Tax incentives for regenerative enterprises

👉🏽 This story is developed as part of the Doughnut Economics for Policymakers guide.

Many governments have provided tax incentives for regenerative businesses based on ownership structures (e.g. cooperatives) or purpose (e.g. social enterprises). Such tax reliefs or exemptions have been applied to sales, profits, and investment, and have also been used to incentivise ownership conversion. They can decrease financial pressure for social enterprises as well as stimulate conversion or investment into these businesses.

Overview

Governments in many countries have provided tax reliefs or exemptions to reward enterprises that are more regenerative by design (mainly based on their purpose or ownership). Examples include: 

• Tax reduction or exemption for sales or profits:  Belgium, Cabo Verde, Latvia, Portugal, South Korea and Thailand all provide tax reduction or exemptions for social enterprises. India offers various tax reductions for cooperatives or full exemption for certain sectors, such as cooperative banks and agricultural cooperatives. Agricultural cooperatives in Peru receive a full tax exemption on their first $41,600 of income, followed by reduced tax rates on subsequent earnings.
• Tax reduction or exemption for conversion: Slovenia, the UK and USA offer tax reduction for conversion to employee-owned companies in the form of capital gains tax reductions on sold shares.
• Tax reduction or exemption for investment: Bulgaria, France and Quebec (Canada) offer tax benefits for investment into social enterprises or cooperatives. In many EU countries, tax exemptions also apply to donations to public benefit organisations.

To ensure such tax policies are effective, governments need to first develop clear definitions of the enterprises that can benefit from them. 

Implementation

While many governments around the world offer favourable taxes for businesses that are collectively owned or purpose-led, the extent of such benefits varies, ranging from reduced rates to full exemption. In countries such as Cabo Verde and South Korea, favourable taxes are part of a wider national strategy to make social enterprises or collectively owned enterprises more widespread.  

Impacts

Tax reliefs can serve as a reward for enterprises' contributions to societal and ecological goals. Such incentives can help improve the financial performance of these enterprises through increasing investments and making their services or products more competitive (e.g. the ability to to set lower prices when sales tax are exempt).  

Challenges

• Lack of knowledge of tax relief or complex tax codes may hinder uptake by regenerative enterprises.
• Most incentives are offered only based on ownership (e.g. cooperative) or purpose (e.g. to deliver social or ecological impacts) rather than a wider set of deep design considerations, including networks and governance. This can exclude other regenerative businesses (e.g. stewardship-owned businesses) or create barriers to deeper transformation in enterprise structures. 

Reference and further reading

• News of tax exemption for Peruvian agricultural cooperatives (2023).
• Introduction to tax exemptions for cooperatives in India.
• Section 21 of the 2024 Promoting the social and solidarity economy for sustainable development UN report.
• Overview of European taxation regulations for social enterprises and public benefit organisations by the International Centre for Non-Profit Law.

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