Donations to Ukraine: Does VAT obligation arise?
The General Financial Directorate has issued summary information on VAT implications of making donations to support Ukraine. While for income tax, Czech laws can be amended to respond flexibly, the situation is rather more complicated for VAT, as the possibilities to deduct VAT are based primarily on harmonised EU legislation.
For financial donations, the procedure is simple: they are not subject to VAT and their provision is of no consequence from a VAT perspective. According to the GFD, for in-kind donations a general principle applies: if the payer purchases goods for the purpose of donating them, they do not have the right to deduct VAT. The subsequent gratuitous provision of the in-kind donation is not subject to VAT, i.e., no output tax is applied.
A different situation arises if the payer had purchased the goods for their economic activity and claimed the right to deduct VAT. If the goods are subsequently donated to a humanitarian or charitable organisation which transports them to Ukraine, the donation is exempt from tax with the right to deduct, meaning that the payer shall not be obliged to pay VAT on the grounds of the gratuitous supply. The VAT Act does not define humanitarian or charitable organisations, but, according to the GFD, it is possible to rely on the Ministry of Justice’s information and data from public registers or similar records kept under the law of the relevant state. The payer should have evidence available to support compliance with the conditions for exemption: for instance, a declaration by a humanitarian or charitable organisation that the goods will be or have been exported to Ukraine will suffice.
If goods for which the payer had claimed the right to deduct tax upon their acquisition are subsequently donated in the Czech Republic to a person other than a humanitarian or charitable organisation, the payer is obliged to declare and pay output tax. The payer is also liable to tax if they export the donated goods (for which they had claimed input VAT) to Ukraine themselves or through another carrier; the reason is that the conditions for the exemption of exports are not met, as the goods are not supplied by the seller for consideration.
The GFD did not comment on the situation in which the payer first relocates the goods to Ukraine by themselves or through an appointed carrier, and only then donates them to a third party. In our opinion, in this case one may argue that the right to dispose of the goods as their owner was not transferred during the relocation, meaning that the relocation from the Czech Republic to Ukraine is not subject to Czech VAT. We are now discussing these conclusions with the tax administration.
To conclude: when making donations to Ukraine, we recommend carefully assessing whether an obligation to pay tax arises in this respect.