Association accounting

Specifics of association accounting: comparison with public bodies, membership fees and support mechanisms

An association is a voluntary association of persons formed for the purpose of coordinating the activities of the members of the association, representing their interests and serving other public interests. Although, like a public body, it is classified as a non-profit-making legal entity, the financial management and legal regulation of the two forms are different.

How does the accounting of an association differ from that of a public enterprise?

The main difference between an association and a public body (PBO) is the orientation of their activities and their funding structure. A public body is usually set up to provide specific services to the public (e.g. non-formal education, social care or cultural events) and may be more active in commercial activities. An association is primarily focused on representing and uniting the common interests of its members, whether natural or legal persons.

In accounting terms, the financial foundation of an association is mainly based on internal sources, such as membership fees and regular membership dues. A public enterprise does not have such internal membership fees, but relies on contributions from members, project funding and income from services provided. In addition, the association’s financial statements pay particular attention to tracking earmarked contributions, as the accounts must strictly distinguish between funds received from members for general activities and those received as donations from external entities.

Membership fees and their accounting

Membership fees – joining fees and recurrent membership fees – are a specific type of income for associations. In order to account for these funds correctly, the association must have a procedure, approved by the general meeting of its members, which clearly specifies the amounts of the fees, the periodicity of payment and the deadlines.

Members’ dues are not treated in the accounts as income for services or goods and are therefore not subject to Value Added Tax (VAT) and are not invoiced. They are recorded as earmarked contributions for the operation of the Association on the basis of bank transfer statements or cash receipts. According to the laws of the Republic of Lithuania, these contributions are tax-exempt income provided that they are used for the direct purposes set out in the statutes of the association and are not related to the provision of a commercial benefit to a particular member.

Beneficiary status of the Association

Like other non-profit organisations, the Association can obtain official beneficiary status. This status is not granted automatically upon registration – the association must apply to the Register of Legal Entities and comply with the requirements of the Law on Charity and Support. The most important condition is that the statutes of the association must clearly declare the public benefit of the activities of the association and that the organisation itself cannot be set up solely for the commercial purposes of its members (for example, certain business associations may not always be eligible for this status).

Upon successful achievement of beneficiary status, the association is entitled to receive support from residents through an annual income declaration mechanism, which is up to 1.2 percent of the income tax (GPT) paid by residents. This allows the association to raise additional funds from the public or relatives of its members. This status also allows the association to legally accept donations of money or property from legal persons who, by supporting the association, can benefit from the advantages provided for in the Corporate Income Tax Law and reduce their tax burden.