Applicable legal framework
- Civil Code (Decree-Law 106), Articles 15 to 24 — legal personality, associations and foundations.
- Law of Non-Governmental Organizations for Development (Decree 02-2003) — specific regime for NGO-Ds.
- Tax Update Law (Decree 10-2012), Article 11 — ISR exemption for non-profit entities that meet the requirements.
- Regulation on the Registration of Non-Commercial Legal Persons (Government Agreement 512-98 and amendments).
- Anti-Money Laundering Law (Decree 67-2001) and Agreement 17-2018 — supervision and reporting.
Civil association
It is a legal person formed by two or more individuals who join together to carry out a common non-profit activity: cultural, sports, religious, educational, professional guild, recreational or community benefit.
Key characteristics
- It has members (associates) who join voluntarily.
- Its typical governing bodies are the General Assembly (highest) and the Board of Directors.
- It is incorporated by public deed before a notary public.
- It is registered at the Civil Registry of Legal Persons of the Ministry of Interior.
- Its assets are formed from member dues, donations and activities.
- If dissolved, its assets normally pass to another non-profit entity or to the State.
When it is appropriate
When your project is based on a group of people (professional guild, sports club, neighborhood association, religious community, cultural society). It is the most widely used structure and has the simplest process.
Foundation
It is a legal person created by the will of the founder (individual or family) who dedicates assets to non-profit purposes of public or social interest. Unlike an association, a foundation has no "members": it has assets dedicated to a purpose and a governing body (board of trustees or directive council) that safeguards that purpose.
Key characteristics
- It is based on an initial patrimony contributed by the founder (which may be in cash or in kind).
- Its governing body is the Board of Trustees or Directive Council appointed by the founder.
- It is incorporated by public deed; it may also be created by will (testament).
- It is registered at the Civil Registry of Legal Persons.
- Its purposes must be of public utility or social benefit: education, culture, health, welfare, science, religion.
- It is subject to oversight by the Ministry of Interior.
When it is appropriate
When an individual or family wants to dedicate part of their assets (during their lifetime or by will) to a specific philanthropic or social purpose, with continuity and professionalization. It is common for corporate foundations (Fundación Tigo, Fundación Castillo) and family philanthropy.
NGO (Non-Governmental Organization for Development)
This is a structure specifically regulated by Decree 02-2003. An NGO-D is an association or foundation whose main object is development: combating poverty, promoting human rights, executing social, environmental and community programs.
Key characteristics
- It is always an association or foundation, but it is additionally registered in the NGO Registry kept by the Ministry of Interior.
- Its purposes are limited to development as set forth in the specific law.
- It has enhanced transparency obligations: audited financial statements, annual reports, reporting of funding sources.
- It is subject to a strict anti-money laundering regime — it must keep donor records and report to the Special Verification Intendancy (IVE/UIF) where applicable.
- It is the structure used by organizations that receive international cooperation or government funding.
When it is appropriate
When you will operate with international cooperation, government funds or large donations that require formal transparency. It is the preferred structure of international donors (USAID, UN, European Union, foreign foundations).
Comparison table
| Aspect | Association | Foundation | NGO |
|---|---|---|---|
| Basis | People | Patrimony | Association or foundation + special registration |
| Incorporation | Public deed | Public deed or will | Deed + NGO registration |
| Highest body | General Assembly | Board of Trustees | Per underlying structure |
| Minimum patrimony | No minimum | Significant and sufficient | Per underlying structure |
| Registration | Civil Registry of Legal Persons | Civil Registry of Legal Persons | Civil Registry + NGO Registry |
| External audit | Not mandatory | Recommended | Mandatory, annual |
| Tax benefits | ISR exemption if Art. 11 is met | ISR exemption if Art. 11 is met | ISR exemption if Art. 11 is met |
Tax benefits: the ISR exemption
Article 11 of Decree 10-2012 exempts from ISR the income earned by non-profit entities provided that:
- They are legally authorized and registered as such.
- Their income and assets are used exclusively for their purposes.
- They do not distribute profits to their members, founders or trustees.
- They are registered in the Registry of Non-Profit Entities kept by SAT.
The exemption is not automatic: it requires a formal filing with SAT and must be kept current through annual informational returns.
Recurring obligations
Every non-profit entity, regardless of its structure, has ongoing obligations:
- Keep accounting books and minute books duly authorized.
- File SAT returns (even if exempt from ISR).
- Maintain donor and contribution records (especially relevant for anti-money laundering).
- Hold assemblies or board of trustees sessions as appropriate.
- Register changes of officers or bylaws at the Civil Registry.
- For NGOs: file annual reports with the Ministry of Interior and SAT.
- If you receive international cooperation: additional registration with SEGEPLAN.
Common mistakes
- Incorporating an association when an NGO was needed: if you will receive international cooperation, donors will require NGO registration.
- Not registering as a non-profit entity with SAT: you pay ISR even though you are an association.
- Using the association to distribute benefits covertly: leads to loss of exemption and potential criminal exposure.
- Failing to keep the minute book or member roster: invalidates future decisions.
- Mixing personal assets with the entity's assets: you lose the asset separation and expose the members.
Frequently asked questions
What is the essential difference between a civil association and a foundation?
An association is based on people (members) who come together for a common purpose; a foundation is based on assets dedicated to a purpose. The association has a general assembly of members; the foundation has a board of trustees with no members. For collective social ventures, use an association; for philanthropy with dedicated assets, use a foundation.
Can an NGO pursue purposes other than development?
No. The NGO-D Law restricts the purposes to development (poverty alleviation, human rights, social programs, etc.). For broader purposes, it is preferable to incorporate as an association or foundation without the additional NGO classification.
Are tax exemptions automatic upon incorporation?
No. The ISR exemption requires a specific filing with SAT (registration as a non-profit entity). Without that registration, you pay ISR even if you are legally non-profit. The same applies to VAT exemptions on certain transactions.
Can board of trustees members receive a salary?
Yes, they may receive a reasonable salary for their professional work, but they cannot receive profits or any distribution of assets. The distinction between a professional salary and a disguised distribution of profits is reviewed by SAT and the Ministry of Interior.
How long does it take to incorporate an association or foundation?
From the signing of the public deed to full registration and an active RTU: 8–14 weeks. If you also intend to register as an NGO and as an ISR-exempt entity, it can take 4–6 months due to the additional procedures.
Can I receive donations from abroad as an association?
Yes, but with transparency and reporting obligations (donor records, IVE, SEGEPLAN if it is official cooperation). For significant volumes and institutional donors, we recommend an NGO structure because of the additional credibility it provides.
What happens to the assets if the entity is dissolved?
By law, assets cannot be distributed among members or trustees. They must pass to another non-profit entity with similar purposes or to the State. The deed of incorporation must define the destination of the assets in case of dissolution.