Tax deadlines – Notes – Year end 2018 – Company – Part III

Gifts for business friends/hospitality

Expenses for gifts to persons who are not employees of the donor may not exceed a total of 35 euros per recipient in the fiscal year, provided they are to be taken into account as business expenses. Gifts do not include, for example, discounts, prizes from raffles or competitions, or so-called free gifts, i.e. items that customers receive additionally free of charge in connection with a purchase, as well as promotional giveaways, e.g. at trade fairs.

Lump-sum taxation

Gifts in kind to business associates – even with a value of less than 35 euros – are regularly taxable for the recipients. However, the donating entrepreneur may instead assume the income tax due on this at a flat rate of 30% (Section 37b EStG).

Gifts in kind on the occasion of a special personal event (e.g. birthday or silver wedding anniversary) up to a value of 60 euros per event remain tax-free for the recipient; however, the 35 euro limit for the deduction of business expenses for the donor applies regardless. If the benefit exceeds this amount, a lump-sum taxation is also considered. However, if the lump-sum taxation is applied, this rule must be applied to all gifts (to business associates) granted during the business year.

Costs for the entertainment of business partners, customers, etc. (even if the company’s own employees participate) are only tax-deductible at a rate of 70 %; certain obligations to provide evidence must be fulfilled.

Another prerequisite for the deduction of business expenses for gifts and entertainment expenses is that the expenses are recorded individually and separately from other business expenses (Section 4 (7) EStG).

Non-cash benefits to employees

Expenses incurred by the employer for benefits in kind or gifts to its employees can regularly be claimed as business expenses; however, they are generally subject to wage tax and social security contributions for the employee. If the gift is a customary gift for a special personal occasion (e.g. flowers, wine or a book for a birthday or wedding), it is exempt from income tax if the value of the gift does not exceed €60 per occasion.

Other benefits in kind (e.g. also goods vouchers) generally remain tax-free if the value – possibly together with other benefits in kind – does not exceed the exemption limit of 44 euros per month (Section 8 (2) sentence 11 EStG). For more expensive non-cash benefits (e.g. as part of incentive events or for VIP admission tickets), the employer can assume the wage tax for all employees concerned at a flat rate of 30% (cf. Section 37b EStG; see above).

Allowance for company events

Benefits to employees on the occasion of company events (e.g. hospitality at a Christmas party) remain exempt from wage tax and social security contributions if the benefit does not exceed a total of 110 euros per event for the individual employee at a maximum of two events per year. The employer can pay a lump-sum wage tax of 25% (plus solidarity surcharge and, if applicable, church tax) on any excess amount (Section 40 (2) No. 2 EStG); the lump-sum taxed benefits are exempt from social security contributions.

Upfront expenses for 2019

Non-recurring expenses due in January 2019, for example, can be paid by non-accounting taxpayers as early as 2018 if a tax reduction is still intended this year. In these cases, if outstanding supplier invoices are still paid in 2018, this will also reduce the taxable profit in 2018.

Only in the case of fixed assets is it irrelevant for the commencement of the deductions whether the fixed asset has already been paid for. The decisive factor here is the date of acquisition or completion.

(For more notes & information & examples on this, please see our Information Letter 10/2018 under Business Annexes).