Practices of donations, grants, sponsorships are very commonly seen and appreciated as part of social responsibility activities performed by entities. Amounts getting transferred in such exercises are to be properly classified to ensure compliance with the rules as laid out in the region. Once they are adequately classified, it is important to know the applicability of VAT and respective implications to follow the required accounting and reporting procedures. Here we discuss about the various aspects to be considered for determining the VAT treatments on transactions involving donations, grants or sponsorships.
Is VAT applicable on payments received as donations, grants or sponsorships?
VAT treatment upon receiving donations, grants or sponsorships will depend upon whether the donor, grantor or sponsor is receiving any benefit in exchange for making that payment or not. If there is no benefit attached and the payment was made without any supply of goods or service, in such cases, it will be out of the scope of VAT as the payment cannot be considered as a consideration against any kind of supply. If the payment was made considering any kind of benefit or endorsement in return, then the VAT is applicable. Hence no general rule can be applied to all the donations, grants or sponsorships as the situations may vary and a detailed assessment of each case is required to determine the VAT impact.
