Crowdfunding

What it means

Crowdfunding raises money from many small contributors through a platform. The word alone says nothing about the accounting: what decides it is what the backer gets in return, and that splits into four quite different situations.

A reward campaign is a pre-sale, meaning an advance on a future delivery; a donation campaign is a gift; a lending campaign is a loan with interest; an equity campaign issues a stake and sits closer to venture capital. Each is taxed on its own terms.

Crowdfunding differs from an investment round or a bank loan in that the money comes from the public and the terms are the same for every backer. In the reward model this creates an obligation towards hundreds of customers at once, which looks less like a loan than like an unfulfilled order with a fixed delivery date.

How it works in practice

Investment and lending platforms need a licence in the Union under the crowdfunding service providers regulation, and in Slovakia the National Bank of Slovakia supervises them. In the equity model new shareholders appear and the ownership structure changes with them.

The money lands net of the platform fee and often in another currency. A fee from a foreign platform is a service received from abroad, so the company self-assesses the tax and needs a section 7a registration even when it is not a VAT payer.

In a reward campaign we book the pledges received as advance payments, and revenue arises only when the reward is delivered. For a VAT payer, however, the tax point on a payment received is the day it arrives, so VAT is paid before the product even exists, and the payment has to be documented with an advance invoice or a receipt document.

What to watch out for

Booking only the net payout from the platform is an expensive shortcut. Revenue is the gross sum of the pledges and the fee is a cost, so netting hides the turnover that drives both VAT registration and the size criteria, and it also hides the service on which tax was due.

Reward campaigns tend to forget VAT in the backers’ countries. When the reward is goods shipped to private individuals in other EU states, it is a distance sale, and once the common threshold is passed the tax is due in the customer’s country, which a campaign priced with Slovak VAT does not allow for.