Conditions for qualifying as a non-profit association
There are four conditions that impact whether the association shall pay taxes on certain income or not. This applies to some rental income, some income from the sale of goods and services, and income from capital. Membership fees, donations, and grants are often tax-exempt regardless of whether the association satisfies the conditions or not. The same rules apply for registered religious communities. If the association satisfies all the conditions, the association is a non-profit.
The association must satisfy all four conditions to qualify as a non-profit.
1. The association shall have a non-profit purpose
A purpose that benefits the public can, for example, be sports, culture, politics, or religion. This is called a non-profit purpose. Associations whose purpose is to promote its members’ financial interests do not have a non-profit purpose.
This is called the purpose requirement.
Examples of non-profit purposes
Examples of non-profit purposes:
- sports, culture, or religion
- child and youth care
- social assistance, health care, or environmental protection
- politics or Sweden’s defence and emergency preparedness in cooperation with authorities
- education and scientific research.
Examples of associations that are not non-profit
Examples of associations that are not non-profit:
- trade unions and trade associations
- collectors’ associations
- road maintenance associations and water associations
- cottage associations, homeowner’s associations, and tenants’ associations
- jetty associations and harbour associations.
2. At least 90 percent of the association’s activities shall serve to satisfy the association’s non-profit purpose
At least 90 percent of the association’s activities shall serve to satisfy the association’s non-profit purpose. This can be calculated in the form of resources such as money, time, or labour.
Activities operated by the association to finance its non-profit purpose shall not be included. Lotteries and sales campaigns are such activities.
The condition shall be calculated during the financial year. If it is not satisfied during the financial year, you may calculate it over a period of three years: the year before the financial year, the current financial year, and the year after the financial year.
This is called the ‘line of business’ requirement (Sw. verksamhetskravet).
Example of when an association does not satisfy the condition
Viken IF is an athletics association with a tax-exempt income of SEK 10 000. The total expenses of the association amount to SEK 9 750. Of these, SEK 8 500 is used for the athletic activities and SEK 1 250 for activities that do not serve to satisfy the association’s non-profit purpose.
To calculate the proportion of the activities serving to satisfy the association’s non-profit purpose, divide the expenses used for the athletic activities by the total expenses of the association.
8 500 ÷ 9 750 = 0.87 = 87 percent
The association’s activities serve to satisfy the non-profit purpose by 87 percent. Therefore, the ‘line of business’ requirement is not met, as less than 90 percent of the association’s activities serve to satisfy the association’s non-profit purpose.
3. At least 75 percent of the association’s income shall be used to fulfil the association’s non-profit purpose
At least 75 percent of the association’s income shall be used for the association’s non-profit purpose. The association’s taxable income shall not be included, nor shall the costs incurred to procure this income. The condition shall be calculated during the financial year. If it is not satisfied during the financial year, you may calculate it over several years, usually the financial year and the previous four years.
This is called the completion requirement.
Example of when an association satisfies the condition
Viken IF is an athletics association with a tax-exempt income of SEK 10 000. SEK 8 500 are used for the athletic activities and SEK 1 250 for activities that do not serve to satisfy the association’s non-profit purpose.
To calculate the proportion of the activities that serve to satisfy the association’s non-profit purpose, divide the expenses used for the athletics activities by the association’s income.
8500 ÷ 10 000 = 0.85 = 85 percent
The completion requirement is met because more than 80 percent of the association’s income was used to satisfy the association’s non-profit purpose, which is athletics.
4. The association shall be open to all who wish to become members
The association shall have open membership. This means that the association is open to all who share the goal of the association and adhere to the association’s statutes. On the other hand, the association may impose certain requirements for membership, for example a geographical limit for a rural culture society, a minimum age limit for a shooting club, or a musicality requirement in a music association. Usually, associations such as orders do not have open membership.
This is called the openness requirement (Sw. öppenhetskravet).
An association that satisfies all four conditions is called a non-profit association.
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