Each year entrepreneurs wonder how to best deduct presents for employees and clients from tax. It´s key to differentiate who will be the recipient, as different rules apply
Presents to clients and business partners are usually not tax-deductible business expenses. These costs are part of the so called “non deductible representation expenses (“Repräsentationsaufwand”)?.
Presents which are handed out for advertisement reasons are part of the business expenses. This is only valid if the objects have the intended advertisement effect, for example if pens, calenders, lighters or wine are labeled with the company name or logo and not exclusive products.
Value added tax
Presents to clients are subject to value added tax, if a partial or total input tax deduction is possible. The only exceptions are presents of low value and commercial samples. A low value will be up to a maximum of 40 EUR (excluding VAT). This limited may not be exceeded per recipient per calendar year. Expenses for low value commercial products as pens can be dismissed regarding the 40 EUR limit.
Not only salaries are subject to income tax, but also all benefits in kind, that employees receive from their employers. There are only a few exceptions to this principle: benefits in kind which result from the participation of a business event and non-cash benefits received through them. Both are free of income tax. Following details apply:
- Non-cash benefits are only up to 186 EUR per employee per year tax free. Additional non-cash benefits for a different occasion (e.g. Easter, company outing) are included. Non-cash benefits for anniversaries regarding years of service or company anniversaries up to 186 EUR are also tax free.
- Only non-cash benefits are tax free. Cash benefits are always subject to taxation. Non-cash benefits include coupons and gift coins, which can not be cashed in. Gold coins or gold ducats with a focus on the value of gold are recognized by administrative practice as benefits in kind. Contradicting the decision of an independent finance senate the ministry of tax considers highway permit stickers as benefit in kind
- The benefit in kind may not reward an individual employee (e.g. for great service, birthday, marriage). It must always be awarded employees to certain occasions (e.g. Christmas, company anniversaries, company outings).
- The hosting of a company event is not a requirement for the tax exemption of benefits in kind. If such a company event is held, the free participation (e.g. food, entertainment, travels) up to 365 EUR per employee each year is tax free. Benefits in kind received at other business events (including company anniversaries and anniversaries for years of service) are included in this sum.
The presents are part of company expenses (voluntary social expenses [“freiwilliger Sozialaufwand])
Christmas presents for employees are generally subject to value added tax. The only exclusion are goodies. The partial or full input tax deduction of the present is required for the tax exemption. The assessment basis for the value added tax is the purchase price or net cost.
In a nutshell it can be said that “true” Christmas presents for clients (also small advertisement products and samples) are neither company expenses nor is it possible to deduct input tax if the limit of 40 EUR is surpassed.