Beauty and challenges of VAT for Associations

Associations are confronted with a lot of challenges: management, administration, staffing are completely different from corporate companies. But one main challenge an association is usually facing can easily go under the radar: VAT.

If you say the word to association representatives, you will immediately notice interesting body language: embarrassed grin, questioning gaze, frowns of disapproval or even expressive disgust. VAT is such a complex topic that no one really understands all of its consequences except if you’re a specialist in the matter.

This article was contributed by Véronique De Hertogh, Project Manager, FERMA (Federation of European Risk Management Associations).

Associations are mostly facing VAT issues when they decide to organise events and more specifically events taking place in other European countries or even worldwide. How will they manage that important aspect when knowing how much impact it will have on the financial situation of their event? Might this issue even threaten the “well-being” of your event? Then let’s have a quick overview of how VAT can affect all aspects of your congress, convention or meeting. Registration fees, cash flow, final results - all will be impacted by VAT.

Mandatory

First of all, there are some basic rules associations need to be aware of:

Whether an event (entertainment and cultural performances - including sports events, right to attend exhibitions, conferences, meetings or seminars) is organised by a private company or a non-profit organisation, VAT is mandatory and payable in the country where the event takes place if the organiser:

• Charges a fee to delegates of the event
• Charges a fee for exhibition space, depending on the local regulation

This implies that if an association organises an event, an exhibition or a conference in a different EU Member State than the one they are registered in, they must consider the need to register for VAT and apply the local VAT rates and rules. By following the regulations in place, the association will be entitled to recover VAT. VAT is also recoverable for events where no fees are charged.

Invoices are the documents that determine the amount of VAT to be reimbursed by the tax administration. Because an event is subject to the 'Place of Supply' rule, invoices shall be issued according to the law where the event actually takes place. In order to recover VAT, invoices received and issued will need to follow the local regulations. The first challenge that the association will come across is the complete lack of standardization. Rates, rules, exceptions - all differ from one country to another.

One to three years

Associations will also be responsible for the filing of all the required declarations and reports. This is usually done on a monthly basis.  Invoice from suppliers will hit your accounts before you may actually charge VAT to your “end users” (delegates) and, as most suppliers are local, the “reverse charge” or tax shift will not apply. Here comes your first cash flow challenge…

Your delegates will be charged with VAT that is not recoverable. For instance, in a country where the VAT rate is 20%, registration to the event is 1000€ without VAT and 1200€ with VAT. This is a significant distortion of price, which might have an impact on the participation of the delegates. 

Going back to VAT recovery: if the association follows the regulations, they will end up with a positive balance. However, the time to recover VAT varies from one country to another from one to three years! And here comes another cash flow challenge and an unavoidable impact on the final financial result of your event. Even though your budget might show a positive income, part of it will be blocked for numerous months.

Most associations will have this difficult VAT matter handled by their PCO, or Professional Congress Organiser, who are used to working with VAT consultants. However, they should be aware that PCOs usually opt for the easiest solutions, which are not always the best solutions for the association itself. In the worst-case scenario, such as a major litigation, VAT recovery will be even more delayed. Therefore, having your own independent VAT consultant, rather than the one recommended by your PCO, is certainly worth considering.

VAT remains a significant issue to be handled in the most effective way. Nevertheless in view of its consequences and impact, raising awareness and basic knowledge are crucial.  Trainings are organised on a regular basis by international VAT consultants and may open your mind to this much-debated topic.

More info on FERMA at www.ferma.eu