Sponsorship and tax - everything sponsors and clubs need to know about it

Clubs, athletes and sponsors can all benefit from sponsorship. It is therefore all the more important that the associated tax requirements are also met. We show you what you should pay attention to in sponsoring and taxes as an association or sponsor.

spized | sponsoring | Magazine

September 21, 2023 |

Whats’ on this page

1. Important tax aspects of sponsorship

2. Sponsorship invoice: How sponsorship is treated in accounting terms

3. What do clubs have to consider in terms of taxation when sponsoring?

4. What do sponsors need to consider in terms of tax in sponsorship?

5. Conclusion

Important tax aspects of sponsorship

If an association receives sponsorship money or material goods with the sponsor's imprint, these donations are subject to VAT. As an association, you must therefore pay turnover tax on the income from the sponsorship. The decisive factor for whether or not turnover tax is due is an exchange of services. This is the case when the sponsor receives a service in return for his support.

Sponsors themselves can deduct the turnover tax of sponsorship contributions as input tax. In addition, sponsorship money from sponsors can be offset against income tax as business expenses.

Important: In order to make it clear how or whether the sponsorship is subject to VAT, services provided by the sponsor and possible consideration provided by the association should be precisely listed in the sponsorship agreement.

What does sponsorship mean in terms of contract law? In terms of contract law, sponsorship means that one contractual partner provides financial resources to the other contractual partner. These funds are earmarked for a specific purpose and can promote club activities at different levels, e.g. sporting (sponsorship money is invested in better coaches) or social (a team outing is sponsored).

Sponsorship invoice: How sponsorship is treated in accounting terms

The bookkeeping of your association must accurately record donations within the framework of sponsoring. The basis for this is the sponsorship contract. It states exactly what the club will do in return for the sponsorship. In addition, payment targets or premiums are precisely defined in the contract.

Above all, it is important that your accounting department keeps track of all bookings and invoices. This ensures that payment targets are met.

Practical Tip:

It is best to find a tax advisor as your sponsor who will take care of the bookkeeping. This ensures that all accounting is done correctly. You can enter into a so-called "barter deal". This is a deal in which both sides provide services of the same value without any money flowing. In the case of the tax advisor, you would receive tax advice in exchange for advertising services as a barter deal.

Sponsorship Invoice Template

Tax number or VAT identification number
Invoice date
Full name and address of the association
Full name and address of the sponsor
Consecutive invoice number
Quantity and customary designation of the goods supplied or the type and scope of the other service (sponsoring)
Date of delivery or service (sponsoring)
Remuneration broken down according to tax rates and exemptions (gross/net)
Date of payment
Possible discounts

Important: You will also issue an invoice for a barter deal!

What do clubs have to consider in terms of taxation when sponsoring?

The Federal Ministry of Finance has created the so-called Sponsoring Decree. It precisely regulates the income tax treatment of sponsoring.

The most important thing here is the exact separation of donations and sponsoring. This is what determines how the donations are treated for tax purposes. We have summarised this for you in this table:

Sponsoring	Donations
Compensation must have been demonstrably provided Sponsorship expenses can be booked as operating expenses	A compensation is not required Donation amount fully supports the charitable purpose Donations are only tax deductible within certain maximum limits

Since a donation is a voluntary and gratuitous expenditure by the company, the supporting company may not be advertised. Donations can be taken into account for income tax or corporation tax, but also for trade tax.

Example: A craftman donates 100 euros for the new clubhouse. In return, he receives a donation receipt. His name is listed with the donors. However, there is no advertisement for the craftsman's company in the association's newsletter or on the homepage.

In the case of sponsoring, the supporting company receives something in return, which in turn can be deducted as a business expense for tax purposes. This means that the sponsor reduces its income through sponsorship and thus also the taxes to be paid. In contrast to a donation, there is no maximum limit here. However, the "purchased" advertising service must always be verifiable.

Example: The same craftman sponsors the club with 1,000 euros for new jerseys. His logo is printed on these jerseys. Accordingly, a sponsoring invoice with VAT must be issued.

If you are a sponsor yourself, you must be able to prove the deducted business expenses exactly. Therefore, the sponsorship contract is important. In addition, you should document invoices and pictures of the services provided. If sponsors receive tickets in return, clubs should keep a list. There you can see who attended which match and when. In the event of a tax audit, the club must be able to prove which services were provided in return for the sponsorship.

Practical tip for clubs:

Many companies have a fixed marketing budget in which sponsorship money is planned a year in advance. It is therefore worthwhile to look for sponsors at an early stage. Many companies have not yet used up their marketing budget at the end of the year. This is when you should become active again in order to acquire sponsors.

What do sponsors need to consider in terms of tax in sponsorship?

As a sponsor, you can deduct the expenses for sponsoring as a business expense. The net amount is deducted from the operating profit.

The costs are submitted to the tax office with an income statement together with the tax return. This automatically reduces your taxable income and, conversely, your tax burden.

You offset the VAT amounts against input tax like all other expenses with VAT.

Conclusion

Sponsorship is a win-win situation for both clubs and sponsors. It is also important that tax aspects are taken into account. After all, sponsorship is a kind of business in which clubs provide a service in return for financial support.