On 1 August 2023, the General Financial Directorate issued new and general information on free-of-charge supplies of goods, which replaces the previously valid Information on free-of-charge supplies of goods to food banks from 2014.

The aim of this information is to harmonize and define the basic rules for and approaches to applying value added tax on free-of-charge supplies of goods by VAT payers that claimed a VAT deduction upon the acquisition of such goods.

The new information has confirmed the so-far approach, i.e. in the case that the VAT payer legitimately claims a VAT deduction when the goods are acquired (in this context, please note that if goods are acquired directly for the purposes of donating or supplying them free of charge, no VAT deduction can be claimed according to the tax administration), the VAT payer shall be required to apply VAT as of the day the goods are supplied free of charge (Section 13(4)(a) + (5) of the VAT Act). This applies irrespective of whether or not the donation recipient is a charity organization or another entity.

The information then explains how to determine the tax base for the goods that the VAT payer purchased and for the goods that the VAT payer acquired in another way. The tax base for the goods purchased by the VAT payer and donated should be the purchase price of the goods, taking into account the condition of the goods as of the day of their donation. In such a case, the price of the goods is understood to mean the current residual value of the goods, which corresponds to the purchase price of the goods, increased, where appropriate, by the cost of transformation/improvement/modernization of the goods and reduced by the value of the physical and moral wear and tear of the goods as of the day of their free-of-charge supply. The tax base for the goods acquired in another way should be the price of similar goods as of the day of their donation. In the case that the goods are virtually unique on the market and their market price cannot therefore be determined, then the tax base should be the total acquisition costs incurred by the donor as of the day of their donation, including, where appropriate, the cost of transformation/improvement/modernization of the goods.

The tax base for the donated goods may vary depending on the type and condition of the goods or the current market situation. The tax base should correspond to the customary market price of the goods that are regularly traded on the market at the time of their donation (e.g. electronics, office supplies, etc.). On the other hand, there may be a situation where the tax base is a fractional value or close to zero (food or other products close to their expiration date or best before date, in unsuitable packaging or otherwise damaged, etc.). In the case that the goods are somewhere in between, it is necessary to assess all the relevant facts and take them into account when determining the tax base.  

In order to prove the donation of the goods, the tax administrator recommends to VAT payers to secure evidence showing in particular the item, scope and time of the donation. In order to prove the value of the goods for the purposes of determining the tax base, VAT payers also recommended to document the condition of the donated goods (damaged packaging, approaching expiration date, etc.).

If this issue concerns you and you are not sure how to handle the donation of goods, please do not hesitate to contact us. We will be happy to assist you.

Author: Richard Knobloch, Zuzana Pirnerová