CHARITIES VAT GUIDE
VATGCH1 has been issued by the FTA for the stakeholders in charities who are responsible for tax matters to provide guidance about the characteristics which must be present so that the charities qualify as a designated charity for VAT purposes. This document provides detailed information on charities, designated charities, VAT registration of charities and also gives an analysis on some of the special situations pertaining to charities. It further provides a description of rules with the help of which VAT can be recovered on charities.
- While dealing with the treatment of VAT on charities it states that VAT would by default be charged on the goods and services supplied by charities in the UAE and that usual rules regarding the making of supplies would be applicable on them.
- The guide further discusses that VAT would be charged if the charity is considered as a taxable person and that VAT on costs which directly relate to the onward activities are recoverable.
- The VAT is also charged on the charities which receive donations of goods and services and are further used as a part of the onward provision of charitable activities. Further, no VAT on costs is recoverable in the case of donated charities as goods and services in such a case are received free of charge.
- The VAT would not be charged in case of an activity which is performed by a charity while acting in its charitable capacity as no charge has been incurred during the supply of the concerned goods or services.
A charity would be treated as a designated charity if :
- The Ministry of Community Development has given approval for carrying out a charitable activity in the UAE or the same has been established as a charity under a Federal or Emirate Decree or a license has been given by an agency of the Federal or Emirate Governments to operate as a charity.
- The same is either operated within the terms of any license or approval granted by the authorized bodies or it is being operated for a nonprofit basis
- The charity is being primarily being funded by means of grants or donations
VAT REGISTRATION OF CHARITIES
The following charities are required to apply for being registered for the purpose of VAT :
- A charity carrying business activity in the UAE and making taxable supplies in excess of the mandatory VAT registration threshold
- Any charity carrying business activity and either making taxable supplies or incurring expenses in excess of the voluntary VAT registraton threshold
- Designated charities are also required to apply and registered for VAT for benefitting from the reovery of input tax irrespective of the fact that it meets the threshold or not
Furthermore, charities can also register as a tax group with other entities.
VAT TREATMENT WITH REGARD TO THE SALES OR LEASES OF NEW BUILDING TO CHARITIES
The first supply of either a new building or a part of a building would be subject to VAT @ 0% if :
- The charity is a designated charity
- The supply should be the first supply of that building
- Either the entire building or a part of the building must specifically be designed to be used by the charity for a charitable purpose
VAT RECOVERY RULES FOR CHARITY
- The VAT which has been incurred in respect of taxable supplies is recoverable under the normal rules and the remaining VAT would be recoverable by designated charities under the special refund rules.
- The VAT which has been incurred with respect of exempt supplies are not recoverable.
- Charities which are not designated charities are subject to normal VAT recovery rules. Further, VAT is not recoverable in respect of activities undertaken by non designated charities that do not generate taxable supplies