A taxable person may receive payments in the nature of donations, grants and sponsorships. In order to determine whether such donations, grants or sponsorships are subject to VAT, one needs to identify whether such moneys can be treated as consideration against “taxable supplies”.
This Public Clarification vide circular No: VATP011 issued by FTA discusses the principles that must be applied to ascertain the taxability of donations, grants and sponsorships.
Where any benefit is received in return for the donations, grants and sponsorships VAT implications will arise. However, where no benefit is received, such payments will be treated as outside the scope of VAT as they will not be seen as consideration for a supply.
If a donation is given without any express or implied benefit, it is not a consideration for a supply and is accordingly outside the scope of VAT. The donation must be unconditional and unrestricted for such a treatment to apply and the following principles must be applied in order to determine whether this is the case:
- Does the donor receive any benefit return for the donation?
- Does any person other than the donor receive any benefit in return for the donation?
- Is there any condition to state that the donation must be used in a particular way which may benefit the donor or any other person?
- Is there any written or oral agreement between the parties? If yes, what does the agreement stipulate?
Sponsorships are generally subject to VAT as the person who gets the sponsorships normally makes supplies to the sponsor. The supplies that a receiver of sponsorship may make to the sponsor typically include, for instance, any of the following:
- Displaying the sponsor’s logo;
- Allowing the sponsor to use the name of the person who has received sponsorship;
- Providing entertainment services;
- Providing access or tickets to events.
As the business is getting a benefit in return for the sponsorship, this will be subject to VAT.
Similar to donations and sponsorships, in order to determine the VAT treatment in the case of grants, there is a need to establish whether the grantor has received any benefit in return for giving the grant.
However, it is to be kept in mind that whenever donations, sponsorships and grants are given in the form of goods. In such cases, deemed supply provisions may apply.