Before explaining in details let us understand one very important point that is VAT implications will only arise where the consideration paid is as a result of supply of goods and services. No supply no VAT and the transaction will fall outside the scope of VAT.
VAT on Donations:
Donations provided without any express or implied benefit are not consideration of any supply of goods and services and therefore fall outside the scope of VAT.
Federal Tax Authority has clarified that donations must be unconditional and unrestricted and following principles shall be considered:
- Does any benefit is received by Donor?
- Are there any other beneficiaries as a result of donation other than person receiving donation
- Are there any conditions attached to the potential use of donations?
- Is there any agreement between the parties making and receiving the donation and what are the conditions?
VAT on Sponsorship:
Sponsorship is generally subject to VAT since the person receiving the sponsorship provides some sort of services such as displaying logo of sponsor, providing free tickets or exclusive merchandise etc.
VAT on Grants:
As mentioned in the above two cases in order to understand the correct implications of VAT we need to determine whether the Grantor is getting any benefit as a result of donation. If there is no benefit the transaction fall outside the scope of VAT. In case there is any benefit the implications of VAT will arise.