VAT deduction for foundations: the importance of onerous activities

The ability of an entity to deduct the Value Added Tax (VAT) paid on its purchases and contracts does not depend solely on its legal nature, but on the nature of its economic activities. The Dirección General de Tributos (DGT) has clarified the requirements necessary for a foundation to be considered a business owner or professional for the purposes of this tax.

What the DGT has resolved

The tax authority's criteria focus on the distinction between operations carried out for consideration (onerous) and those carried out free of charge. For an entity to exercise the right to deduction, it must hold the status of a business owner or professional, which requires performing activities on a continuous basis and for consideration, assuming the risk and venture of the activity.

If a foundation develops its projects solely through free operations or with considerations that are merely symbolic, it does not acquire the status of a business owner for VAT purposes. In this scenario, the entity acts as a final consumer and must treat the tax paid as a cost.

Furthermore, the ruling addresses the treatment of subsidies. For a subsidy to be integrated into the taxable base and considered linked to the price, there must be a relationship of proportionality between said aid and the reduction in the price of the good or service delivered.

What this means for you

For foundations and non-profit entities, this criterion implies that the mere existence of social projects does not guarantee the right to VAT deduction. It is essential to analyze whether the activities justifying the expense are linked to a real economic exploitation with considerations that reflect market value.

If the entity receives subsidies to finance its projects, the way these are applied to the selling price will determine whether they form part of the taxable base, directly affecting the calculation of the deductible amount.

What should be done

It is necessary to analyze the entity's income structure to determine whether the activities performed meet the requirements of consideration and continuity. It must be verified that the considerations received are not symbolic and that, if subsidies exist, the necessary proportionality is maintained for their correct integration into the taxable base according to Law 37/1992. Each situation requires a technical assessment of the economic activity to avoid errors in the application of the deduction.