If you have managed to be really proactive and organised this year, you may have set the date of the Christmas party before 1 May, had the venue booked since Midsummer and the menu decided in September. Not to mention the Christmas presents, which of course were taken care of already during the summer holidays.
Not quite there yet? Don’t worry – everything will work out just fine! But before you head out to the city to organise everything, it’s maybe worth reading up on how deductions for Christmas parties and presents work – after all, it’s a bit easier to show your appreciation to the staff if you are able to deduct some costs at the same time.
We will try to answer some of the questions that tend to come up as Christmas approaches.
Green light for a staff Christmas party – as long as it is customary and reasonable
Staff parties are usually seen as part of normal business activities, provided that the entire staff (or at least the entire department or unit) is invited and that the company has set the time and place for the festivities. It is also stated that the staff benefit should be customary and reasonable, so we can forget about a wild party in Mallorca.
The costs of the Christmas party, such as venue hire, food and drink, programmes and shared transport to and from the venue are generally deductible from both income tax and value added tax (VAT). The taxman is not very fond of a staff party every midweek and Friday – speaking of customary and reasonable – but three or four parties a year are usually considered reasonable even by the taxman. So, it is perfectly acceptable to invite the staff to a Christmas party, a spring party and a kick-off after the summer holidays when the company is doing well!
If things have gone really well during the year, you might want to go the extra mile and thank the staff a little more by also inviting their better halves to the Christmas party. That is fine too, but since the better half cannot really be considered staff, you are not allowed to deduct all the VAT, and you also need to think carefully about what is reasonable in this case. For example, there is a precedent in which the Supreme Administrative Court considered that the better halves received taxable income when they attended a staff event where everyone took a domestic flight to Helsinki to go to the opera. The old accountant’s joke goes: The best avec is a cognac or liqueur! (If only staff are present at the party, you can deduct the cost of the alcohol, but if the staff’s partners are also invited, it can be more difficult).
Inviting partners and customers to a Christmas party is called entertainment. Entertainment parties can actually be fun too, but for income tax purposes they are only half as fun as staff parties – and in VAT taxation they are not fun at all. In other words, the company cannot make any VAT deduction at all for entertainment expenses and only half of the expenses can be deducted for income tax purposes. In addition, you should keep a record of who you have invited in case the taxman wants to find out whether inviting these participants was actually justified.
If the taxman gets to decide, the Christmas stocking should preferably contain a physical object
If it can be difficult to determine what is customary and reasonable in the case of staff parties, it is at least easy to determine what is reasonable and customary when it comes to Christmas presents for the staff. You see, the taxman has been kind enough to decide that €100 is a reasonable amount to spend on a present, but no more! Moreover, the taxman specifies that a Christmas present should actually be a thing and not money or gift vouchers. Well, some gift vouchers can be okay, unless they let the recipients choose freely what they want. If the gift voucher is limited to a few products, this may be all right, but a gift voucher to the S Group or K Group? Out of the question! However, if the person who receives a gift voucher to a Group can only choose between a Christmas ham, tofu, or fish – then it is okay. As long as the gift is customary and reasonable, the company can deduct it from the income tax, but no VAT deduction is permitted.
Christmas gifts to others, for example to a customer, accountant or auditor, are usually considered as entertainment. Then we are back to the fact that you can only deduct half of the expenses from your taxable income and not deduct any VAT on the presents at all.
However, if you print your logo on the Christmas present, keep the value, including VAT, to at most €50 and widely distribute the presents, you can call it a promotional gift. The taxman thinks this is quite reasonable – at least as long as the gift contains no alcohol. And if your company happens to sell or manufacture alcohol, even an alcoholic present can be considered a promotional gift, provided that it is not too valuable. Otherwise, presents containing alcohol are always entertainment. For a reasonable promotional gift, you may deduct both the VAT included and make a deduction from the income tax.
Christmas bonus means more money for both the staff and the Tax authority
A Christmas bonus given to the staff is always regarded as wages – no question about it! Usually, the Christmas bonus is appreciated by the staff, even if they have to pay tax on it.
8 tax tips with Christmas approaching 🎁🎄
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Christmas party for the whole staff = deductible in income and VAT taxation, if it is reasonable and customary.
- Christmas party for the whole staff with avec = deductible in VAT taxation only when it comes to the staff. For income tax purposes, it may be considered reasonable and customary to include the better half as well but be careful not to be too generous.
- Christmas party for partners and customers = entertainment that is non-deductible for VAT purposes and only half of the expenses are deductible for income tax purposes.
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Christmas presents for the staff, maximum amount €100 incl. VAT per person = deductible for income tax purposes, but not for VAT purposes.
- Christmas presents for a few partners and customers = entertainment that is non-deductible for VAT purposes and only half of the expenses are deductible for income tax purposes.
- Christmas presents containing alcohol for partners and customers = entertainment that is non-deductible for VAT purposes and only half of the expenses are deductible for income tax purposes.
- Promotional and Christmas gifts given to a larger group, maximum amount €50 including VAT = usually deductible for VAT and income tax purposes.
- Christmas bonus = wages, always!
