Activities subject to VAT
(International) NPO’s do not enjoy a specific status as far as VAT is concerned (contrarily to the income tax system). In principle their activities are subjected to VAT (general principle of taxation). Therefore, they must register for VAT purposes and are subsequently entitled to deduct the VAT borne on the costs relating to their taxed activities.
Example 1 : an organization performing, under consideration, individual services to its members (ex: providing a specific study) exercises to that extent an activity subjected to VAT.
Example 2 : an organization organizing an annual congress in France exercises to that extent, an activity which is in principle subjected to VAT. Hence, the NPO, just as a commercial entity, must register in France for VAT purposes and charge French VAT to the attendants. The NPO has, in turn, the right to deduct the VAT (Belgian or foreign) on the costs relating to this subject-to-VAT activity. However, two limits to this general principle of taxation must be brought forward.
Activities outside the scope of VAT
There are also activities considered of general interest (to the public at large) which are outside the scope of VAT. The (international) NPO’s performing such activities are not, under certain conditions, considered as VAT-able person and can therefore not deduct the VAT borne on the costs relating to those “outside the scope” activities.
Example : the realizing by an organization of a study ordered and fully subsidized by a public body and which will freely be put at the disposal of a large public is an operation in principle outside the scope of the VAT. The organization does not have the status of a taxable person for this specific operation and is therefore not entitled to deduct VAT on the costs relating to this activity.
The determination of a VAT status of an (international) NPO is crucial in two ways :
- A correct determination of the VAT status allows to consider the extent of the deduction right; i.e. the VAT percentage the organization can deduct on the costs she bears for its activities.
- A correct determination of the VAT status also allows to take the potentially necessary steps in order to prevent “bad surprises” during a potential administrative VAT audit. Nowadays, the (international) NPO’s are indeed more and more audited by the fiscal authorities.