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Donations and the CIT tax relief

Katarzyna KOZIOROWICZ
Junior Accountant at RSM Poland

More and more businesses decide to build their future taking into account the Corporate Social Responsibility – CSR, which certainly works for the benefit of the company image. One of the ways to support local communities may be a donation. If certain conditions are met, a legal person making an in-kind or cash donation may claim an income tax relief. Let’s check then if helping may indeed pay off.

What is a donation?

Donation is a voluntary transfer of money or goods to a natural or legal person. Thus, it is an agreement between the donor and the donee, under which the donor declares to transfer cash or goods from himself to another person, without any consideration. For a donation agreement to be valid it must be unilateral, which means that the donor cannot expect any benefits from the donee in return. A donation is effective when received by the donee.

There are two types of donations:

  • Cash donations – transfer of cash;
  • In-kind donations – transfer of goods (e.g. food) or immovable property.

It should be noted that services cannot be donated. Activities performed for the benefit of the donee do not reduce the donor’s assets, and, pursuant to Art. 888 of the Civil Code, this reduction must occur. A service performed for the benefit of the donee constitutes a free-of-charge provision of services.

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Donation tax relief

As a rule, donations do not constitute tax deductible income, however, they can give right to claim a tax deduction (CIT relief). To be able to deduct the amount of the donation from the taxable income, it must be a donation for: 

  • religious purposes;
  • charity and care activities of the church;
  • public service organisations.

Thus, it is not necessary for the donee to have the status of a public service organisation, however, the conducted activity must include public service specified in Art. 4 of the Act on public service activities and volunteer work, and this can be checked in the organisation’s statute. It should be noted that, under the Act on public service activities and volunteer work, the following entities are entitled to conduct public service activity:

  • legal persons;
  • churches;
  • local governments’ associations;
  • social cooperatives.

Donations made to natural persons, legal persons not having legal personality and political parties are not subject to deduction. It is possible, however, to deduct a donation with instruction, i.e. a donation made to e.g. a  fund,  with an indication of the person under the care of the fund who is to be the donee.

Please note that on an annual basis, the amount of the deduction cannot exceed 10% of the income gained by a legal person or 6% of the income of a natural person.

Transfer of food is a special kind of donation – the cost of purchasing and producing food may be rocognised as tax deductible cost under certain conditions. Firstly, a donation must be made to public service organisations, secondly – the donation must be made with an indication that it is intended for charity. It is important to highlight that it cannot be deducted from the taxable income twice.

Documented donations

A donor should possess relevant documentation to be able to prove the transfer of the donation. If it is a donation in cash, a receipt of payment made to a bank account, e.g. a bank transfer confirmation will be required. It should indicate all the details of both parties to the donation agreement. If it is an in-kind donation, the donor must have a document confirming the value of the donated goods. Additionally, the agreement for an in-kind donation should be concluded in writing. The documentation must also include a statement of accepting the donation signed by the donee. It is not required to attach the abovementioned documents to the tax return, however, the donor may be obliged to present them in the event of a tax audit.

Donation for combating COVID-19

Until the state of COVID-19 pandemic is lifted, anyone who decides to support actions aimed at combating the COVID-19 pandemic, may deduct their donation (cash or in-kind) from income in their annual return.

All legal and natural persons making donations to:

  • medical care institutions;
  • Material Reserves Agency;
  • Central Sanitary and Anti-epidemic Reserves
  • social welfare homes for mothers with juvenile children and expecting women;
  • shelters;
  • family care homes and social care homes;
  • Fund for Preventing COVID-19

may claim substantial tax reliefs.

In the period from 1 January 2020 to the end of the month in which the state of COVID-19 pandemic  is lifted, businesses may deduct the following amounts from taxable income:

in PIT/ CIT
for the year 2020

donations made by 30 April 2020

200% of the value of the donation

donations made by 31 May 2020

150% of the value of the donation

donations made between 1 June and 30 September 2020

 

in PIT/ CIT
for the year 2021

donations made between 1 October and 31 December 2020

200% of the value of the donation

donations made between 1 January and 31 March 2021

150% of the value of the donation

donations made between 1 April 2021 and the end of the month in which the state of COVID-19 pandemic is lifted

100% of the value of the donation

 

The abovementioned reliefs may also be claimed by individuals making donations to support education which must face the challenge of switching to e-learning organized for children and youth.

To sum up, a donation is a good way not only to support those in need, but also to pay less in tax. I am sure that it definitely pays off and is worth engaging our resources. By offering a donation we surely lend a helping hand but also reinforce the positive image of our company and may count on tax reliefs. This is a clear win-win situation.

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