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Q & A
Are the foreign donations for national NGO subject to taxation?
For the work of many non-governmental organizations it is very important if the foreign donations are subject to taxation. Especially because of the fact that the foreign donations are the main source of financing for the domestic NGOs. Mr. Slavko Lazovski from the Tax Department of the Ministry of Finance has given the following explanation: “As a rule, each donation is not a subject to taxation, or, at least it should be like that, if by taxation we imply taxation with the value added tax (VAT). This basic rule should be relevant for both the foreign and domestic donations, regardless of the fact if they are directed towards NGO or some other subject (e.g. a citizen).
In the basis of this rule lies the fact that when there is a donation, there is not an exchange of realization in the economic sense of the word or there is some giving between the giver and receiver, which is not directed towards counter-realization. Here, counter-realization refers to paying compensation with money, goods, services, benefits or some other combination of all of them. Of course, that submitting drafts, reporting or something similar, nor carrying out activities in the project cannot be treated as counter-realization. It is a convenient occasion to remind that the payment on the account, remittance, paying in cash and the similar “balancing accounts“ (saving deposits etc.), are not a turnover in the economic sense of the word and are not subject to taxation with VAT (just to remind that with VAT we impose taxes only on one part of the transaction – buying and selling, only the moving of the goods, not the moving of the money).
As we are trying to give some short explanations for certain essential issues, which will take us closer to the tax solutions for the donations, we should also discuss the basic difference between the donation and sponsorship. We have already said that at the donations there is not any counter-realization and they are not subject to taxation, but at sponsorship there is counter-realization (e.g. constant and noticeable exposing the name of the sponsor for achieving some marketing objectives) and they are subject to taxation.
When we talk about taxation of foreign donations, it is necessary to say that the tax rules are essentially differently placed for cases when the foreign donation is in a form of assets or in goods.
When there is import of goods from foreign donators, an exempt from VAT can be realized only if the NGO is humanitarian and proves it with the registration contract, while the fact that it is a donation can be proved by presenting one of the following documents: a contract for donation, an invoice where it is clearly stated that it is non-commercial or a statement from the donator. This exempting is realized according to article 27 item 1 point 10 from the Law for VAT (“Official Gazette of RM” issue 44/99, 59/99, 86/99, 11/2000 and 8/2001). The overall procedure is carried out in front of the customs authorities.
When the foreign donation “enters” Macedonia in a form of financial means, that is when there are “problems” with VAT. When the NGO purchases goods and services with this money for realizing the project – donation, VAT is paid, because the tax cannot “recognize” that the purchases are made with money from the donation, even less to realize that it is a foreign donation. In order to mitigate the problem, the Ministry of Finance with its instructions from 10 April 2002, implements a procedure for paying VAT with budget assets, but only for the foreign donations for which there is a signed contract between the Government of the Republic of Macedonia and the foreign donator and where there is a clause that the donated assets cannot be used for paying taxes in our country.
According to these instructions, the budget assets are provided under the following conditions:
1. The NGO to have a contract for realizing the project with the foreign donator or its representative in this country;
2. The project to be registered in the Foreign Help Coordination Department at the General Secretariat of the Government of the Republic of Macedonia (the certificate is enclosed with the application);
3. The purchase of goods and services to be for the objectives of the project realization.
In accordance with these instructions for realization of projects financed by foreign donations, the Ministry of Finance also issues:
- a certificate for exempt from import costs, VAT, tax and compensation for customs services (form A1-P), used for the goods imported for the realization of the project;
- a certificate for returning the paid VAT and tax for the purchases for official needs of the project (form A2-P)
The procedure for providing money from the budget, as well as obtaining the two above mentioned certificates is carried out in the Ministry of Finance – Tax Sector by submitting a request where the following information is given: project’s name and value, the subject which finances the project, invoices (enclosed), the VAT amount, the name and the address of the supplier of the goods or the service.
A copy is enclosed of the contract between the government of the Republic of Macedonia and the foreign donator, a copy of the contract between the foreign donator and the NGO and a collecting order for the public revenues (form PP-50) prepared by the supplier of the good, that is the service provider, who is engaged in the project realization.
Once again we should emphasize that these possibilities can be used only for the donations for which a contract has been signed between the Government of the Republic of Macedonia and the foreign donator and where the “tax clause“ has been stated that no taxes are to be paid in Macedonia from the donated assets. While realizing the other foreign donations, everywhere where there is VAT, the NGOs have to pay it.”
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