Economic activity of associations
Associations may perform economic activities, but not for the purpose of gaining profit for their members or third parties
Associations may perform economic activities if this is prescribed by the statute and if it is in accordance with special regulations governing the conditions for performing the type of activity in question.Associations may perform economic activities in addition to the activities aimed at achieving its objectives set out in the statute, but not for the purpose of gaining profit for their members or third parties.
Pursuant to Article 9 of the Act on Associations, activities of associations are based on the principle of non-profit, which means that an association is not established for profit, but it is permitted perform economic activities in accordance with the law and the statute.
Performing economic activity
The provisions of the General Tax Act define economic activity as the exchange of goods and services on the market for the purpose of generating revenue, income, profit or other economically assessable benefits.As prescribed by Article 31 of the Act on Associations, associations may generate revenue by carrying out activities aimed at achieving their objectives and by performing economic activities only if this is prescribed by the statute and if it is in accordance with special regulations governing the conditions for performing the type of activity in question.
Associations may perform economic activities in addition to the activities aimed at achieving its objectives set out in the statute, but not for the purpose of gaining profit for their members or third parties.
If in the course of performing economic activity an association realises any surplus income over expenditure, it must, in line with the statute of the association, be used exclusively for the purpose of achieving the objectives set out in the statute. If it conducts its operations in this way, an association is permitted to undertake gainful activities and generate unlimited revenue. It should be noted that the principle of non-profit in respect of members and third parties does not prevent the association from covering costs or appropriately rewarding members and other persons who on its behalf perform certain tasks that contribute to achieving the objectives of the association.
The competent administrative authority must submit to the Tax Administration the decision on the registration of an association that has laid down the performance of economic activity in its statute, immediately upon its entry in the Register of Associations. The Corporate Tax Act stipulates that the associations that perform a certain economic activity the non-taxation of which would lead to the acquisition of unjustified market advantage are required to apply for entry in the Register of Taxpayers kept by the Tax Administration within eight days from the date of initiation of that activity in order to determine corporate tax liabilities arising from performing a certain economic activity.
An association that registers the performance of economic activity itself will not receive a decision, but will become a taxpayer of corporate tax without one. However, if the Tax Administration, on its own initiative or at the proposal of other taxpayers or interested persons, imposes on the association the obligation to pay corporate tax, it will issue a decision thereon.
The Corporate Tax Act does not consider how an association uses the surplus income over expenditure, but rather takes into account the fact that non-taxation of the association would put it in a more favourable position on the market compared to an entrepreneur who is a taxpayer and performs the same economic activity.
The Corporate Tax Act does not prescribe the amount of revenue up to which an association would not be required to declare economic activity.
Despite the Act not prescribing it, associations may also, for the purpose of performing economic activities aimed at achieving the objectives set out in the statute, establish companies, cooperatives or other economic entities, in accordance with special regulations, and regulate mutual relations by contract.
It is difficult to list all the economic activities that an association is permitted to perform and that can generate revenue. When determining the permitted economic activities, it is necessary to start from the principle that an association is permitted to perform all activities that are laid down in its statute, except those that are explicitly prohibited by law. In practice, the principle that is applied is the one according to which associations are allowed to perform those economic activities that are explicitly stipulated by special regulations. Therefore, for each specific economic activity, the relevant substantive regulation should be considered (e.g. the Trade Act for the activity of trade, etc.) for the purpose of assessing whether the specific activity is explicitly permitted or prohibited. If it is found that the activity is not prohibited, the next step is determining under what conditions such activity may be performed by the association in question.
Minimum technical requirements
When selling products, associations must act as business entities, which means they have to meet the minimum technical requirements. This refers to equipment and means by which trade is conducted, general sanitary and health requirements under food regulations which must be met by sales facilities, and equipment, means and persons who deal directly with goods and may thus affect human health, all in accordance with special regulations.The law allows non-profit legal persons to conduct trade activities as well. Without obtaining the minimum technical requirements, and in accordance with special regulations, they are permitted, for the purpose of achieving their objectives, to perform all activities laid down in their statute, except those that are explicitly prohibited by law. They can also sell goods or services, as a legally permitted form of retail trade, in the premises of cultural, religious, educational, scientific and other public institutions, as well as in the areas that are considered a protected area of nature.
An exception from the application of the provisions of the Trade Act has been introduced, referring to the fulfilment of minimum technical requirements and other requirements as regards sales conducted by legal persons (associations, cooperatives, institutions, etc.) in the course of their regular activity. This means that in this case, there is no obligation to obtain a decision of the competent authority regarding the fulfilment of minimum technical requirements and other requirements.
Provision of courses
Associations can provide courses for which a fee can be charged, as such activities are not prohibited. However, course participants should be warned in advance that the certificate of successful completion of the course (diploma, attestation, etc.) is not a public document, but rather a document, and a course, of internal significance. In addition, the realised revenue needs to be accounted for and the appropriate tax needs to be paid. If the registration authority challenges such legal proposition, clarification should be sought regarding the arguments on which it bases its legal opinion.Sale of donated goods
Even though they are not traders under the Trade Act, associations registered in accordance with the provisions of the Act on Associations may perform trade activities provided that their intention is not to make profit, i.e. they are only permitted to sell their own products in the manner specified in Article 10(1), subparagraphs 2, 3, 4, 8 and 12 of the Trade Act, namely outside stores.An association as a non-profit organisation can sell gifted and donated goods for which it does not provide any counter-service to donors, and such goods can be treated as its own product; however, it cannot sell goods for which part of the fee charged must be paid to the donor.
In order to sell items that are not a product of the association or in a manner not prescribed by the Trade Act, it is necessary to comply with the provisions of Article 4 of the Act and register the association as a company or trade business whose activity included purchase and sale of goods. A company is registered with the competent commercial court, whereas a trade business is entered in the Register of Trades and Crafts kept by the competent administrative authority in the county (or the City of Zagreb) in charge of economic affairs in the area where the registered office of the trade business is located.
Serving food and beverages
The provisions of the Hospitality and Catering Industry Act (OG 85/15, 121/16, 99/18, 25/19, 98/19, 32/20, 42/20) and its implementing regulations define the term “hospitality and catering activities”, and determine under what conditions and in what manner such activities can be performed. Pursuant to Article 5(2) of the Act, the following associations may perform hospitality and catering activities:- Croatian Youth Hostel Association in youth travel facilities (hostels), for its members and members of international youth travel organisations it is a member of
- Croatian Mountaineering Association and its member associations in their mountaineering facilities, primarily for their members and members of international mountaineering organisations it is a member of
- hunting and fishing associations in their premises and facilities, for their members and other registered hunters and anglers
- amateur sports associations, for their needs in their premises and facilities
- social care providers in their business premises and facilities for the purpose of preparing and serving drinks, beverages, pastries and similar, for the needs of their customers.
By way of exception, Article 12(2) of the Hospitality and Catering Industry Act allows associations to, as participants of celebrations and manifestations organised by tourist boards and local self-government units (municipality/city) for promotional and tourist purposes, provide hospitality and catering services of food, drink and beverage preparation and serving at such events, provided that they display the name of the association, display prices and comply with them, issue legible and accurate bills for provided services, and display in a visible place a signboard indicating that serving of alcoholic beverages, other drinks and/or beverages containing alcohol to persons under the age of 18 is prohibited, as well as comply with that prohibition.