December 21, 2023
What are the rules regarding the costs of Christmas packages for entrepreneurs?
Christmas is approaching, and this is often a moment to show appreciation with a gift such as a Christmas package or a team outing. These gestures are all beautiful ways to express gratitude to employees, business associates, or clients. Moreover, these types of gifts are often (partially) deductible. In this article, we'll explain the details regarding the costs of these gifts.
Corporate Gifts, Recruiting Presents, and Employee Benefits
First and foremost, it's good to know that the rules for the costs of, for example, a Christmas package depend on the recipient of the package. A Christmas package can fall under corporate gifts, recruiting presents, or employee benefits.
Corporate Gifts: These are gifts given to existing business relationships. This could be, for example, an accountant, a supplier, or an existing customer.
Recruiting Presents: These are gifts given to potential/new customers. The costs of recruiting presents are considered part of the selling expenses, just regular business costs.
Employee Benefits: These are gifts for employees. In addition to Christmas packages, employee benefits also include team outings and fitness facilities for employees.
Deductibility of Recruiting Presents from Income Tax and VAT
As mentioned above, the costs of recruiting presents are considered part of the selling expenses. These costs are, therefore, fully deductible from the profit, and the VAT on them is also fully reclaimable.
Deductibility of Corporate Gifts and Employee Benefits from Income Tax
The costs of corporate gifts and employee benefits are 80% deductible from the profit, unless you exceed the threshold amount. The threshold amount in 2023 is €5,100. In practice, 99% of entrepreneurs are below this threshold because almost no one spends more than €5,100 in a year on Christmas packages and business dinners.
Example: If you spent €500 in a year on Christmas packages for existing relationships and employees, you can deduct €500 * 0.8 = €400 from your profit.Deductibility of Corporate
Gifts and Employee Benefits from VAT
The VAT on most corporate gifts and employee benefits, such as Christmas packages, is fully deductible. Only on expenses related to catering or renting catering is the VAT not deductible. The rules for food are complex, and you can find more information in this article.
There is, however, a maximum limit on the deductibility of VAT on corporate gifts and employee benefits of €227 per person. This means that for each business relationship or employee, you can deduct the VAT on annual expenses of up to €227.
Example: If you give a Christmas package to all your employees at €40 per person, you can deduct the VAT from all Christmas packages.
Now, suppose later in the same year you also organize a team outing for half of your employees, and this outing costs €200 per person. For these employees, you cannot deduct the VAT from both the outing and the Christmas package because these costs together exceed €227. You can choose to pay the VAT for the Christmas package for those employees so that you can deduct the VAT from the team outing. Naturally, you want to maximize your deductions.
Exception to the Threshold for Corporate Gifts
For corporate gifts, there is yet another exception to this rule. If the recipient could deduct at least 30% of the VAT on the gift if they had bought it themselves, then the threshold does not apply.
Suppose you give a €300 office chair to your website designer for his office to celebrate your good business relationship. If the website designer could deduct the VAT in full if he bought the chair himself, the €227 threshold does not apply, and you can fully deduct the VAT on the chair.
A Christmas package or another small gift is a very nice gesture and sometimes even deductible. That's why it's super fun to give. However, you do need to pay attention to the rules, which vary depending on the recipient.
