As per federal law, no 8 of 2017 has provided certain regulations for the treatment of VAT for charitable purposes. As per UAE law, charities are this association that is not aimed at making profits, but it is set for the welfare of the public. VAT treatment for charities will also undergo the same procedures as usual VAT laws regarding the making of supplies. In this article, let us understand the treatment of VAT on charitable donations.
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VAT treatment for Business activities under charities.
If any taxable goods and services are supplied for a charge then this is to be considered as a business activity for commercial purposes and to be taken for taxable purpose and VAT will be charged where the charity is considered as a taxable person.
Donated goods and services
Charities often receive a lot of donations by way of goods and services and may use them as a part of the onward provision of charitable activities. When these activities are undertaken and a charge is made, then such activities are also taken for the VAT treatment
There are cases of some relevant charitable activity that will be taken by grants or donations. If the grantor is not entitled to any benefit in return for such donations then no VAT can be charged as this is not a supply for consideration.
Designated charities are subjected to special recovery rules. Some of the criteria that should be fulfilled for a charity to be treated as a designated charity:
- It should be approved by the ministry of community development to carry out charitable activities. It should be approved by any Federal of Emirate govt authorized to grant such licenses.
- Should have avail licenses to carry out activities which ahs b even granted by the Dubai Government relevant authorities.
- Operated for nonprofit
- Primarily funded by means of grants or donations.
VAT registration for charities
- If any charity carries out any activities beyond the mandatory threshold of AED 375,000 must apply for VAT
- If the supplies and imports of the business are less than the mandatory threshold but greater than the voluntary registration of AED 187,500.
The charities which are designated can also recover the input VAT on taxable goods and services, irrespective of whether they meet the threshold or not.
VAT treatment for charitable buildings
As per VAT law, charitable building means any structure that is designed to be used for charitable purposes solely for charitable activities.
VAT treatment for the first supply of charitable buildings
- The first supply of charitable buildings or any part of a building so zero-rated if the buildings were specifically designed to be used by the charity and solely for relevant charitable activity. This may also include supply by either lease or sale.
- As per UAE VAT law for charitable buildings it states that the first supply will be zero-rated, but the supplier may also recover the VAT paid on the cost of constructing of the charitable building in full.
VAT rules for the subsequent supply of charitable buildings
- In case of any subsequent supplies of charitable buildings either by sales or lease it will not be zero-rated, as they won’t be treated as the first supply of charity buildings. A subsequent supply of a charitable building will be subject to VAT at a standard rate of 5%.
- The VAT on the charitable building supplied subsequently is also taxable, the supplier may also recover the tax VAT paid on any cost for maintenance cost for the charitable buildings
There can be further amendments on VAT on charity as per UAE law. It is better that all the organizations have to register for VAT, and also make sure that no uncertainty that exists. You can take the help of a tax consultant to avoid penalties for non-registration it is recommended that charities and non-profit organizations be alert from their side.
For a detailed guide on how to go about VAT registration, you can seek the help of our experts at VAT REGISTRATION UAE as they can help you register for VAT for charities in UAE. We give necessary VAT-related information and also provide full-fledged assistance regarding VAT; we are right here to make VAT registration a smoother experience for businesses. Book your consultation now!
What is the purpose of being implementing VAT?
UAE has implemented tax in the UAE to generate more revenue and also help the over rent to offer various services for public welfare.
What are the criteria to register for VAT?
- Any taxable person whose supplies will increase the mandatory registration threshold limit of 375,000 AED.
- If the voluntary threshold limit of AED 187,500 is crossed, then the business person has to register for VAT.