Sponsoring and taxes – you have to pay attention to that
Sponsoring can be a special form of donation under certain circumstances. In this case, it also has the same tax implications. But as a rule, this is often not the case, because with sponsorship it is the case that financial resources are not made available unselfishly. It is quite possible that sponsorship services are donated in nature. As a rule, however, these are company promotions. Compared to the donation, these can be fully deducted from tax as business expenses . In most cases, sponsoring is always associated with economic reasons for a company and the company expects something in return. These considerations can look like this, for example:
- Tricot advertising or perimeter advertising
- Advertisements in magazines or other media
- Provision of admission tickets. Boxes etc.
- Placement of advertisements on the sponsored’s site
If these considerations are described in concrete form in the sponsorship contract, then the agreed sponsorship is a payment. Triggered by a taxable service to the sponsor .
Does sponsorship incur sales tax?
According to TOPBBACOLLEGES, the subject of sales tax in sponsorship is clearly regulated by law. There are cases when sales tax is not due and there are cases when sales tax is required. This depends entirely on the contractual agreements between the two parties.
- No sales tax due: If the sponsored person only makes a reference to the support of the sponsor on posters, on the website or in any other way , no exchange of services will be provided as part of the sponsorship. However, the name or a logo of the sponsor can certainly be used for this reference. In this case there is no obligation for sales tax.
- Obligation to pay sales tax: However, if the sponsored party provides contractual services as specified in the contract, an exchange of services takes place in the form of advertising. In this case, sales tax is required.
Sponsoring as a business expense
As an entrepreneur, you can claim expenses for sponsorship if the following requirements are met:
- Strive for economic benefits through sponsorship
- Products or services are advertised
- An advertising service of the sponsored person is related to the payment by the sponsor
What are tax-privileged recipients?
In the case of a tax-privileged corporation, benefits received can represent the following points:
- tax-free income in the non-material area
- taxable income as a commercial business operation
- tax-free income from asset management
Tax-privileged corporations are non-profit organizations, associations or institutions. They must all serve at least one of three purposes. They must be either non-profit, church or charitable.
How can success in sponsorship be measured?
In order to be able to measure the success of measures in the area of sponsoring, the prerequisite must be given that the success can also be quantified. In order to achieve this, you have to define specific goals in advance . Goals that you want to achieve through sponsorship.
What measuring methods are there?
Once the goals have been defined, you have two measurement methods to measure the success of your sponsorship:
- The sponsor meter of the European Sponsorship Exchange
- The sponsoring navigator of the Technical University of Dresden
Both measurement methods follow approaches in which sponsorship is successful if an effect is achieved with the desired target groups. This effect must be in line with your goals.
Nevertheless, it should be noted that even with the available figures, success cannot always be measured. This particularly applies to the goal of image transfer. It cannot be deduced whether someone buys or uses something after a sponsorship that is directly associated with the sponsor.
Development and future of sponsorship
Sponsoring already plays an important role for many companies. This will increase significantly in the future. Today we live in a time that is characterized by information overload . The perception of certain target groups no longer takes place properly in certain marketing measures. Therefore, as an entrepreneur, you should also see sponsoring as an instrument that is of great importance for your strategic brand management.
Sponsorship has continued to develop over the past few years. From a pure instrument for communication to an instrument of value creation . Activities on the Internet and social media in particular will play an important role in the future when it comes to sponsoring.
Many only associate sponsorship with sport and then on a very large scale. But sponsoring is also possible and useful for you as an entrepreneur on a small scale. It doesn’t matter what level of funding you get in with to get your brand better known. Sponsoring also enjoys a high level of recognition in society and, in contrast to classic advertising, does not evoke any negative associations.