Donations and VAT: Charitable donations from a VAT perspective

13 April 2022

Petr Linx, Senior Manager |

In the context of the current wave of solidarity and donations in support of Ukraine, the Tax Administration has issued information on the possibilities of tax relief in the field of VAT.

But there are no concessions yet. The tax administrator only summarises the current related VAT legislation, which is mostly not very favourable for taxpayers.

From the perspective of the Value Added Tax Act, these are the following situations:

  • Provision of financial gifts
    The provision of financial gifts is not subject to VAT.
  • Provision of material gifts
    If the taxpayer has not claimed a deduction for the donated goods, they do not have to deal with anything from a VAT point of view.
    In cases where the taxpayer has claimed a VAT deduction on the donated goods, there is a real risk of VAT being charged because the business assets are used for non-economic purposes.

Below we present two selected variants and their consequences from the VAT point of view. In both cases, the taxpayer has claimed a deduction for the subsequently donated business assets.

1. Supply of goods by a domestic taxpayer to a humanitarian or charitable organisation that sends them to a third country (Ukraine) as part of its humanitarian, charitable or educational aid)

The taxpayer will be exempt only when donating goods/property to a humanitarian or charitable organisation that takes the donation to Ukraine, in accordance with Section 68(15) of the VAT Act.

If the conditions for this exemption are not met, i.e. the transfer of the donation to the said organisation, the taxpayer should pay VAT due to the use of commercial property for non-economic purposes.

2.  Relocation of its own business assets to Ukraine with subsequent donation to Ukraine

According to the above information, the tax administrator notes that the conditions for exempt export from the VAT point of view are not fulfilled as there is no actual supply. Therefore, in the opinion of the administrator, VAT should be charged on account of the use of business assets for non-economic purposes.

However, in a contribution already submitted to the Coordination Committee (a platform to reconcile the positions of the Chamber of Tax Advisors of the Czech Republic with the General Financial Directorate), the Chamber of Tax Advisors has already expressed the idea that when a taxpayer exports (transports) their goods by their own means or through an agreed transporter to Ukraine and only subsequently donates these goods to Ukraine, this is not an export of goods for VAT purposes (as opposed to an export for customs purposes), as the basic condition for the supply of goods is not met, i.e. there is no transfer of the right to dispose of the goods as an owner. The subsequent donation of the goods in Ukraine then constitutes a transaction with a place of performance outside the domestic territory and therefore Czech VAT is not applicable. We will inform you about the opinion of the GFD.