Public Benefit Foundations in Albania and their VAT Treatment: A Brief Look into the VAT Treatment of NPOs under EU VAT Directive

Abstract:     
NPOs are important legal vehicles through which needed financial and material resources are dedicated to achieving goals related to activities in the common good and in the public interest. As such, the State is interested to support the activities of NPOs because it is in principle equally concerned for the well-being of its citizens.

Tax treatment is only one of the instruments, a very important one though, how States choose to support the activities of NPOs. Tax privileges are understood to be a reward for services provided by NPOs often to the most vulnerable and needy members of the community, and an encouragement to continue to do so in the future. The question arises what kind of tax treatment should be given to NPOs in order to support them and provide them with the needed incentives? How should this tax treatment be designed in order to avoid discrimination of other organisations, mainly business organisations, and establish a level playing field when the later provide services which also NPOs provide?

The introduction of "public benefit" status is aimed at encouraging NPOs to engage in activities benefits to the public at large, by proving VAT exemption for NPOs. However, are the goals related to promoting public benefit activities better achieved by granting the public benefit status to NPOs? Is the public benefit status beneficial also to NPOs? Public benefit activities are usually exempt for VAT purposes. Therefore NPOs do not need to charge VAT for such services to their “customers.” But is this a good or a bad news to NPOs? Is the VAT system after all a system that encourages and supports the activities of NPOs, or are NPOs being discriminated under the current VAT rules?

The paper also gives a brief overview of the EU and Albanian VAT systems and the treatment of NPOs under such systems.

Number of Pages in PDF File: 30

Keywords: Not-for-profit organisations (NPOs), public benefit activities, public benefit activities, Value Added Tax (VAT), EU VAT Directive, Albanian VAT Law

JEL Classification: E62, E60, E61, H24, H25, L31

Accepted Paper Series