Tax treatment of donations in the Covid-19 era

7 Questions and Answers

The private sectors’ support in the fight against the coronavirus pandemic is essential during this critical period. For this purpose, even though no further tax incentives are currently on offer, the State at least looks into ensuring that no tax disincentives arise for enterprises and individuals, who wish to contribute to the common cause and help defeat Covid-19.

Below you may find 7 questions and answers in relation to tax considerations on donations to the State.

• Does VAT apply on the provision of services or the supply of goods to the donor?
  
  The provision of services and supply of goods from the supplier to the donor are exempted from VAT tax (under certain conditions), if the latter uses the goods or services within the terms of a charitable donation agreement with the State. In particular, according to the recent Legislative Act (30.03.20), as per the aforementioned exemption, especially for the donation of hospital equipment, hygienic protective means and any kind of medicine that fall into the scope of defending against the COVID-19 pandemic, the Minister of Finance approval is no longer a requirement, whereas the service of the relevant acceptance act suffices. In order to acquire the VAT exemption, the total amount of supplied goods and provided services from the supplier to the donor shall amount up to the donation value, whereas the supplier maintains his/her right to deduct input VAT tax in regard to the relevant transactions. These measures are heading to the right direction, since, along with the measures adopted to support enterprises whose business operation is suspended or impacted by COVID-19, the granting of tax incentives to enterprises which contribute to the effort of the State to fight against the health and economic crisis is also of utmost importance.
  
  
• Does the same VAT exemption apply to services provided or goods supplied, when the enterprise provides or supplies them by itself?
  
  Enterprises that wish to proceed to donations of goods or services to the State that are produced by themselves, for the fight against Covid-19, shall attribute VAT. These VAT transactions are known as self-supplies or self-consumptions, whereby the enterprise attributes the VAT related to expenses which have already been deducted at the time of the production of the goods or the provision of the services. In the past, exemptions from VAT had been legislated to relieve vulnerable groups or to cover the needs of refugees, the board expenses of students or the needs of the population affected by natural disasters. We believe it is imperative to grant exemption from VAT tax to the donors that donate goods produced and/or services provided by themselves to the State during the coronavirus crisis.
  
  
• Are there any corporate income tax incentives provided in regard to corporate social responsibility (CSR) actions, such as donations for the fight against coronavirus?
  
  Expenses incurred for corporate social responsibility (CSR) actions are deductible, provided that the enterprise shows accounting profits in the financial year within which the action takes place, unless if the relevant CSR action is carried out upon the State’s request. We would suggest that enterprises, which may not undertake further CSR actions, should introduce such CSR action with relevant Board of Directors Minutes or any other official document that describes such CSR action, so as to strengthen its deductibility.  However, we believe that the circumstances are such that said deductibility of expenses should be provided irrespective of the fulfillment of the aforementioned requirements. We further believe it would be very efficient for businesses that provide donations of goods or services to the State, such as, indicatively, to the Ministry of Health or to other state and municipal bodies, to be granted an enhanced tax deduction of the expenses related to donations against the coronavirus (e.g. up to 30%).
  
  
• Does donation tax apply to donations to the State or to other charitable purpose entities?
  
  Donations to the State are exempted from donation tax. Donations to communities, counties or other non-profit entities, that clearly pursue charitable purposes, are subject to special tax at a rate of 0,5%, provided that the donation amount exceeds the tax-free amount of €1.000.
  
  
• Are there any tax incentives provided to individuals in relation to cash donations to the State?
  
  Yes, individuals have the possibility to reduce the tax amount, which derives from the clearance of their income tax return, up to 20% of the cash amount donated to the State or other municipal bodies from 1.1.2020 onwards, provided that certain conditions are met: a) the donations should exceed the amount of €100 within a tax year, b) the total amount of donations should not be more than 5% of the taxable income of the donor, c) the recipient of the donation should be among the following: State bodies (Ministries, Municipality, Social Security Institutions, public hospitals), municipal hospitals, hospitals in the form of private legal entities, that receive grants from the national budget, public legal entities in general or public enterprises. It is to mention that, until 31.12.2019 the aforementioned reduction percentage was up to 10%.
  
  
• Are the aforementioned tax incentives provided to individuals for non-cash donations as well?
  
  Yes, the tax reduction up to 20% of the donation amount also applies (apart from cash donations) to medicine equipment and ambulances, that are donated to the aforementioned hospitals.
  
  
• What kind of tax incentives have been adopted in other countries affected by Covid-19 in relation to donations?
  
  In Italy, donations in cash or in kind contributed by individuals or non-profit legal entities to the State, municipality or non-profit legal entities for the coronavirus emergency, are granted with a deduction from income tax amounting to 30% of the amount donated and up to a maximum donation of €30.000. Donations by companies for the same cause are fully deducted as productive expenses. In USA, individuals are provided with a 100% discount for charitable contributions (instead of 60% in force until now), whereas for enterprises the deductible amount for donations may amount of up to 25% of their total corporate income (instead of 10% in force until the adoption of the CARES Act).