The last quarter of the year often involves organizing gifts in many companies for clients, business partners, and employees alike. While this is a common practice, tax law requirements are often overlooked. Although the saying goes, “Never look a gift horse in the mouth,” it is necessary to understand the tax implications of gifts to keep your accounting in order and compliant. We will therefore take a brief look at the taxes and principles of taxation that must be considered when giving gifts.
Gifts to your employees
Naturally, you need to value and retain your employees so that they, in turn, value and retain your clients. However, from an accounting perspective, giving gifts is a relatively expensive way to do this.
Specifically, gifts made to your employees are classified entirely as fringe benefits from the very first euro, which automatically incurs both income tax and social tax obligations for you. This means that, for example, a €100 spa gift card will ultimately cost you €170.51, or 70.51% more than the value of the gift itself. How is this calculated? First, income tax is added to the €100 based on the 22/78 principle, which is 28.2%, and then social tax of 33% is added to the resulting sum.
In short, giving gifts to your employees is undoubtedly a commendable, but unfortunately quite costly, endeavor that requires careful consideration and calculation, as well as knowing your people – if you’re already paying taxes, perhaps they would be happier with a bonus instead? Increasingly, companies are also giving their employees an extra day off if, for instance, a public holiday happens to fall on a weekend. That, too, is a value in itself.
Gifts to business partners and clients
To start, it should be noted that in all cases of gifts, the principle must be followed that a monetary value can be assigned to the gift, and the recipient does not give you anything in return. If you give a gift and the recipient, for example, puts your logo on their website, this is already considered sponsorship, which has its own rules. More on that another time.
In the case of business, or more correctly, promotional gifts (goods or services handed over for advertising purposes), the magic threshold of €21 applies when determining the application or non-application of taxes. This is the net price, meaning VAT and the cost of adding a logo, etc., do not have to be included in this sum, and this threshold applies equally to VAT payers and non-VAT payers.
You can order gifts in bulk, as this often results in a lower unit price, but the condition remains that none of them cost more than €21, and one client receives one gift during one meeting. However, if a single gift package handed over to one client during one meeting includes several gifts whose total value exceeds €21, income tax is fully applied at a rate of 22/78 (TSD Annex 5 code 5000).
Yes, there are quite a few nuances already, and more are accumulating. Namely, if your company is a VAT payer, you must also consider that, from the perspective of the Value Added Tax Act (§ 12 section 3), the gratuitous transfer of goods with a value exceeding €21 is also subject to VAT. Therefore, the cost of the gift, including VAT, is taken as the basis for calculating income tax, and if it exceeds €21 even by a few cents, you, as an entrepreneur, must declare and pay VAT. You can find more detailed examples of this logic and calculation on the Tax and Customs Board’s website.
Finally, something a little more flowery: if you have an irresistible desire to give flowers to your clients or business partners, then go ahead – according to the MTA (Tax and Customs Board) data, no tax obligation arises even if the cost of the flowers exceeds €21.
In conclusion
If you want to give gifts to your employees and/or clients, but do not want to spend too much time understanding the intricacies of fringe benefits, income tax, and VAT, contact us and we can assist you more specifically.
Recent Comments