The non-governmental organization (hereinafter –- NGO) is a value-added tax (hereinafter – VAT) payer and provides charity(food products) to people living in the frontline areas affected by shelling. Local self-government bodies act as mediators of such activities, and the transfer of goods is free of charge. Whether such NGOs’ transactions are exempt from VAT – read further.
Peculiatiry of charity work
According to the Law of Ukraine "On Charitable Activities and Charitable Organizations" (hereinafter – Law No. 5073), a beneficiary is a recipient of charity (in particular, a territorial community) that receives assistance from one or more benefactors to achieve the goals defined by Law No. 5073. The goals of charitable activity is the provision of assistance to promote the legitimate interests of beneficiaries in the areas of charitable activity defined by Law No. 5073, as well as the development and support of these areas in the public interest (part one of Article 3 of Law No. 5073). The subjects of charitable activities are charitable organizations that are established and operate in accordance with Law No. 5073, as well as other benefactors and beneficiaries (part one of Article 4 of Law No. 5073).
Article 6 of Law No. 5073 provides for the possibility of a benefactor transferring funds, other property, property rights to the ownership of beneficiaries free of charge in order to achieve certain predetermined goals of charitable activity, in accordance with Law No. 5073.
On behalf of and in the interests of the territorial community, local self-government bodies (hereinafter – LSGB) commit acts (part one of Articles 169, 172, 173, 327 of the Civil Code of Ukraine, Article 60 of the Law of Ukraine "On Local Self-Government in Ukraine").
Thus, if the activity of local government is carried out in the areas specified in Article 3 of Law No. 5073, with compliance with all mandatory conditions provided for by special legislation, LSGBs may receive charitable (including humanitarian) aasistance for transfer to the recipients.
Relations that arise in the field of tax and fee collection are regulated by the norms of the Tax Code of Ukraine (hereinafter – the Code) (item 1.1 of Article 1 of the Code).
VAT nuances
Articles 181 and 182 of the Code define the conditions for registering a person as a VAT payer, according to which the registration of a person as a VAT payer can be carried out both in a mandatory manner and by a person's decision.
In the event that the total amount of transactions for the supply of goods/services subject to taxation in accordance with this section, including transactions for the supply of goods/services using a local or global computer network (in particular, but not exclusively by installing a special application on smartphones, tablets or other digital devices), charged (paid) to such a person during the last 12 calendar months, in total exceeds UAH 1 million (excluding value added tax), such a person is obliged to register as a tax payer with the supervisory authority according to their location (place of residence) in compliance with the requirements provided for in Article 183 of the Code, except for a person who is a taxpayer of the single tax of the first - third groups (item 181.1 of Article 181 of the Code).
For the purposes of registration as a VAT payer, the total volume of transactions for the supply of goods/services includes transactions taxed at any rate of VAT (20%, 0%, 7%, 14%) and exempt from VAT.
At the same time, the transactions provided for in point 197.1.15 of item 197.1 of Article 197 of the Code, carried out during the period of martial law in Ukraine, introduced by Decree of the President of Ukraine "On Introduction of Martial Law in Ukraine" No. 64/2022 of February 24, 2022, approved by Law of Ukraine "On Approval of the Decree of the President of Ukraine "On Introduction of Martial Law in of Ukraine" No. 2102-IX of February 24, 2022, by public associations and/or charitable organizations, are not included by such public associations or charitable organizations when determining the total amount for mandatory registration by the payer of value added tax in accordance with Article 181 of the Code (point 69.12, item 69 of section 10, chapter XX of the Code).
Given the above, an NGO formed and registered in accordance with the legislation is not subject to mandatory registration as a VAT payer, if the volumes of supply of goods/services in accordance with point 197.1.15 of item 197.1 of Article 197 of the Code exceed UAH 1 million.
According to point 197.1.15 of item 197.1 of Article 197 of the Code, the transactions for the provision of charitable assistance, in particular the free supply of goods/services to charitable organizations established and registered in accordance with the legislation, as well as the provision of such assistance by charitable organizations to recipients (subjects) of charitable assistance in accordance with the legislation on charitable activities and charitable organizations are exempted from VAT.
Free supply should be understood as the supply of goods/services to charitable organizations and recipients of charitable assistance without any monetary, material or other types of compensation. In case of non-compliance with the conditions specified in point 197.1.15 of item 197.1 of Article 197 of the Code, such transactions are taxed on a general basis.
