During the business year, legal entities can make donations to associations, sports clubs, employees or some other legal and natural persons.
A donation in this sense is a giving in money, goods or services without any compensation or consideration.
From the accounting aspect, the donation will be shown in the bookkeeping journals of the donor as an expense of the period in which it was incurred. When donating, it is necessary to provide the following documentation for the legal entity (donor) on the basis of which the change will be recorded in the bookkeeping journals:
- Grant Agreement or Decision
- Transaction account statement
- A delivery note, certificate or other document in the case of a donation in kind.
Whether it is a donation in money, in kind or some other form, when donating goods/providing services free of charge, special attention should be paid to tax regulations. Tax treatment depends on who is receiving donation and what kind of donation it is.
The tax treatment of donations in the FBIH is viewed from the aspect of the Law on Profit Tax, the Law on Income Tax and the Law on VAT.
Corporate income tax
The treatment of donations from the aspect of the FBiH Law on Corporate income tax depends on to whom something is donated and in what amount.
Monetary donations given to other legal entities are not taxed with a special direct tax, but are eventually (if they are indicated by law as non-tax deductible expenses) taxed through the tax balance, as an increase in the income tax base.
Thus, in the FBiH, donations given for humanitarian, cultural, educational, scientific and sports purposes that the taxpayer pays from its own funds, legal entities that are not liable to corporate income tax or individuals who have no other income – represent tax deductible expense up to 3% of total income in the tax period.
If the donation is given to related parties, political parties, for-profit legal entities, natural persons with income (employees, persons receiving a pension), then the expense incurred on this basis is considered a non-tax deductible expense.
When paying donations to individuals, it is necessary to distinguish between donations to employees and donations to “third” natural persons. Calculation or non-calculation of taxes and contributions directly depends on who is the recipient of the donation in accordance with the Law on Income Tax of FBiH and the Rulebook on the Application of the Law on Income Tax of FBIH.
If it is a donation to an employee, such payment has the treatment of taxable income from self-employment, i.e. it is necessary to calculate tax and full contributions on the donated amount, as if it were a salary payment. Exceptionally, certain types of benefits, which are explicitly indicated in the Rulebook on the Application of the Law on Income Tax of the FBiH (Article 14, Paragraphs 2 and 3), may be paid to the employee without taxable treatment. These types of benefits in the context of donations are:
- reimbursement of the costs of treatment of seriously ill – and members of his immediate family, in the amount of the actual costs according to the documentation,
- reimbursement of funeral expenses in the event of the death of an employee or members of his immediate family,
- severe disability of the employee (at least 60% disability), – serious illness of the employee or members of his immediate family and – surgical interventions on the employee performed for health reasons based on the recommendation of a doctor. Donation will be given in the amount of three average salaries paid in the previous three months to the employee or three average net salaries in the Federation according to the latest statistics, if it is more favourable for the employee.
When it comes to donations to individuals who are not employees, they are not exempt from taxation and it is necessary to calculate income tax at a recalculated rate of 11.11% and to file the form APR-1036 (Advance tax on resident deduction).
However, certain types of donations to “third” natural persons are not taxable, if they meet the requirements of Article 4, Paragraph 2 of the Rulebook on the Application of the FBIH Income Tax Law: only for occasion where a bank account is opened in favor of a natural person as financial assistance for the purpose of covering the costs of his treatment or surgery, procurement of medicines and/or procurement of orthopedic aids. If these costs are not settled sooner or later or reimbursed to the recipient, supplementary or private health insurance, the funds thus collected for the recipient of the donation are not considered income subject to the obligation to pay income tax.
VAT treatment donation
Donations are treated as taxable non-business consumption in accordance with the BiH VAT Law. A legal entity that is a VAT payer is obliged to calculate output VAT and issue an internal tax invoice when providing goods (goods, products or fixed assets) free of charge, if deductible input VAT was used when purchasing the goods.
The basis for calculating the output VAT is the purchase price of the given goods or services. For a donation of movable property which is subject to depreciation, the basis for calculating VAT is the purchase price, which does not include VAT, reduced by 20% for each calendar year of use of the property. If something is donated to employees or other “related persons”, then in accordance with Article 22 of the Regulation on the application of the Law on VAT, the basis for calculating VAT is the market value of the goods.
If it is a monetary donation, then such payment is not taxable with VAT, since it does not represent turnover in accordance with the BiH VAT. The recipient of the donation also, regardless of the type of donation, has no VAT obligations. In the case of a donation in kind or fixed assets, there is no obligation to calculate output VAT if input VAT has not been used for the purchase of that same asset.