Donation of goods to charity - how to settle?
In practice, entrepreneurs often decide to make any kind of donation, e.g. to a public benefit organization. How to correctly account for the donation of goods to charity? Is the donation taxable?
Donation of goods to charity - general VAT rule
Despite the noble intentions of the donor (because he does not receive any benefits from the donation of goods to charity), the donation of goods is not always exempt from VAT. Pursuant to Art. 7 sec. 2 point 2 and sec. 3 free delivery by the taxable person of goods belonging to his enterprise, in particular any donation, shall be considered as a supply of goods. Consequently, the donation of goods to charity should be taxed when:
the taxpayer was entitled (in whole or in part) to deduct VAT on the purchase, import or manufacture of these goods (or their component parts),
these goods are not gifts of small value given for purposes related to the taxpayer's business.
Gifts of small value are goods given by the trader to one person if:
To sum up, if the goods that the taxpayer intends to donate had - in whole or in part - the right to deduct VAT on the purchase, import or production thereof (in the sense that, as a rule, the taxpayer had the right to deduct VAT even if he did not use this right), he should report the VAT due on the donation (if it is not a gift of low value).
If the taxpayer did not have the right to deduct VAT on the purchase of goods transferred in the form of a donation, import or production (e.g. when he purchased from a private person under a sale and purchase agreement or from a VAT-exempt taxpayer), then there will be no output VAT.
Charity donation - Mandatory cost adjustment
The donation of goods to charity, with the exception of groceries, is listed in Art. 23 point 11 of the Personal Income Tax Act as one of the costs that cannot be tax-deductible. This means that the donation of commercial goods or basic materials causes the necessity to write off their value from the tax revenue and expense ledger, previously recognized in costs as a purchase.
In practice, the value of goods / materials should be written off directly from col. 10 of the KPiR "Purchase of commercial goods and basic materials" by entering their value with a "minus" sign. If there were any side costs during the purchase (eg transport cost), they should also be written off - from the KPiR 11 “Purchase side costs” column.
Donation of goods for charitable purposes which cannot constitute tax deductible costs, taxpayers may try to deduct them from the income in the annual tax return under certain conditions (pursuant to Article 26 (1) (9) of the Tax Act).
Donation of goods to charity and exempt from VAT
An exception to the general rules of taxation of the donation of goods is the donation of food to charity, which is generally VAT exempt. Because according to Art. 43 sec. 1 point 16 of the VAT Act, the donation of food products is exempt from tax if they are transferred to a public benefit organization within the meaning of the Act of 24 April 2003 on Public Benefit and Volunteer Work, intended for charity activities carried out by these organizations.
However, the transfer of:
alcoholic beverages with an alcohol content above 1.2%, and
alcoholic beverages which are a mixture of beer and non-alcoholic beverages in which the alcohol content exceeds 0.5%.
Thus, the donation of food products to charity by food producers as well as shops, wholesalers and restaurants is exempt from VAT.
Donation of goods to charity and costs
The production costs or the purchase price of the food products mentioned in art. 43 sec.1 point 16 of the VAT Act, transferred to public benefit organizations within the meaning of the provisions of the Act on Public Benefit Activity, intended solely for the purposes of charity activities conducted by these organizations, may constitute tax deductible costs. This means that donating goods in the form of groceries to charity does not oblige you to write off the costs of their purchase from the tax revenue and expense ledger.