How is the value added tax accounted for in a non-profit organization?
September 16, 2022 | 50,00 EUR | answered by Björn Ley
Dear tax advisor,
I am Greta Hemminger and I work as a volunteer treasurer in a non-profit organization. We regularly organize various events to raise funds for charitable purposes. Now we have noticed that in the past we did not account for sales tax and we are unsure if this is correct.
Our organization is recognized as a non-profit and meets all the requirements for it. We sell tickets for our events, organize bazaars, and also have a small online shop where we sell merchandise items. In total, we generated a turnover of over 50,000 euros last year.
Now we are thinking about whether as a non-profit organization we even have to pay sales tax and how we can account for this most effectively. We want to make sure that we comply with all legal regulations and do not encounter any legal issues.
Could you please explain to us how sales tax is accounted for in a non-profit organization and whether we are even obligated to do so as an organization? Are there ways to avoid or reduce sales tax without jeopardizing our non-profit status?
Thank you in advance for your help and support.
Sincerely,
Greta Hemminger
Dear Ms. Hemminger,
Thank you for your inquiry and your commitment as treasurer of a non-profit organization. It is understandable that you are concerned about the VAT liability of your association, especially with a turnover of over 50,000 euros last year.
As a non-profit organization, you are generally subject to the same tax regulations as other businesses when it comes to VAT. However, there are some specific rules that apply to non-profit organizations. Non-profit associations are generally exempt from VAT if they pursue exclusively tax-privileged purposes and do not operate any commercial businesses.
In your case, where you sell tickets for events, organize bazaars, and run an online shop, these activities are considered commercial businesses. There is a turnover threshold of 45,000 euros per year for such activities. If this threshold is exceeded, the income from these commercial businesses is subject to VAT. This means that you must calculate VAT on your turnover and remit it to the tax office.
To avoid or reduce VAT, you could, for example, opt for the small business regulation if your turnover is expected to be below 22,000 euros in the current year. In this case, you are exempt from VAT, but you must indicate the small business regulation on your invoices.
It is important that you consult with a tax advisor or a association consultant to assess your specific situation and find the best possible solution. This way, you can ensure that you comply with all legal requirements and avoid any legal issues.
I hope this information is helpful to you, and I am available to assist you if you have any further questions.
Sincerely,
Björn Ley
