Is there VAT on sponsorships? Complete guide for sports clubs

For many sports clubs, sponsor sales and strategic partnerships are the foundation of a healthy economy. But once the deal is finalized and an invoice needs to be sent, a classic question often arises for the treasurer or sponsorship manager: Should VAT be added to the amount?

The rules regarding VAT on sponsorships can seem daunting, as they depend directly on what the sponsor receives in return for their support. In this guide, we review the legislation and practice so your club can navigate safely at the intersection of tax, VAT, and professional sponsorship management.

The General Rule: Is the sponsorship a gift or a trade?

When discussing VAT in association life, a sharp distinction is made between pure donations (gifts) and sponsorships that involve a consideration or "quid pro quo". It is this distinction that determines whether your club must collect VAT.

If a company gives an amount to the club without receiving anything at all in return – no logo on the clothing, no perimeter advertising, and no mention on social media – it is considered a VAT-free gift. This is a case of pure philanthropy. However, as soon as the club delivers a consideration of promotional value, it is legally regarded as the sale of a service. And the sale of services is, as a starting point, subject to VAT.

When is it considered a consideration?

In modern sports clubs, it is rare for companies to give money without expecting exposure. A consideration can be many things, including:

• Logo on playing kits, tracksuits, or bags.
• Perimeter advertising at the stadium or in the hall.
• Advertisements in club magazines or match programs.
• Exposure on the club's website and social media.
• Speaker spots during matches.
• Access to networking events or VIP facilities.

If one or more of these elements are included in your partnerships, it is generally considered VAT-taxable advertising activity.

VAT exemption for certain associations

Even if a sponsorship includes advertising services, there is an important exception in the VAT Act (§ 13, para. 1, no. 17). Associations and clubs can, under certain circumstances, be exempt from paying VAT on their income if the surplus is used exclusively for the association's purposes (e.g., youth work or facility operation).

However, it is important to be aware that this exemption does not apply to actual commercial advertising activities if it creates a distortion of competition against commercial actors. For most small and medium-sized sports clubs, this means that if you are VAT-registered, you must apply VAT to your sponsorship agreements. If the club is not VAT-registered (because the total taxable turnover is under DKK 50,000 annually), VAT should not be calculated.

The 50,000 DKK limit

Many start-up clubs or smaller specialized clubs operate below the threshold for VAT registration. If the club's total sales of VAT-taxable services – including sponsor sales, kiosk sales, and ticket sales (if applicable) – do not exceed DKK 50,000 within a 12-month period, the club is not obligated to register. The moment you expect to pass this limit, the club must be VAT-registered, and thereafter, 25% VAT must be added to all future sponsorships with considerations.

Why do sponsors often prefer VAT-taxable invoices?

It can be tempting to avoid VAT to make the price "cheaper" for the sponsor, but for the vast majority of companies, VAT is neutral. Since the company is typically VAT-registered, they get the VAT amount refunded by the tax authorities as input tax.

In fact, it can be an advantage for both the club and the company that VAT is handled correctly. For the company, an invoice with specified VAT serves as documentation for an operating expense (advertising expense), which gives them a full tax deduction for the amount. If the club instead receives the amount as a VAT-free gift, there are strict rules regarding whether the company is even allowed to deduct the amount in their tax accounts.

Practical invoicing for partnerships

When your sponsor sales result in a signed agreement, invoicing must be done correctly to comply with the Bookkeeping Act. A valid sponsor invoice must contain:

1. The club's name, address, and CVR number (VAT ID).
2. The sponsor's name and address.
3. A unique invoice number.
4. Date of issue.
5. A description of the service (e.g., "Sponsorship Bronze Package 2024").
6. The VAT base (the amount without VAT).
7. The VAT rate (25%) and the VAT amount itself.
8. The total amount due.

In modern sponsorship management, we often see agreements where payment is split into installments. Remember that VAT must be settled in the period the invoice is issued, regardless of whether the club chooses to invoice the full amount at once or continuously throughout the year.

Barter deals and in-kind sponsorships

An often overlooked pitfall in club sponsorship work is barter deals. This could be the local carpenter building a new dugout in exchange for a sign at the stadium, or the local baker providing bread for the clubhouse in exchange for exposure on Facebook.

For tax and VAT purposes, a barter deal is considered two independent sales. The club delivers an advertising service, and the carpenter delivers a trade service. If both parties are VAT-registered, invoices with VAT must actually be exchanged, which subsequently offset each other. This ensures that both parties have their accounting documentation in order. Even though no physical money moves between accounts, the value of the services must still be recorded correctly.

What about kit sponsorships?

When a company donates a set of playing kits with their logo on them, it is a sponsorship in the form of goods (in-kind). Doubts about VAT often arise here. The practice is that if the club receives the clothing and gives advertising space in exchange, the transaction must be valued.

A good rule of thumb is to let the sponsor buy the kit directly from the supplier and then invoice the club for a small amount for the exposure itself, or let the supplier invoice the club, after which the sponsor covers the invoice as a cash sponsorship. The most important thing is that the rights to the clothing and the value of the advertisement appear in your internal sponsorship management so you don't risk a tax case during a potential audit.

Split sponsorships: Business vs. private sponsors

In some clubs, we see an increase in "supporting members" or "friends of the club," where private individuals pay an amount to have their name on a board. Since private individuals are not VAT-registered and cannot deduct VAT, it may be relevant here to investigate whether these amounts can be categorized as VAT-free contributions or membership fee increases.

If you as a club have both large corporate partners (VAT-taxable) and small private contributors (VAT-free), it requires a clear split in your financial system. This ensures that you don't pay VAT on money that is actually gifts, while still complying with the law for your commercial partnerships.

Summary and advice for your club

Having control over VAT is part of running a professional sports club. It creates security for both the board and your partners. Here are the final steps to ensure correct handling:

• Check your turnover: Is your VAT-taxable sales over DKK 50,000 annually? If yes, you must be VAT-registered.
• Define the consideration: Always state in the sponsorship agreement what the sponsor gets for the money. It makes it easier to argue for VAT and deductions.
• Be consistent: Use a professional system for your sponsorship management so that invoicing, VAT, and installments run automatically and error-free.
• Seek professional advice: If your club has a very complex economy with property management, large barter deals, or employees, it can pay off to have an accountant review your VAT practices once and for all.

By staying on top of the tax details, you send a signal to your sponsors that you are a serious and trustworthy partner. This makes it easier to build long-term partnerships where the focus can be on what it's all about: creating value for the club, the members, and the local businesses.