Taxation of VAT subsidies


Have you obtained a subsidy and you don't know how to settle it? Is it necessary to tax assets with value added tax? Find out if you are required to include the subsidy you have received in your VAT tax base.

VAT tax base

Correct classification of the subsidy will allow to determine whether it is subject to tax on goods and services. In general, any subsidy or subsidy is subject to VAT insofar as it affects the price of the goods and services. These issues are regulated by the Act on tax on goods and services. Pursuant to Art. 29a paragraph. 1 of the Act, the basis for VAT is everything that may be considered as payment that the supplier of goods or the service provider has received or is to receive from the buyer, recipient or a third party.

The Act also explicitly states that subsidies, subsidies and other subsidies of a similar nature, which have a direct impact on the price of goods and services, should be included in the VAT tax base. However, please note that not all subsidies are subject to VAT. Only subsidies that have a direct impact on the price of a good or service are included in the tax base. Each time, it will result from the conditions for granting funds, formulating the objectives of the grant in a specific form.

Example 1.

If the grant is awarded as, for example, covering part of the price of a specific service or as compensation for the performance of a specific service at reduced prices, such measures increase the VAT tax base.

VAT tax and subsidy refund

Granting a subsidy is often associated with the fulfillment of a number of obligations by the entrepreneur. Sometimes it does not meet the requirements. If the taxpayer fails to meet the conditions set, he will have to return the subsidy. What will happen with VAT then? If the subsidy has been shown as turnover, the entrepreneur will have to correct the VAT settlement. The reimbursement of the subsidy must be documented with an internal invoice.

Start-up subsidy and VAT

The grant for setting up a business is called a subject grant. It is not subject to tax on goods and services. According to the terms of the agreement, such a subsidy is intended to purchase fixed assets, improve working conditions and create new jobs. It has no direct impact on the price of goods and services provided by the taxpayer.

Cost subsidy and VAT

The situation with the cost subsidy is similar to the subject subsidy. Such a position was confirmed by the Director of the Tax Chamber in Bydgoszcz in the individual ruling issued on March 27, 2014 (reference number ITPP2 / 443-98 / 14 / EB). In the submitted application, the association indicated that it receives funding from PFRON, from which it covers the costs of remuneration of persons conducting specialist classes and project management, as well as the costs of renting a rehabilitation room. In response to the request, the Director of the Tax Chamber clearly stated that this type of subsidy is not subject to VAT.

In conclusion, for determining whether the funds received from subsidies increase the tax base, it is significant whether they have a direct impact on the selling price. This, in turn, will each time result from the detailed conditions for granting them, indicating the goals of co-financing implemented in a specific company.