Tax preferences related to charity actions aimed at counteracting the effects of the war in Ukraine
In the past three weeks Polish citizens have been united in the wake of the unprovoked war started by the Russian Federation against Ukraine. Both individuals and corporations have sought to address the needs of millions of Ukrainian citizens fleeing their country and entering Poland.
So far, Poland has already admitted over 1.9 million Ukrainian nationals and this number is likely to increase as the war continues. At this stage, both the central and local governments are working to create the most appropriate and effective process to allow Ukrainian citizens to access critical services such as health care, education, employment, and other benefits.
Notwithstanding the government’s actions, corporations are also seeking ways to act to support Ukrainian refuges in Poland. Recently we have been receiving numerous questions on how such support should be settled from the tax perspective. Within days after the Russian invasion, CRIDO issued an appeal to the Polish Ministry of Finance to pass legislation that would sort out the tax implications of charity actions in terms of corporate and value added taxes.
Under current CIT law, donations are not recognized tax costs. Their value can however be deducted from the tax base in the yearly tax return provided that the donation is granted, i.a. to broadly speaking recognized NGOs. The amount of the deduction cannot exceed 10% of income. Donations to individuals cannot be deducted. At the same time, donations and free of charge services can raise VAT taxation.
Mentioned NGO status can be in practice obtained by a foundation which is set-up in a form of a i.a. limited liability company. Setting up of a foundation takes about 3-4 weeks and is more frequently considered by businesses to manage their charitable activities.
Last week some favorable tax treatment of donations was passed under special legislation concerning assistance for Ukrainian citizens in connection with the war.
The new law introduces the possibility to include in tax deductible costs the purchase price or development cost of items or rights, which were then donated by the taxpayer for purposes related to counteracting the effects of martial law in Ukraine. This tax preferences apply if the donation was given to listed entities, e.g. local government units or NGOs operating under special law in Poland or relevant law in Ukraine. Deduction is possible as long as the expenses have not already been deducted for tax purposes (including depreciation).
Moreover, costs of gratuitous service can also be deducted, if the gratuitous service is aimed at counteracting the effects of martial law in Ukraine and will be provided to entities indicated in the regulations.
The proposed regulations are to apply if the donation is made, and the gratuitous benefit is provided, between 24 February 2022 and 30 June 2022.
Moreover, the Minister of Finance has issued a new regulation based on which donations made to certain listed entities (in general, governmental agencies and bodies) will be subject to 0% VAT rate.
In our view, it is however important to extend the scope of CIT / VAT tax preferences in this matter. In particular, the extended scope should cover donations made to individuals and cash donations that could be then deducted for tax purposes.
CRIDO is actively engaged in raising these and other concerns to the Minister of Finance in cooperation with the Ukrainian – Polish Chamber of Commerce.