Under what conditions can foundations with legal capacity be subject to trade tax in Germany? The ruling of the Federal Fiscal Court (BFH) of September 25, 2025 provides more clarity.
Essentially, the BFH emphasizes that trade tax liability does not arise from Section 2 (2) of the German Trade Tax Act (Gewerbesteuergesetz, GewStG) or solely from the existence of diverse capital investments or shareholdings. Rather, a structured and comprehensive analysis of the individual case is required, which the tax court did not carry out in the original case.
Background to the proceedings: Foundation with various investments
The foundation in question held various investments, including fixed-term deposits, cooperative shares, and holdings in corporations and partnerships. In addition, occasional stock transactions were carried out and donations were received. Without conducting an in-depth examination, the tax office and tax court assumed that the foundation was subject to trade tax and denied it charitable status.
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The BFH criticized this approach, as it should first have been clarified whether the foundation was even subject to trade tax within the meaning of trade tax law.
No automatic trade tax liability for foundations in Germany
The BFH has clarified that foundations with legal capacity are not among the entities that are automatically subject to trade tax pursuant to Section 2 (2) GewStG. This provision typically applies to corporations, but not to foundations. Whether a tax liability arises does not depend on the legal form, but on the actual activity.
Trade tax liability only comes into consideration if the foundation
- maintains a commercial business operation within the meaning of Section 14 of the German Fiscal Code (Abgabenordnung, AO) or
- an original business operation in accordance with Sections 2 (1) GewStG and 15 (2) of the Income Tax Act (Einkommensteuergesetz, EStG).
This requires a case-by-case analysis. In particular, it must be examined whether an activity is
- independent,
- sustainable,
- aimed at generating income or economic advantages, and
- goes beyond mere asset management.
Donations do not count as such, as they are made without consideration. Fixed-term deposits and cooperative shares are regularly part of asset management. Depending on the scope and motivation, stock transactions may cross the line into commercial business operations.
Participation in partnerships is particularly relevant. The BFH points out that participations in commercially active partnerships can generate commercial income. Conversely, participations in purely asset-managing but commercially oriented partnerships do not automatically lead to trade tax liability.
No general classification, but activity-based consideration
The BFH also emphasizes that a commercial activity only covers the activity in question and does not automatically cover all of the foundation’s activities. It is not permissible to classify all of the foundation’s income as subject to trade tax on a generalized basis.
Consequences for practice: Trade tax only for commercial business operations
According to the BFH, only when a commercial business operation has been positively identified, the question of possible tax exemptions, reductions, or additions arises. The BFH ruling thus highlights the importance of a systematic audit process and provides clarity for the tax classification of foundation activities.
For German foundations, this means that trade tax liability must always be assessed on the basis of specific activities. Careful analysis is particularly necessary in the case of investment structures, restructuring, or complex capital investments.
Comprehensive advice for NPOs on the classification of activities
If you are unsure whether certain activities of your foundation still fall under asset management or already exhibit characteristics of a commercial business, we will be happy to assist you. Our NPO team has extensive experience in the areas of German nonprofit law and foundation law and will guide you through the legally compliant classification of your structures.
BFH, judgment of September 25, 2025, III R 16/25
