Taxation of corporate donations

The motto of Punamoon OÜ is: “Together, we are stronger!” Therefore, we cannot overlook such an important topic as corporate support and gifts. As an accounting firm, we will discuss donations “from an accounting perspective,” meaning from a tax standpoint.

It is no secret that only expenses directly related to a company’s business activities are exempt from additional taxes. Donations are typically not directly related to such activities and are therefore subject to taxation. Fortunately for businesses, there are several tax benefits available for corporate donations, allowing for payments that may ultimately be tax-exempt.

• Information for Entrepreneurs;
• Declaration Information for Accountants;
• Information about Our Partner – the Charitable Foundation.

The taxation of corporate donations depends on where the donation is directed. If the recipient is listed as a non-profit association, foundation, or religious organization eligible for income tax benefits (hereinafter referred to as the TMIN list), the donation is exempt from taxation within a certain limit.

Donations made to a legal entity included in the TMIN list are tax-exempt up to:

• 3% of the gross wages paid during the calendar year that are subject to social tax. For example, if a company paid €20,000 in wages during the year, it could donate up to €600 (3% of €20,000) without incurring a tax obligation.

• 10% of the previous year’s profit. For example, if a company’s profit for the previous reporting period was €5,000, it can donate up to €500 (10% of €5,000) during the year without incurring a tax obligation.

All other donations made to a legal entity not included in the TMIN list are taxed at a rate of 20/80 or 25% in 2024 (and 22/78 or 28.2% in 2025).

Donations made are declared on a cash basis (i.e., in the period when the payment was made) in Annex 5 of the TSD declaration for income and social taxes, mandatory funded pension contributions, and unemployment insurance payments. The deadline for submitting the declaration and paying taxes is the 10th day of the month following the reporting period.

A company decides for itself which of the above-mentioned criteria (3% of gross wages paid or 10% of the previous year’s profit) is more beneficial to choose and apply. If a company makes donations regularly throughout the year, the total amount of donations accumulates during the year. Moreover, during the year, the company may change the criterion used to determine the non-taxable donation amount. However, ultimately, only one criterion will be applied (the one specified in the most recent declaration), and the tax amount will be recalculated based on the last declaration.

There are many organizations dedicated to charitable activities, but Punamoon has chosen to collaborate specifically with the charitable foundation “Warmth of Hearts” since its inception.

The charitable organization “Warmth of Hearts” is included in the TMIN list (search by registration code 80365572, Mittetulundusühing Heategevusfond Südamete Soojus). This means that:

• The charitable foundation has undergone a government inspection,
• all collected funds are directed toward good causes,
• and donations made to the MTÜ Heategevusfond Südamete Soojus are eligible for the tax benefit we described earlier.

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