On the occasion of October 16, which is celebrated as World Food Day – as on that particular day in 1945 Food and Agriculture Organization of the United Nations (“UN”) (FAO) was founded – the issue of taxation of food donations came into focus again.

Alarming Data

Relevant researches that were conducted in this field within the past few years produced deeply alarming data, including that:

• one-third of the annually produced food gets disposed of;
• third of the food that is disposed of is enough to feed more than 800,000,000 people;
• around 2,000,000 kilograms of food is discarded in Serbia every day;
• nearly 500,000 citizens of Serbia cannot meet their basic living needs;
• by-products of the destruction of discarded food have a significant impact on air pollution (around 8%).

Even a mere glance at the statistics regarding the waste of food resources makes it clear that it is necessary to act as soon as possible in order, if not to stop, then at least to mitigate this negative practice.

One of the mechanisms for acting thereof is to relax tax policy regarding food donations.

International Treatment of Food Donations

The 2030 Agenda for Sustainable Development of UN, whose implementation was undertaken by Serbia as well, sets out as its Goal 2. to end hunger, achieve food security and improved nutrition, as well as to promote sustainable agriculture, which, among others, implies a reduction of global food waste by 50%, both at the level of retail and consumers and in production and supply chains.

In addition, the European Union (“EU”) Guidelines on Food Donation from 2017 stipulate that value-added tax (“VAT”) can have significant implications on the transfer of food surplus between donors, food banks, and other charitable organizations, whereas other fiscal instruments can also serve as incentives for food donation, aimed at the redistribution of its surplus and prevention of waste thereof. By using the possibilities provided by the EU Directive on VAT (Council Directive 2006/112/EC) aimed at facilitating the process of charitable donations of food surplus, 20 EU member states abolished the VAT payment for food donations.

Tax Treatment of Food Donations in Serbia

As for the taxation of donations in goods – including food – from the aspect of Serbian regulations, this matter is governed by:

• Law on Property Taxes;
• Law on Personal Income Tax;
• Law on Corporate Profit Tax; and
• Law on Value Added Tax.

Article 14, paragraph 3. of the Law on Property Taxes prescribes that a gift represents a transfer of a legal entity’s property without compensation, provided that such property is subject to taxation under paragraphs 1-2. and 4-6. of this Article (including the property right over movable assets). Pursuant to Article 21, paragraph 1, item 5-5a) of this law, tax on gift shall not be paid for the gift received by foundation, endowment, or association, provided that subject of the gift is property serving the realization of a charitable goal of the foundation, i.e. purpose that the endowment or association is registered for. However, a gift is not considered a natural person’s income on a base exempt from taxation, or subject to taxation by personal income tax (Article 14, paragraph 4).

In relation thereto, the Law on Personal Income Tax prescribes that this tax shall not be paid for incomes collected on the basis of organized social and humanitarian assistance (Article 9, paragraph 1, item 10-11).

As regards the Law on Corporate Profit Tax, Article 15, paragraph 1-2. of this law stipulates that expenditure within taxpayer’s balance sheet, up to a maximum of 5% of total revenue, may include the expenditures for health, education, scientific, humanitarian, religious and sports purposes, environmental protection, as well as grants to institutions, i.e. providers of social protection services, given that they were executed to the entities established for the aforesaid purposes, which use such grants exclusively for performing of their registered activities.

Current initiatives are mostly directed to amending the provisions of the Law on Value Added Tax, i.e. abolishment of VAT payment obligations in case of food donations. Namely, according to the current legal solution, the donations in goods are subject to 20% VAT, since trade in goods without compensation has been equalized with trade in goods with compensation (Article 4, paragraph 4, item 2). This provision of the Law on Value Added Tax, as well as other relevant provisions of both this and other above-mentioned regulations, have been elaborated and clarified in detail within the Official Opinion of the Ministry of Finance no. 413-00-00176/2014-04 as of October 3, 2014.

The idea is, therefore, to use instruments of fiscal policy and regulations to financially motivate producers and traders to donate food, more frequently and in larger quantities than has been practices so far.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.