Value Added Tax for non-governmental non-profit organisations

Non-governmental organisations (NGOs) provide support and services in many areas, such as social welfare, education, culture, sports and environmental protection. Although they are not set up for profit, they may carry out economic activities which become subject of a Value Added Tax (VAT).

NGOs running businesses

According to Artlicle 5 of the VAT Act, an economic activity is considered to be one that leads to regular income (not just profit), e.g. when an association organises an annual ball for which it sells tickets. Apart from the economic activity, an NGO must also meet another condition, according to Article 6, paragraph 1 of the VAT Act, “a taxable person with its registered office in the Czech Republic whose turnover for no more than 12 immediately preceding consecutive calendar months exceeds CZK 2,000,000 shall become a taxable person, with the exception of a person who carries out only tax-exempt transactions without the right to deduct tax.” This limit has been set relatively recently, and has only been in force since 1 January 2023, following an amendment to the VAT Act. Another important factor with regard to the operation of NGOs is that not all income is included in the turnover criterion for VAT purposes. While membership fees, subsidies or donations will not be subject to this assessment, the aforementioned income from ticket sales for sporting or social events will.

When does NGOs become subject to VAT?

A specific situation arises when an NGO does not have a taxable supply that would make it a VAT payer, but purchases goods or services abroad. In such case, it becomes an identified person (IP). Therefore, if the NGOs use common services from, for example, Google or Meta, it should register for IP in accordance with the law. In addition, if the purchase of goods from abroad exceeds CZK 326,000 in the relevant and immediately preceding calendar year, the NGO even becomes a VAT payer.

What is next?

The issue of VAT for NGOs is specific and it will always depend on the particular situation of the entity in question. In case of uncertainty, we advise NGOs to contact a tax advisor so that they have a clear understanding of their obligations.