Taxation of Commission Earned by Non-Profit Organization (“Public Institution”) (September 4th, 2009)
1.1"A”is a non-profit organization ("Public Institution”) recognized as such
for the tax exemption granted under section 9(2) of the Income Tax Ordinance.
It is not engaged in any commercial activities.
1.2A group of non-residents approached "A” with a
view of purchasing certain real estate. "A” introduced the group to a
vendor who entered into a transaction with the group. The vendor paid "A”
a commission for brokering the sale.
1.3"A”made no demand of the vendors for the commission and the brokering was not
conditioned on remuneration which was entirely unexpected.
1.4Thecommission will be used to further the aims of the Public Institution.
1.5"A”did not receive in the past commissions and has no expectations to receive any
in the future.
2.1Is "A” liable for income tax on the commission?
2.2Is "A” liable for value added tax on the commission?
3.1The opinion concluded that the commission was exempt from
income tax due to the fact that the commission lacked the business or
commercial indicia, used to characterize taxable receipt for purposes of the
Income Tax Ordinance.
3.2Moreover, even if the commission was to be characterized
as partaking of a business nature it would still be exempt from the tax due to
certain provisions specifically applicable to Public Institutions pursuant to
which quasi business income is not deemed taxable business income of such
3.3The opinion reached the conclusion that no Value Added
Tax was payable on the commission, because it lacked commercial characteristics
and was not paid within the framework of an isolated transaction in the nature
of trade as per section 2 of the Value Added Tax, Law 1975.