform of social businesses (Italian Legislative Decree 112/2017), and lastly, one relating to the “Codice del Terzo settore” (Third Sector Code) - Italian Legislative Decree 117/2017. The purpose outlined in the delegated law was to organically reorganize and overhaul the third sector, which is typically characterized by severe lack of regulatory consistency and a high degree of stratification. In this article, you will find out what third sector organizations (TSOs) are, the requirements to be one, and the related tax benefits.

What’s in this article?

  • What third sector organizations are
  • The requirements to be considered a third sector organization
  • Financial statements and reports of third sector organizations
  • Tax benefits for third sector organizations

What third sector organizations are

To understand what TSOs are, it is important to first understand what the third sector is. The “third” sector is distinct from government agencies (the first sector) and private businesses (the second sector). It includes organizations that perform, exclusively or primarily, activities of public interest and have nonprofit status. Specifically, TSOs include:

  • Volunteer organizations
  • Social promotion associations
  • Philanthropic organizations
  • Social businesses, including social cooperatives; association networks; mutual aid businesses; and nonprofit associations (recognized or unrecognized), foundations, and other private entities other than businesses established for the pursuit of community, charitable, and socially useful purposes

It is important to note that the Third Sector Code excludes the following categories from the group of TSOs:

  • Government departments
  • Trade unions
  • Professional and representative economic trade associations
  • Political groups and associations
  • Employers’ associations
  • Entities subject to coordination by one of the above-mentioned entities, with the exceptions specifically provided for under Article 4, paragraph 2, of the Code

The requirements to be considered a third sector organization

The key requirements to join the list of TSOs mainly concern business activities, the allocation of assets, and registration with RUNTS (Registro Unico Nazionale del Terzo Settore, or Single National Register of the Third Sector). Let’s take a look at these in more detail.

Business activities

  • Health care and social services
  • Undergraduate and postgraduate education
  • Nonscholastic training
  • Scientific research of special social interest
  • Education and vocational training
  • Projects to protect and enhance cultural heritage and the landscape
  • Organizing and managing cultural, artistic, or recreational activities of social interest
  • Social housing
  • Charity and child sponsorship
  • Promoting and defending human rights

Some of the business activities carried out may differ from those listed above, as long as they are permitted in the certificate of incorporation of the organization and are always instrumental and secondary to activities of public interest.

Allocation of assets

The second fundamental requirement to be defined as a TSO concerns having nonprofit status and earmarking special-purpose assets. Nonprofit status means that a TSO must allocate profits or surplus revenue to carrying out its statutory activities or to increasing its net worth. It therefore cannot distribute profits or surplus revenue, funds, or various reserves to founders, partners, employees, directors, and other members of corporate bodies.

The only exception to this rule is the option for social businesses to allocate an amount less than 50% of annual profits and operating surpluses (less any losses accrued in previous years) toward:

  • Increasing the share capital subscribed and paid up by members, free of charge, within the limits of the changes in the annual household of workers and employees consumer price index of Italy, calculated by the National Institute of Statistics (ISTAT) for the period corresponding to the fiscal year in which the profits and surplus revenue were generated; or to the distribution, including through a free capital increase or the issuing of financial instruments, of dividends to shareholders—in an amount not exceeding the maximum interest on interest-bearing postal bonds, increased by two-and-a-half points over the actual paid-up capital.

  • Unrestricted disbursements in favor of TSOs, other than social businesses, that are not founders, associates, or partners of a social business or subsidiaries thereof—aimed at promoting specific, socially useful projects.

Registration with RUNTS

One notable obligation for a TSO is for it to indicate its status in its corporate name. According to Articles 4 and 11 of the Third Sector Code, TSOs must register with the Single National Register of the Third Sector (RUNTS) and indicate the details of this registration in documents, correspondence, and public communications. TSOs that operate exclusively or primarily as a commercial business must also register in the trade register. For social businesses, registration in the special section of the trade register fulfills the requirement to register with RUNTS.

The current registers have transferred the data of organizations already in the registers of voluntary work organizations and social promotion associations to the InfoCamere IT platform that manages the RUNTS on behalf of the relevant government ministry. The latter was in charge of providing for their transmigration.

It is worth clarifying that registration with RUNTS is mandatory to obtain the designation of a TSO. Otherwise, registration is optional. Becoming a TSO and subsequently registering with RUNTS provides several benefits that we will clarify later in this article.

Financial statements and reports of third sector organizations

TSOs must keep financial statements and reports as follows:

  • TSOs with revenue of less than €220,000 may keep financial statements in the form of a cash flow statement, showing total revenue and expenses.

  • TSOs with revenue, income, proceeds, or other income equal to or exceeding €220,000 must prepare annual financial statements consisting of a balance sheet, profit and loss account (showing revenue and expenses), and mission statement (showing the items in the financial statements, the economic and financial performance of the organization, and how it pursues its statutory purposes).

  • TSOs with revenue, income, proceeds, or other income in excess of €1 million must prepare a sustainability report in accordance with the guidelines for preparing TSO sustainability reports established by the relevant ministry and filing it with RUNTS, as well as publishing it on its website.

  • Finally, TSOs with revenue, income, proceeds, or other income exceeding €100,000 must publish annually—and keep updated on their website—any case of remuneration, compensation, or fees attributed to members of administrative and control bodies, managers, and associates for any reason.

Tax benefits for third sector organizations

The Code of the Third Sector establishes tax obligations and benefits for TSOs based on the specific ways in which they carry out activities of public interest (Art. 5, Italian Legislative Decree no. 117/2017) and any secondary activities, as well as the nature of the organization and its organizational model.

Some measures already came into effect on January 1, 2018. These are the benefit provisions that, while waiting for the RUNTS to become operational, already applied to non-profit organizations, social development associations and voluntary work organizations registered in their respective registries. Specifically, the measures include indirect tax concessions to provide incentives for organizations to purchase goods and resources.

Distinction between commercial and non-commercial TSOs

Regarding the taxation of income generated by TSOs, most financial incentives are based on the distinction between commercial and noncommercial TSOs, according to Article 79 of the Code of the Third Sector.

For each area of activity of public interest, the organization must assess whether it carries out the activities in question free of charge or for a fee that does not exceed actual costs, in line with the 5% tolerance limit. You also need to know which items do not contribute to TSO revenue, such as:

  • Funds received from occasional public collections
  • Government grants and contributions for activities of public interest
  • Sums paid by members as membership fees or contributions.

The determination of flat-rate income tax for non-commercial TSOs

For non-commercial entities, income taxes are determined on a flat-rate basis according to the following profitability coefficient:

Profitability coefficient
Performance of services
Other activities
Up to €130,000
7% 5%
From €130,001 to €300,000
10% 7%
Over €300,000
17% 14%

For entities that simultaneously provide services and other activities, the coefficient is based on the revenue related to the main business activity. In the absence of a clear distinction between revenue from different sources, the provision of services is considered the main business activity.

Making sure your business stays on top of constantly changing tax regulations can be especially complex. Tools such as Stripe Tax can help you simplify tax compliance by automatically generating detailed reports that are useful for filing tax returns.

Other tax benefits for TSOs

Other tax benefits for TSOs are as follows:

  • Total exemption from stamp duty for any type of document
  • For municipal property tax, the exception only applies to organizations that carry out particular activities that are performed in a noncommercial manner (as in the previous legislation)
  • For direct property taxes, exemption applies to voluntary work organizations (including philanthropic organizations if already considered as such) and social development associations
  • Exemption from government concession taxes
  • Exemption from, or a fixed amount of, registration tax on amendments to bylaws required by law and other statutory amendments
  • Other local taxes—for these taxes, local authorities may provide for a reduction or exemption
  • Registration, mortgage, and cadastral taxes for real estate purchases—due in a fixed amount

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