PUBLIC CLARIFICATION ON DONATION, GRANTS AND SPONSORSHIPS
The implementation of VAT in the UAE creates a doubt on its applicability with regards to certain transactions. The same question of taxability also arises in case of a taxable person receiving payment from third parties including but not limited to employees, customers, suppliers etc in the nature of donations, sponsorships, and grants. For the determination of this question, the Federal Tax Authority has issued VATP011. The article below discusses certain principles which are to be applied while ascertaining the taxability of donations, grants, and sponsorships.
PRINCIPLES FOR ASCERTAINMENT OF TAXABILITY OF DONATIONS, GRANTS, AND SPONSORSHIPS
For a donation to be a consideration of supply and in the scope of VAT, the following conditions must be fulfilled :
- The donation should be given with any express or implied benefit
- It should be unconditional
PRINCIPLES TO BE APPLIED
The following principles should be considered for determining the taxability of donations :
- Whether the donor receives any benefit in return for the donation?
- Whether any person other than the donor receives any benefit in return for the donation?
- Whether the benefit of the donor or any other person is subjected to be used in a particular way or not?
For example: If a hospital receives a donation from a business in return of allowing the business to display and market its products, the donation would be treated as a consideration against the taxable supply and would attract VAT. This is because the hospital provides the business space for undertaking marketing activities.
Sponsorships are subjected to VAT as the person who normally gets the sponsorships undertakes to makes supplies to the sponsors. The following are the example of the supplies made by a receiver of sponsorship to the sponsor :
- Display of the sponsor’s logo
- Allowing the sponsors the use the name of the person who has received the sponsorship
- Provision of entertainment services
- Hosting of sponsor’s at restaurants
- Provision of access or tickets to events
For example: A business agreeing to sponsor AED 100,000 for a football match on the condition that the organizer would display the company’s logo at the stadium’s entrance. This sponsorship would be subject to VAT as the business gets a benefit in return.
For determining whether the grants are subject to VAT, the grantor should receive any benefit in return for the provision of grant. Grants would be outside the scope of VAT in case the grantor does not receive any benefit in return.
For Example: In case a person gives a grant to a University for undertaking research in such a manner that the findings of the research would be used in the business of the grantor, the grant would attract VAT.
However, we can conclude by saying that the applicability of VAT on a donation, sponsorship or grant depends upon the benefit received by the giver of such money. In case the donator, sponsor or grantor receives any benefit, such transaction would be subject to VAT and if these people do not receive any benefit, the transaction would be outside VAT’s scope.