Article 1 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”) defines consideration as “all that is received or expected to be received for the supply of Goods or Services, whether in money or other acceptable forms of payment”.
A taxable person may receive payments in the nature of donations, grants, and sponsorships from third parties including but not limited to employees, customers, suppliers, etc. In order to determine whether such donations, grants, or sponsorships are subject to VAT, one needs to identify whether such money can be treated as a consideration against “taxable supplies”.
This Public Clarification discusses the principles that must be applied to ascertain the taxability of donations, grants, and sponsorships.
The VAT treatment of donations, grants, and sponsorships depends on whether the donor, grantor, or sponsor, as the case may be, has received any benefit in return for such payments. Where any benefit is received in return for the payments, VAT implications will arise. However, where no benefit is received, the payments will be treated as outside the scope of VAT as they will not be seen as consideration for a supply.
The use of the terms donation, sponsorship, and grant are not in themselves determinative of the VAT treatment of the payments, and a business must consider all the facts and circumstances before arriving at a conclusion.
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