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Donation Agreements

Can an LLC receive a grant in Georgia?

Generally, no. Under the Georgian Law on Grants, a commercial legal entity (LLC) cannot be a recipient of a grant unless explicitly provided by a specific state program or international treaty. LLCs usually receive funding via service contracts or investment, which are taxable transactions.

What distinguishes sponsorship from donation?

Sponsorship is a commercial transaction where the sponsor expects publicity or marketing exposure in return (e.g., logo on a jersey). It is subject to VAT and profit tax. A donation is an act of charity with no commercial return. Misclassifying sponsorship as a donation to avoid taxes is a common compliance risk.

Do we need a written contract for small donations?

For small, one-off donations, a formal contract isn't mandatory, but proper documentation (bank transfer with clear purpose) is needed. However, for recurring or significant amounts, or restricted funds (specific purpose), a written agreement is highly recommended to clarify obligations and satisfy tax auditors.

Can a donor demand their money back?

If the donation agreement includes a "clawback" clause stating that funds must be returned if not used for the specified purpose, then yes. Without such a clause, a donation is generally irrevocable once the transfer is made. We draft agreements to protect both parties' interests.

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Donation and grant agreements form the foundation of financial sustainability for Non-Governmental Organizations (NGOs). While the terms "donation" and "grant" are often used interchangeably in everyday language, legally they have distinct meanings that impact taxation and obligations. Specifically, a grant is targeted funding with specific obligations and reporting conditions, whereas a donation is often unconditional charity. An incorrectly drafted agreement can lead to the tax authority reclassifying the funds as taxable income (subject to profit tax), especially if received from commercial entities. Therefore, the legal structuring of each financial transaction is critical for the organization's safety.

Our service includes drafting and reviewing donation and grant agreements. Specialists offer:

  • Drafting grant agreements in compliance with the "Law on Grants" of Georgia;
  • Preparing charitable donation agreements for monetary and in-kind contributions;
  • Distinguishing between sponsorship and donation (sponsorship implies advertising and is taxable, whereas pure donation is not);
  • Defining usage restrictions and reporting mechanisms to protect donor interests;
  • Ensuring compliance with currency regulations for donations received in foreign currency;
  • Consulting on the application of tax exemptions.
This service ensures that your funding sources are transparent and lawful.

Properly executing a donation agreement is necessary in many practical situations. For example, a business wants to transfer computer equipment to an NGO. If this is documented as a "gift" rather than a "grant" or "donation" (depending on status), it might trigger VAT or profit tax liabilities. Another scenario is when a diaspora member transfers a large sum for a specific social project — without a written agreement, the bank might freeze the transaction for anti-money laundering checks, or the tax authority might treat it as economic activity income. Corporate donors also often require "clawback" clauses to reclaim funds if misused — drafting such clauses correctly requires legal expertise.

The legal framework relies on the "Law of Georgia on Grants," which defines the concept of a grant and the entities authorized to issue one. The "Tax Code of Georgia" exempts grants from profit tax and VAT but strictly specifies that a grant cannot be compensation for work performed (which would constitute a service contract). The Civil Code regulates general norms for gifts (donations). A lawyer's assistance is essential to interpret these norms correctly and prevent the transaction from being legally misclassified.

The process begins with an analysis of the funding source and purpose. The lawyer clarifies: Who is the donor? What is the purpose of the funds? Does the donor expect any benefit in return (e.g., logo placement)? Based on this, a draft agreement is prepared. In the case of a grant agreement, it may include a detailed budget and implementation plan as annexes. For in-kind donations, an acceptance act indicating market value is prepared. Engaging a specialist on Legal.ge eliminates misunderstandings between the donor and the recipient organization and protects both parties from fiscal risks.

Legal.ge is the platform where you can find experts in non-profit law who understand the specifics of fundraising. Do not rely on verbal agreements when finances are involved. Secure your charitable activities with professional contracts via Legal.ge.

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