Donations – Recognition in Tax Balance Sheet

July 21, 20220


Donations – When legal persons and entrepreneurs donate funds for medical, educational, scientific, religious, sports or environmental purposes, etc., they report expenditures, whether these refer to charitable financial contributions or those in kind.


Under Article 7a(1)(8) of the Law on Corporate Income Tax, these expenditures are not fully recognisable in the tax balance sheet, as it is considered that they have not been incurred for the purpose of doing business, unless they involve the expenses referred to in Article 15 of the Law, in which case, if the statutory conditions have been met, they can be recognised up to the amount determined as 5% of the tax payer’s total revenue for the period when they were incurred.



Expenses for medical, educational, scientific, sports and other purposes referred to in Article 15(1) of the Law

Total expenses for these purposes in the form of contributions in money, equipment, goods or products are recognised as an expenditure in the donor’s tax balance sheet in the aggregate amount of up to 5% of the total revenue.

Two conditions must be met for these to be recognised:

– That the expenses have been directed to the persons registered for those purposes

– That the recipient of the goods or services uses the contributions solely for the purpose of doing the specified registered activity

Unless both of these conditions are met, it would not be possible to recognise the entire expenditure for tax purposes.



Contributions made to a health institution

These are recognisable for tax purposes under Article 15(1) and (2) of the Law, whether they have been made to an institution established by the state or an institution established by a private owner. Expenses are recognised irrespective of the fact if they have been incurred as a result of giving money or things used directly or indirectly for the purpose of providing health care.

Donations of medical equipment to health institutions are recognised in the tax balance sheet up to 5% of the total revenue at the maximum.



Contributions made to social protection service providers

Article 15(1)(1) of the Law provides that contributions made to social protection institutions and other social protection service providers established in compliance with the law governing social protection be recognised as an expenditure in the tax balance sheet.

Under Article 40 of the Law on Social Protection, social protection services are divided into the following groups:

– Assessment and planning services

– Daily community services

– Independent living support services

– Counselling and therapy-related and socio-educational services

– Accommodation services



Expenses for culture-related investments

Under Article 15(3) of the Law, these expenses, including the cinematographic activity, are recognised as an expenditure in the maximum amount of 5% of the total revenue.

Under Article 2 of the Rules, culture-related investments are recognised as an expenditure if they are conducive to:

– Creating conditions for the performance and development of cultural activity

– Discovering, collecting or investigating cultural property

– Fostering international cultural activity

– Fostering education in the sphere of culture

– Fostering professional and scientific research in the sphere of culture

– Stimulating young talents

– Using information and communication technologies, generic services and software solutions for the presentation of cultural heritage

– Fostering amateur and artistic cultural creativity

– Fostering children’s creativity

– Fostering cultural and artistic creativity in disabled persons

– Fostering the development of creative industries

– Fostering the cultural and artistic development of socially vulnerable groups

Further, under Article 4 of the Rules, culture-related investments are expenses recognised as an expenditure if they are aimed at the reconstruction of existing cultural establishments and the construction of new ones, as well as the conservation and restoration of cultural property.


Please note that, for the purpose of determining tax recognisable expenditure on these grounds, the tax payer’s total revenue is considered to be the total revenue reported in the tax payer’s books, including the revenue reported in the groups of accounts

62 – Revenue from own use of products, services and goods

63 – Change in the value of inventories of work in progress and finished products


Expenses that are not fully recognized in the tax basis balance sheet


Donations – from the perspective of the VAT Law


Contributions, i.e., receipts in money are not subject to VAT, unless they involve an advance payment made or received for the future supply of goods and services. Since the donation recipient has no liabilities to the donation giver as far as the supply of goods or services is concerned, there is no obligation to charge VAT.


Unlike donations in money, donations in kind may be subject to VAT. Whether there will be an obligation to charge VAT once the VAT payer realises the donation in the form of supply of goods without a charge depends on whether the donation goods were supplied by a VAT payer or a non-VAT payer, whether the donation giver was entitled to deduction of a previous tax payment when purchasing the goods.


If there is an obligation to charge VAT when the donation is given, then the purchase price, i.e., the cost price of goods provided without a charge shall provide a base for calculating VAT, as stipulated in Article 18 of the VAT Law. In addition, the VAT payer is under no obligation to issue an invoice for the supply of goods or services without a charge.


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