The membership fee is a sum of money paid by the members of an international association to contribute to its functioning. The amount of the membership fee, its periodicity and the due date for its payment are set out in the statutes.
The statutory membership fee is traditionally charged by the association to its members at the beginning of each calendar year. The month of January is therefore the ideal time to ask yourself the following VAT question: are the membership fees paid by the members of your association subject to VAT or not?
We have been advising and contributing our VAT know-how for more than 20 years to a large number of international non-profit associations. On the basis of this experience, we have been able to observe that the (often lengthy) discussions with the Belgian tax administration about statutory contributions were triggered as soon as the association's mission was to represent and defend the interests of an economic sector before the European Commission. Article 44 of the VAT Code in fact exempts from tax the provision of services of a trade union nature which are rendered by associations to their members in return for payment of their statutory membership fee.
Is the main purpose of the association of a trade union nature? The boundary between the promotion of a sector on one hand and its defence and representation on the other is not always easy to determine and is for this reason a source of conflict with the tax authorities.
Usually, it is a misreading of the VAT status at the time the association is set up that is the trigger that will set the wheels in motion a few years later. By not checking the VAT status or by having a truncated analysis of this status, some associations expose themselves without even knowing it to a major VAT risk. The VAT consequences are in fact completely different depending on whether the association has the VAT status of an ordinary taxable person, an exempt, mixed or even partial taxable person.
And it is at the very moment when the tax authorities announce a VAT control that the file will go off track with possible tax adjustments over 3 years, administrative sanctions and interests for late payment.
The correct determination of the VAT status of an international association cannot be improvised. A professional and methodical approach to VAT is essential to clarify the VAT status because it depends on several parameters that are specific to each association.
Therefore, getting advice on such a complex matter can sometimes help to avoid many setbacks.
VAT errors, even if made in good faith, can put the association's finances in serious danger. In that scenario, the association's director or accountant (internal or external) could be held liable.