VAT in associations: when the status of entrepreneur is acquired

The legal nature of an association does not, in itself, determine its tax obligation regarding Value Added Tax (VAT). Recently, the Directorate General of Taxes (DGT) has clarified the criteria for determining when a non-profit entity must act as a taxable person for the tax.

What the DGT has resolved

The ruling analyzes whether an association must carry out operations subject to VAT and whether it has the obligation to file returns for said tax. The criteria establish that an association acquires the status of entrepreneur or professional only when it organizes personal and material means to develop a business or professional activity through the supply of goods or services for consideration, assuming the risk and venture of the activity.

In this sense, the resolution distinguishes two clear scenarios:

• Free activities: If the entity carries out exclusively free operations, it does not reach the status of entrepreneur and its operations are not subject to VAT.
• Onerous activities: If the entity carries out operations for consideration, these will be subject to the tax, regardless of whether the operations themselves may be exempt.

What it means for you

This criterion implies that being an association does not guarantee exclusion from VAT. If the entity begins to structure an economic activity where there is economic consideration and risks are assumed, the administration will consider that the association is acting as an entrepreneur. This entails the obligation to comply with the formal and reporting duties established by current regulations.

What should be done

It is necessary to analyze the structure of the activities carried out by the entity. If there are services or goods delivered in exchange for a price, it must be verified whether the organization meets the requirements of an entrepreneur or professional. Each situation requires a technical analysis to determine whether the activity is merely social or if it has crossed the border into economic activity subject to the tax according to Law 37/1992.