The Author of the Article
What Topics are Covered in this Article?
The article explains the difference between deductible and non-deductible VAT for associations in the EU:
- It provides examples of activities that are subject to VAT and those that are exempt from VAT
- It also gives some tips on how to optimize the VAT recovery rate for associations
- It warns about the risks of not complying with the VAT rules and the possible penalties
- It advises to consult a VAT expert to ensure a correct VAT treatment of the association's activities
VAT challenging
Over time, VAT has become a major tax for (international) associations or non-profit organizations. Not being able to deduct it represents a significant burden on the association's budget.
Therefore, many associations are looking for a legal way to recover all or part of the VAT on their expenses.
Can your association deduct VAT on its expenses? And if so, how much and how?
To find out, you need to be able to answer the following three questions:
Question 1: What is the association's VAT status?
Associations receive various kind of income: membership fees, organization of congresses, seminars, training courses etc., e-learning, studies, sponsoring, grants, donations, charity events, certification programs, etc.
As a rule, the activities carried out by an association are subject to VAT. However, there are two exceptions to this general principle of taxation: certain economic activities specifically listed in the VAT Code are exempt from tax (e.g. lobbying activities) while others remain outside the scope of VAT.
The exact qualification of the association's activities will be used to determine its category of tax liability (ordinary, mixed, partial, exempt or non-taxable) and therefore the extent of its deduction.
Question n° 2: What are the formal conditions to be met in order to deduct VAT?
The association can recover VAT in principle once a quarter by ticking the appropriate box in its VAT return. To avoid problems, it is essential to pay attention to the supplier invoices and the way they are reported in the VAT return:
- The supplier's invoices: is the association's VAT number mentioned? Is the good or service purchased sufficiently described? Very often the invoices are incomplete or inaccurate and the tax authorities will be happy to reject the VAT deduction in the event of a VAT audit.
- The VAT return: are the invoices entered in the correct boxes of the VAT return? Has the association correctly self-assessed the VAT on the invoices of its European and non-European service providers? The tax authorities apply a range of administrative sanctions when the VAT return is incorrect or incomplete.
Question n° 3: What if my association has to limit its right to deduct?
Where the association has the status of an ordinary taxable person, it can reclaim all the VAT on its expenses, unless a legal limitation on deduction applies (e.g. maximum deduction of 50% for expenses relating to private cars or no deduction for entertainment expenses, etc.).
Any other VAT status leads to a limitation of the deduction right. It is therefore necessary to determine the optimum method for calculating the deduction percentage:
- General pro rata
- Attributive system.
Each method has its advantages and disadvantages.
Our experience in the sector ? The more precise the accounting, the better it is possible to allocate the costs to a specific economic activity and thus optimize the association's deduction right.
The VAT expert's eye
We strongly suggest all associations to take the following steps:
- Review their revenues to determine the VAT status (ordinary, mixed, partial, exempt or non-taxable) and therefore the extent of its deduction of input VAT
- Optimize the method for calculating their VAT deduction percentage
By determining its exact VAT status and its optimal deduction method, the association can make significant savings.
How Can We Help You?
If you are running an association in the EU, you may be wondering how to deduct VAT correctly for your activities. VAT is a complex and often confusing tax that can have a significant impact on your finances and compliance. That's why you need a professional tax advising firm like European VAT Desk to help you navigate the rules and regulations.
Here are some reasons why you should contact us today:
- We have extensive experience and expertise in VAT matters for associations of all kinds and sizes. We can help you determine whether your association is subject to VAT, what rates apply, and how to report and pay your taxes correctly.
- We can help you optimize your VAT position and reduce your tax burden. We can advise you on how to structure your activities, membership fees, grants, donations, sponsorships, and other income sources to minimize your VAT liability and maximize your exemptions and deductions.
- We can help you avoid costly mistakes and penalties. We can assist you with VAT audits, inspections, disputes, and appeals. We can also help you comply with the latest changes and updates in the VAT legislation and case law across the EU.
- We can help you save time and money. We can handle all your VAT-related tasks and paperwork, from registration to filing, so you can focus on your core mission and goals. We can also offer you competitive and transparent fees that suit your budget and needs.