March 14, 2022Dated: | Byadmin admin | Grants, sponsorships, and donations are activities carried out without having any intention to do business out of it. Hence, they are also considered as part of corporate social responsibilities. No matter what, businesses often gain from such activities, and the applicability of the Value Added Tax (VAT) depends on that. This blog aims to explain the VAT treatment in the case of donations, grants, or sponsorships. Implications of VAT in Case of Donations, Grants, and Sponsorships The Federal Tax Authority (FTA) explains the applicability of VAT depends on whether the donor, grantor, or sponsor receives any benefit for offering a donation, grant, or sponsorship. Donations, grants, and sponsorships will be out of scope for VAT if – They are provided without the supply of goods or services, and No benefit is received in exchange for such donation, grant, or sponsorship Moreover, the authority restated conditions for being outside the ambit of VAT applicability, donations, sponsorships, and grants must be: Without express or implied considerations, Unconditional, and Unrestricted. VAT Applicability in Case of Donations Liability of VAT arises when the donor makes payments with the following given intentions: Seeking any benefits for the donor in return, Seeking benefits for a person other than donor in return, Seeking benefits for donor/another person that arises from attaching some conditions, Seeking benefits by involving in agreement regarding donations. VAT Applicability in Case of Sponsorships Sponsorship activities usually attract VAT liability as the receiver of sponsorship services provides taxable services. Following indications will help you in determining the applicability of VAT; Showing sponsor’s logo, Showcasing sponsors’ names, Allowing sponsors to use the name for the benefits of endorsement, Provisioning entertainment services to the sponsors, Hosting sponsors at social events in return, Providing tickets or access to the social events in return. Let’s take an example of a sponsorship offered by a company to his employee to study Masters of Business Administration (MBA) from the top business school in exchange for the company’s endorsement will be taxable under UAE VAT. Scope of VAT in case of Grants When it comes to grants, the principle of applicability for VAT is similar. A grant given to a taxable person is liable to VAT only when payment is made in exchange for any endorsement or benefit. On the contrary, the grant paid without any benefit of the grantor will remain outside the purview of VAT provisions. For example, if the grant is paid to a technological institution for preparing an accounting software that the company will use after completing and successfully testing such software, the grantor will pay VAT. The Bottom Line VAT in UAE is relatively simplified by the authority so that the taxpayers can understand the provisions better. However, it is the best practice to consult a tax expert to minutely understand the requirements and check whether your organization complies with the provisions of VAT or not. Want to Know More? At Flyingcolourtax, we have a dedicated team of tax experts who can guide you on UAE VAT compliance matters and explain every applicable VAT provision to you. Our qualified professionals can also assist you in accounting, auditing, company registration, and PRO requirements. Book your free consultationwith us to know more about the comprehensive services.