Why aren't all hospitals non-profit?

Municipal clinics: Save taxes with the non-profit status

Obtaining extensive tax breaks can also be worthwhile for municipal companies, as the considerations on the “Munich Clinic” now show. The city council has decided that the city hospitals should be converted into a non-profit organization.

Hospitals can save taxes in the form of a GmbH.

Non-profit organizations are tax-privileged

Regardless of whether private or municipal commercial enterprises - taxes cost money and thus reduce the possibility of reinvestment. Those who can post their profits tax-free can therefore consider themselves lucky. This possibility is for non-profit organizationswho pursue tax-privileged purposes with their economic business operations. If they generate profits in the context of such a so-called special-purpose operation, no income taxes are incurred.

The non-profit GmbH as an attractive legal form

If a GmbH pursues tax-privileged purposes with its economic business operations, it can be recognized by the tax authorities as non-profit and henceforth also as profit company or "gGmbH". It combines the advantages of the legal form of the commercial GmbH, which has always been extremely successful in Germany, with the tax advantages offered by the charitable law for nonprofit organizations. Many municipalities have also recognized this and typically operate their hospitals in the legal form of a GmbH.

Hospitals can be tax-exempt special-purpose entities

The catalog of tax-privileged purposes includes the promotion of public health and public health care - this means that the operation of a hospital in particular can be tax-privileged. As a special prerequisite for the tax-privileged operation of a hospital, however, 40 percent of the annual occupancy days or billing days must be allocated to patients for whom only fees for general hospital services or no higher fees are charged.

Special regulations are necessary

The tax code (AO) also sets certain requirements for the statutes for non-profit organizations in order to secure the use of the tax-free funds for the benefit of tax-privileged purposes. Obtaining non-profit status for existing GmbHs therefore requires an amendment to the articles of association; it must meet the requirements of non-profit law. The city of Munich now wants to take this step in order to continue its municipal clinics, which are organized as a commercial GmbH, as non-profit.

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Weighing up the advantages and disadvantages in each individual case

However, the non-profit status also entails restrictions: profit distributions to the shareholder are prohibited, for example, if the shareholder is not also tax-privileged or a legal entity under public law and uses the funds received for tax-privileged purposes. The change to non-profit status also needs to be carefully considered because a return to commercial activity is usually unattractive from a tax point of view. After all, services by non-profit organizations are often exempt from sales tax - in return, you lose the input tax deduction, which increases the acquisition costs, especially in the case of expensive purchases (such as diagnostic devices). However, since hospitals are exempt from sales tax regardless of their non-profit status, at least this is not a special disadvantage of non-profit status.

Service companies are often not recorded

Non-profit legal entities often set up so-called subsidiary service companies for individual tasks
outsourced to the non-profit mother. Often the aim is to save wages if different collective agreements are used in the individual companies. For example, the building and laundry cleaning of hospitals can be outsourced to subsidiaries of the hospital. These service companies are then usually not tax-privileged. However, the establishment of subsidiary GmbHs can still make sense - not only for the above-mentioned collective agreement reasons, but above all in order to outsource areas with liability and, in an emergency, to separate them from the other hospital areas.

Versatile advantages of the gGmbH

Municipal clinics and other social enterprises are often run as non-profit limited liability companies for a reason. If it is properly structured, there are tax, liability, organizational, economic (wage costs) and budgetary advantages for the clinic and the provider.

At a fixed price, we determine whether your clinic is optimally structured in terms of taxation and, if necessary, develop a restructuring concept. Please register at [email protected].

Continue reading:
Private clinics and hospitals: which services are exempt from sales tax?
Establishment of your gGmbH by an experienced consultant

Johannes Fein

Johannes Fein specializes in tax law, non-profit law and sports law. He advises and represents non-profit associations and associations, business and professional associations, non-profit limited liability companies and cooperatives as well as foundations and other non-profit organizations.

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