TDF Budgeting How-To (version 20250708-01)

TDF Budgeting How-To

version 20250708-01

Introduction

Thanks a lot for reading!

Honest disclosure: Budgetting is neither a particularly exciting topic nor a very rewarding one. However, it is one of the key tasks, and apart from the legal requirement, one of the main instruments to define the strategy for the next 12 months to come.

While we publish this document to the general public, it is explicitly NOT intended to give any legal or tax advise. It may contain mistakes and may be incomplete. Reports of such issues are welcome.

What this document does (not) cover

This document does cover the technique of our budgetting. How things are structured, how to read the spreadsheet etc.

Due to the amount of content to discuss already, this document does not (at least not extensively) cover several legal aspects, like what TDF can pay for or what the constraints are on projects. We will discuss this separately.

Base parameters for TDF as not-for-profit

  • TDF is a registered not-for-profit (“charity”). It operates within four “booking circuits”:
    • not-for-profit part (“ideller Bereich”): All our not-for-profit activities. No exchange of services. Pays no income tax, but has to pay VAT (see below). By far the largest field of activity. Income in 2024: Approximately 1,4 million €.
    • business part fitting the nonprofit mission (“Zweckbetrieb”): We don’t have activities there yet. One thing we theoretically could do there is e.g. paid conferences. Pays reduced taxes and reduced VAT.
    • business part (“Wirtschaftsbetrieb”): A regular business entity inside TDF. Exchange of services. We currently handle app store sales, advisory board fees and t-shirt sales there. Pays regular taxes and regular VAT. Business part cannot be cross-financed by not-for-profit part. Very small in comparison. Income in 2024: Approximately 37.000 €.
    • capital investment: We invest money and gain an interest. Currently invested are 750.000 €. This investment can be dissolved on short notice, but then we might incur losses. Interest gains in 2024: Approximately 24.000 €
    • capital stock: Not to be confused with the capital investment. As a foundation (“Stiftung”), TDF has a capital stock of 50.000 €. This money cannot be used, but a nominal retaining of the value (in comparison to a real value retaining) is fine. It cannot be planned in budget spending. The capital stock collected in a fundraising challenge in just eight days from donors around the globe.
  • value added tax (VAT), net vs. gross: For the not-for-profit part, TDF has to pay VAT, but can’t claim/deduct it. For offers and invoices, we always have to factor in the gross sum for our budget, not the net sum. For most of the services we render, 19% VAT apply currently.
    Example: Tender offer is 10.000 €. We have to factor in 11.900 €.
  • TDF does monthly VAT filings. The deadline is always the 10th of the month after the next (e.g. the January VAT filing is due by March 10). This extended deadline (“Dauerfristverlängerung”) is granted only if you are a reliable taxpayer, otherwise it is shortened by one month, i.e. the 10th of the following month.
  • We have to also file an annual VAT declaration. That deadline is several months after the respective fiscal year. Example: The declaration for the year 2022 had to be filed by the end of August 2024. Currently filed is the VAT declaration for up to 2023.
  • We had regular (every three years) tax declarations for corporate tax to file. Due to the size of our business entity hitting a threshold, we now have to file annually from now on. Also for the corporate tax declaration, there are several months after the fiscal year for filing. Example: The declaration for the year 2022 had to be filed by the end of May 2025. Currently filed is the corporate tax declaration for up to 2023.
  • We have regular (every four years) social security audits. The last social security audit was finished in September 2024 and covered the period 2020-2023.
  • In the past, with a fixed deadline of the 7th of the following month, a filing with the German federal bank (“Bundesbank”) had to be done for any payment sent or received above 12.500 € out of Germany, due to the foreign trade law (“Außenwirtschaftsgesetz”). This sum just lately has been increased to 50.000 €.
  • By February 16 of the following year, the filing of all salaries has to be made to the professional association (“Berufsgenossenschaft”). This is handled by the payroll provider.
  • For any contracted work from individuals or freelancers that qualifies as “art”, by the end of March of the following year, the filing for the artists social security (“Künstlersozialkasse”) has to be made. This is regularly audited during the social security audit (see above). It requires checking invoices paid and identifying the kind of recipient/company to determine if a payment is due, as not for all setups a payment is necessary.
  • These filings are no different than what any other company has to do.
  • For all the filings, even if the activities took place during the term of the previous boards, the new board has to sign and approve if the filing is due during their term. This means they need to know all the details, in order to make proper statements as they are ultimately responsible.

Accounting

  • Accounting is prepared by two members of the team.
  • The actual accounting/bookkeeping is done by our accountant on a monthly basis.
  • We voluntarily publish condensed/anonymized ledgers.
  • For the curious: the accounting framework used (“Sachkontenrahmen”) is SKR 49 and the software used is DATEV.

Reserve planning and timely spending

TDF’s budget works with various reserves (“Rücklagen”):

  • recurring costs (“Betriebsmittelrücklage”): Expenses we spend, on a recurring basis, within a year. Salaries and compensations, rents, membership fees, accounting and legal costs, server housing, domains, insurances etc.
  • project costs (“Projektrücklage”): Expenses for projects that may take longer than a year.
    • timely spending (“zeitnahe Mittelverwendung”): As a tax-exempt not-for-profit, TDF is not allowed to pile up money. We are subject to a timely spending. Money received as donation has to be spent within two years from the end of the year we received it.
    • Example: Donations received in 2025 have to be spent by the end of 2027
    • Spending wrong is worse than spending late, so spending for the sake of timely spending is not advisable.
    • There is, however, an exception – projects can be dissolved and money re-purposed, e.g. if a tender doesn’t come to life or a plannet project can’t be done. Obviously, it depends on how many projects we dissolve or re-purpose whether that still is acceptable or not.
    • If there’s a rationale, projects can also be planned for a longer period of time.
    • Fictional example: TDF wants to build an office building, but it will take four years until we will have enough reserves for that project.
  • free reserve (“freie Rücklage”): As a “safety belt”, TDF is allowed to create a free reserve which it can, but does not have to spend. Slightly simplified: 10% of the annual income. So to speak, the free reserve is “budget-neutral”, as we don’t plan it in.
    • For 2025, the planned free reserve is expected to be approximately 1,2 million €. In other words, TDF has reserves to react to issues in the donation flow. Parts of this money is currently invested (see above).

Timeline, annual report and filings

The annual report consists of the activity report and the financial report (closing ledgers and reserve building).

  • The activity report needs to outline how the foundation fulfilled its objectives and must give a full overview of its activities. The activity report will be sent to the foundation authorities and to the tax office, and will be made public on our website. The legally binding version we have to file is in German. An English version based on the German one will be published as a brochure with additional graphics. The team will write the English version for approval by the board and then translate it into German.
  • The financial report must accurately report all accounting-relevant items and numbers, list profits and losses, and contains our closing ledger and the reserve building. It will be sent to the foundation authorities and the tax office. It will be made public on our website, alongside an English translated version. The financial report will be prepared and verified by our tax advisor based on their accounting.

Thanks for posting this, and I plan to make the time to read it.

That said - I dont believe a discourse subforum thread is the best place for storing training materials (or archival material and other non-conversational, less-ephemeral documents). Initially, and to attract attention, posting here is fine; but I would expect this to be in a curated document store - our (edit:) NextCloud perhaps, with links from our wiki?

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Yes, the plan is indeed to put these and other materials into a Nextcloud. Given it’s the first publication in this regard, I wanted to provide a venue for discussion, that’s why it’s here for now :slight_smile:

I’ll first say that this document starts at too specific a level. IMNSHO, a budgeting How-To should first expand on:

  • What a budget is;
  • How a budget compares and contrasts, on the most straightforward level with some other organizational-financial instruments, like an income-and-expense ledgers;
  • What a budget is made up of and how it may be structured;
  • What is the motivation, or the need for having a budget;
  • How an organization, in general, operates vis-a-vis a budget;
  • What it means to be “over budget” or “under budget”
  • etc.

and all of that should be done with as few references as possible to TDF specifics.

Anyway, some comments, questions and suggestions about the actual document contents:

You mean, these are activities in the business part? Suggest editing to avoid the indirect adverb.

  1. In English, “business” does not imply a profit motive, or even production of goods or rendering of services. Perhaps you meant to say something like “for-profit commodity exchange business”?
  2. IIANM, there is no separate entity within the TDF; perhaps you meant that the TDF, under some restrictions, can engage in activities which, considered separately, are for-profit, but the profit from which is used in other activities which directly promote the foundation’s goals?

What services are exchanged, for example, when we sell T-shirts?

  1. What makes this different, legally / regulation-wise, from the “Wirtschaftsbetrieb”?
  2. How are earnings here taxed?
  1. Money that can’t be used doesn’t quite qualify as Capital; at least not if we define capital as “any form of wealth employed or capable of being employed in the production of more wealth.” But maybe the definition is something different?
  2. Is any foundation required by law to hold 50,000 EUR and not use it? What is the rationale for this? Is it intended for use in special circumstances, or by the authorities in case of dissolution of the foundation?
  1. What is the difference between “not using” a sum of money and “nominal retaining of value”?
  2. Banks often offer an interest when you make a deposit for a given period of time; with your money not being invested in anything. Is that legitimate w.r.t. Capital Stock?
  1. It’s still not clear to me how to classify activities among these four categories (well, mainly among the first three).
  2. Can activities even be neatly categorized? A conference may involve strictly non-profit aspects, “business fitting the non-profit mission” aspects, and “for-profit commodity exchange” aspects.
  1. Please add a link to a web page explaining VAT in general.
  2. You mentioned that VAT in Germany is not entirely uniform: The is “reduced” and “regular”. Does it differ across kinds of services and goods? Sectors of the economy? Does it change over time? Does it differ for international transactions? Where can one find information about how much VAT is paid in Germany for what and when?

This is interesting, but IIANM - information about procedures and declarations does not belong in a document on budgeting.

I believe the important part in this section is explaining how accounting relates to the current, previous and next year’s budget. Specifically, whether “accounting” and “tracking of budget execution” are the same thing or not, and how.

(more to follow later.)

Hello Eyal,

Happy to add some of those items. For others, I wonder what the scope and target audience of the howto should be. The idea is not that someone who has entirely no idea could run for the board and be equipped with all knowledge required. We need to require certain prerequisites from people. If you apply to be a bus driver, and then you ask “what’s this wheel in the middle and what do the pedals do?”, you might want to look for another job. If someone does not have any clue what taxes or a budget are, maybe a board role does not suit them (yet). I agree with enriching with further information, but some seem basic essentials that people must know, otherwise they are not ready yet to take on the role, in my opinion.

I think one of the main mistakes is that some think we should elect the most popular or most known people to the board, or those representing a variety of areas. We need to elect the most capable who know how to do the job, or who fulfil some prerequisites and are willing to learn. One can be a fantastic coder, marketeer or designer, but one might be a bad board member.

Yes, app store sales, advisory board fees and t-shirts sales are handled in the business part, as such are subject to VAT and are taxable.

Online translators suggest me “economic operation” or “business operation”, in contrast to the non-profit operations.

In a non-for-profit, you can have different parts. It is the same legal entity, but a different part of that, that is handled within a separate “booking circuit”. Technically, it is also a separate bank account.

You can also not cross-finance the various parts, i.e. you cannot take in tax free donation money and then pay your struggling business part’s invoice with it. The tax exemption is only for the nonprofit part.

It’s an exchange of goods. You give money and get a t-shirt in return.

In simple terms, the capital investment of a non-profit is tax-free. The business entity/part is taxable. There are some details, but the general rule is that.

The setup of a foundation requires a capital stock, which can be either money, or goods, or rights, e.g. real estate. In the case of TDF, we have 50.000 € capital stock, and some trademarks. There is no fixed rule how much economic value things must have, the general idea is that with the bare minimum required, the entity can live off that. Obviously, in these days of very low interest rates, that is unlikely to work out and I would assume that 50.000 € are not sufficient anymore these days when setting up a foundation.

The technical term is “Kapitalstock”.

A better example is if the foundation was to give shelter to animals, and had the animal shelter real estate and building in the capital stock. Then the foundation could mostly live off that.

Nominal retaining of value: 50.000 € in 2012 must be 50.000 € in 2025.
If we had to keep the real value, the 50.000 € would have to be inflation-compensated.

The capital stock can be invested, you can just not endanger it (e.g. high risk bets on the stock xchange with the risk to lose money). However, given only the nominal value must be kept, we do not have to invest it.

For the general explanation of VAT, I struggle a bit as in the beginning of the message. VAT is a complicated matter that cannot be easily explained, but a certain understanding I’d see as requirement for a board role. If you never heard of it, you might not be ready for running an organization in a board yet. Not the VAT detail per country, but the abstract idea.

The VAT rate is one of the more complicated aspects that is also subject to change and differs per country, so it is mostly handled by the tax consultant, but needs some review by the board. Ultimately, the board must make a VAT declaration and is liable for it.

Some examples that affect TDF:

  • hotel costs and “real estate bound” expenses, e.g. meeting rooms or catering, are always taxable in the country where they occur (e.g. in Belgium for FOSDEM), so the local VAT rate applies
  • food that is served in a restaurant is subject to 19% full-rate VAT
  • food that is take away is subject to 7% reduced-rate VAT

We usually have similar expense types at TDF, so that’s knowledge one gathers over time. For most of TDF’s transactions, the VAT rate is 19%, so as a general rule, if someone makes a “net” offer, TDF has to add 19%.

In the end, that budget is one of the documents to be filed and signed off by the board, and part of the tax declaration and reconfirmation of non-profit status.

Hi @floeff ,

I tend to disagree with this part of your answer - knowing the concept should not be a prerequisite for running for the board. Just link to wikipedia for a good-enough introduction (but clearly worth reading for anyone getting elected).

I agree with this assessment - for an organisation with >1.5M annual turnover, and thousands of account movements per month, the board is responsible, but not required to handle any details of this. The board though must hire & then delegate to competent people (ideally certified tax accountants).

TDF has an annual turnover of way over one million and 15 members of staff. We are internationally active and quite recognized and therefore exposed. That’s quite big and requires lots of knowledge to govern the entity

Even if it is pro bono, if you are elected into TDF’s board of directors, it’s like being elected as director of a for-profit association.

I can understand it’s tempting to vote known and renowned community members in as appreciation for their work. However, a board is a body with distinctive tasks and jobs that are often entirely unrelated to people’s other activities in the project. You will deal with taxes, you will deal with social security, you will deal with employment laws and other regulations. If in doubt, all your other volunteer activities will need to step back in favor of these duties.

It’s a bit like in politics, that having a minister from a certain field is much better than having someone who is elected because they are recognized.

Just as we would not give full git commit rights to any board members just because they are in the board, not every great committer makes a great board member.

In many areas, the board is the ultimate responsible - be it for corporate tax, for VAT, for social security, for complying with employment regulations. The board signs the declaration and confirm all is proper. They don’t nee to do the accounting, of course, but they must be suitably qualified to evaluate what has been prepared, and sign off on that, and do their very own diligence checks.

We have learned the hard way that just because something is a mistake, it doesn’t save the entity from paying the bills. If push comes to shove, that bill could have to be paid by the directors in charge.

Hi @floeff ,

I continue to mostly disagree with you on this. While it’s tempting to ask for lots of managerial, legal, tax, HR & what other skills are needed for the day-to-day business of the foundation - it’s both a daunting task for any volunteer to handle time-wise, as well as near-impossible to find at least 10 such capable community members every two years. What’s worse, many of the details here are specific to Germany, including most of the literature around charitable organisations - which would further limit the set of possible candidates.

Instead, the setup in Germany grants pro-bono directors relatively wide-ranging liability waivers - precisely to enable this sort of volunteering in the first place. Additionally, TDF has (as any larger organisation should) purchased a directors and officers liability insurance, which is further shielding decision-makers. Beyond that, both tax- as well as legal advise are required to have professional insurances, so as long as boards generally rely on their work, those would be first in line, should anything go wrong.

I agree though, that any board candidate should be prepared to reduce their other volunteer activities in the project in favour of board work, since the time needed to follow board & community discussions (even w/o diving into the operational details you mentioned) can sometimes be substantial.

That is not a well-chosen comparison - it would only match, if the director in question would perform the day-to-day accounting, and write the trademark policy, or the employment contract all by her/himself - and all of that without reviews or checks. In fact, the contrary is true - with TDF maturing, the board continues to transition away from a ‘doing’, over to an ‘oversight’ board: giving strategic direction and providing general checks & reviews, and not getting into doing daily business. The latter is up to you, the staff, and the set of external advisors TDF has hired.

I agree with that. For LibreOffice and TDF though, I suspect any senior community member (and likely also a number of newer ones) could be regarded an expert in LibreOffice - and quite a few of them should be able to provide general direction and strategic guidance. After all, central to the mission of TDF is a FLOSS office suite & its community, not the operational details of running a German foundation. That latter part, again, has been delegated since more than a decade into the capable hands of you, the staff, and external advisors - and I’m quite glad for it, since it enables the volunteer board to (mostly) focus on TDF’s main mission!

Best, Thorsten

The reality is unfortunately a bit different.

In case of an erroneous tax declaration, or issues with social security, that can quickly translate into a personal responsibility of the directors, including criminal responsibility. We have also seen with our VAT issue that an insurance is no guarantee for quickly resolving issues: the responsibility for the mistake was clear, yet it took us a considerable amount of time and work to make the insurance pay. Also, the D&O insurance is capped at a relatively low sum (100.000 € from what I recall), which can quickly get exceeded.

The counterquestion is: If people do NOT want to engage in these fields - why do they run for the board in first place? A board’s role IS to some degree about these things. It’s a bit like applying to be a bus driver and then you have no driving license. To run for the board you need competence in certain areas.

I agree that the board does not have to do all these tasks on a day to day basis itself. However, also oversight requires certain competence. One could put you or me in oversight of a surgery, but neither of us would be able to contribute anything relevant, as this is just not our field.

It’s a bit like on a construction site. If you build a house, but are not competent in the field, you can also ask an architect to oversee the work of the handy(wo)men on site.

Hi @floeff ,

No. The reality is exactly as I wrote. Though IANAL of course - so if you can point to case law, where pro-bono directors of a German charity were held criminally liable for mistakes their staff or tax accountants made, I’ll change my mind.

Thanks for arguing my case - and as you said, this is a good example, where we can see how the system works (and that it actually did work!). Note further, that nobody, neither you nor the tax accountant, spotted the problem ahead of time - so I doubt that any director, even if coming with a lot of tax and accounting background, would have noticed.

Indeed. And while I was on the board, this person was you - for exactly the number of reasons I’ve outlined before. The reason to be on the board is not to run VAT accounting.

Best, Thorsten

It seems the amount of personal liability for board members is underestimated, so I think - when time permits - I’ll work on a howto for new board members which duties and responsibilities they have. I fear that some might think being in the board is just a reward for good work in the project and the sole role is to define the strategy of TDF, when rather a big chunk of responsibilities comes with it.

Someone who has a only little idea of coding, because they used Turbo Pascal back in the days, and now wants to take part in the strategic technical decisions, would unlikely be admitted into the ESC to vote on such topics, even if they were known and popular in the project. And that’s for a good reason, because good knowledge in certain areas is required. It’s the same in the board - one can learn many things, but having no idea nor interest in such topics will be problematic in the long run.

There are many regulations, be it for taxes, social security and others, that e.g. in case the entity runs out of funds, there is a personal liability of the board members - no matter if they dealt with the matter, or had positive knowledge.

But I think the discussion here will be hard to reference comprehensively, so I’ll see if I can write a more comprehensive howto in the near future.

Hi @floeff,

it seems we’re quickly reaching the point where we should simply “agree to disagree”. I still invite you to quote me some case law, where for a real case, the liabilities trump the law maker’s clear intent to not hang pro-bono directors (except for intent or gross negligence).

This is moving the goal posts - of course, no board should ever bankrupt the organisation. Right now, TDF has rather the opposite problem. And I continue to believe it is your primary responsibility as ED, to work with the boards & ensure TDF is a well-run organisation.

But since you insist the financial liabilities might be much higher, than the D&O insurance’s current coverage, and its budgetting season: wouldn’t it make sense then to increase that coverage, up to, say, TDF’s annual budget?

Best, Thorsten

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TDF is in a challenging situation due to issues that occured during the term of the former board, which has also been explained in this forum to some extent. Due to this situation it is also very unlikely any changes to the insurance are currently possible.

In any case, the discussion now moves away from the original budgeting howto, so probably it’s worth having it at a later time on the members list, where interested candidates for a board role can ask questions, and keep this thread for the budgeting howto itself.

E.g. I’d propose

Summary at the end (machine translated):

  1. On summary consideration, there are no further serious doubts as to the legality of the contested decision. In particular, the claim against the applicant cannot be regarded as an error of judgment. The view taken by the tax court of equal liability of the individual liable debtors is also represented in the tax law literature (see only Kirchhof, in Kirchhof/Söhn, Einkommensteuergesetz, § 10b Rdnr. E 57 - as of February 1998) and leaves the tax office a relatively wide margin of discretion. It is sufficient, as the tax court also stated, to indicate that the liable debtors are held liable alongside each other. Since the applicant, as a board member acting on behalf of the association, caused the misuse of funds, there are no objections to his being held liable. There is also no doubt that the assertion of the public-law liability claim pursuant to § 10b para. 4 sentence 2 EStG is not restricted by § 31 BGB.