Zero percent VAT for donations to flood victims

The Ministry of Finance, following the example of previous regulations issued during the pandemic and in support of victims of the armed conflict in Ukraine, prepared a regulation introducing a temporary 0% VAT rate for free-of-charge supplies of goods and services aimed at supporting flood victims. The possible legal path of a regulation allowing for a quick response was rightly used. On 17 September this year, the regulation was published in the Journal of Laws.

What conditions must be met to apply the 0% VAT rate?

The 0% VAT rate applies to free of charge supply of goods or services to:

(1) public benefit organisations,

(2) local government units,

(3) the Government Agency for Strategic Reserves, and

(4) medical entities,

– for the purposes of assisting those affected by heavy precipitation or flooding.

The aforementioned entities, also indicated in previous legislation of this type, will act, in a way, as an intermediary in the transfer of aid from businesses to those in need.

Scope

The 0% rate will be applied to donations of any type of goods or services that may be necessary to support those affected.

Period of application

The regulation provides for the possibility of applying a reduced VAT rate of 0% for gratuitous services starting from 12 September 2024, i.e. the occurrence of the first heavy rainfall and flooding. The 0% VAT rate for the indicated transactions will be able to be applied until 31 December 2024. A further extension of the preference is not excluded if necessary.

Contract

At the same time – as the MF points out – in order to maintain the ‘tightness’ of the VAT system, the 0% rate will apply on condition that a written agreement is concluded between the taxpayer and one of the designated ‘intermediary entities’, from which it will follow that the donated goods or services will be related to the assistance of those affected by the disaster.

For instance, in the case of the legislation related to COViD-19, where an analogous condition was applied, the 2020 Tax Explanatory Notes emphasised that ‘The condition that the donation agreement be in writing will also be fulfilled in the case of the use of electronic mail (e-mail) for documentation purposes.’