A taxable person may receive payments in the nature of donations, grants and sponsorships from third parties including but not limited to employees, customers, suppliers etc. In order to determine whether such donations, grants or sponsorships are subject to VAT, one needs to identify whether such moneys can be treated as consideration against “taxable supplies”.
The VAT treatment of donations, grants and sponsorships depends on whether the donor, grantor or sponsor, as the case may be, has received any benefit in return for such payments. Where any benefit is received in return for the payments, VAT implications will arise. However, where no benefit is received, the payments will be treated as outside the scope of VAT as they will not be seen as consideration for a supply.
The use of the terms donation, sponsorship and grant are not in themselves determinative of the VAT treatment of the payments, and a business must consider all the facts and circumstances before arriving at a conclusion.
| Donations | Sponsorships | Grants |
| If a donation is given without any express or implied benefit, it is not a consideration for a supply and is accordingly outside the scope of VAT. | Sponsorships are generally subject to VAT as the person who gets the sponsorships normally makes supplies to the sponsor (eg. displaying the sponsor’s logo) | Where the grantor does not receive any benefit, the grant is outside the scope of VAT. However, where the grantor receives a benefit, the grant will be subject to VAT. |