The Federal Tax Authority (FTA) has elucidated that grants, donations, and sponsorships are outside the scope of Value Added Tax (VAT) only while on benefit is received in return. Any return benefit for those kinds of payments will be subject to VAT, according to the authority. The authority has mentioned a new elucidation on VAT treatment for donations, approvals, and sponsorships through its ‘Public Clarifications’ service available on the official website to make flexible the taxpayers with the technologies and procedures surrounding the tax system.
FTA claimed in a statement that the terms “donation”, “grant”, “sponsorship” by themselves will not signify the VAT for such payments, seeking businesses to ponder all facts and the circumstances before arriving at a conclusion.
FTA Director General, Khalid Ali Al Bustani, proclaimed that the UAE tax system emphasizes on encouraging charity work and social contributions with an exact set of principles that accelerate philanthropy, including donations and approvals as per local enactments. The FTA included a taxable person may receive payments in the nature of donations , sponsorships from third parties including, but not limited to employees, customers among suppliers and others and further gave explanations that to regulate whether such payments are subject to VAT, the taxable person must control whether these payments can be treated as pondering against “taxable supplies” or not.
The authority checked the clarification on the VAT enforcement arise only while there is an implied taxable supply. Despite the fact that the definition of “pondering ” is wide and includes within its limit all that is received or expected to be getting in the form of money or other acceptable forms of payment.VAT will be applicable while the payment relates to a taxable supply.
Therefore, whether the donor, sponsor or grantor has received any kind of benefit in the form of supply requires to be determined. For VAT to be applicable, this benefit must have a close involvement linking to the payment.