Company event? How to keep a team event or company outing tax-free

Summer party, team event or Christmas party: a company event is always something special and a nice gesture, one that employers can use to bring their staff closer together and boost motivation. But tax matters here too. If the €110 allowance is exceeded, wage tax becomes payable – and input VAT can no longer be deducted either. We explain what you need to watch for.

What actually counts as a company event?

Under the law, company events are social occasions organised within a company and, in principle, open to all employees. Whether a business invites everyone or restricts attendance to, say, employees celebrating a work anniversary makes no difference.

All that matters is that the participants are mainly company employees and the people accompanying them. Typical company events are Christmas parties, summer parties, get-togethers for retired employees and also the annual company outing.

Important: working meals do not count as company events, and neither does an occasion honouring an individual employee, for example when they leave the company.

Benefits of up to €110 are tax-free

Companies organising a company event or outing have always had to consider the tax implications. Since 2015, however, several changes have benefited companies and employees. At the start of 2015, the €110 tax-free threshold (Freigrenze) became a €110 allowance (Freibetrag). It applies per company event and per participating employee. Costs for anyone accompanying an employee count towards that employee’s allowance.

This means employees can receive up to €110 in benefits from a company event tax-free. For benefits above the allowance, wage tax becomes payable for employees. A flat rate of 25 per cent, plus the solidarity surcharge and church tax, can apply. Unlike under the threshold that applied until 2015, wage tax does not have to be paid on the total amount, only on the difference above €110.

Examples:

A: A Christmas party costs €105 per employee. The benefit is exempt from tax for the employee.

B: A company outing costs €160 per employee. €110 is tax-free for the employees. The difference of €50 is taxed at 25 per cent.

Important: the Cologne Fiscal Court has since issued a ruling favourable to businesses. It provides that the allowance is calculated per participant rather than per employee. However, payroll tax auditors and tax offices generally do not yet apply this ruling. (Cologne Fiscal Court, judgment of 27 June 2018, case no. 3 K 870/17)

Input VAT deduction only within the allowance

The statutory allowance of €110 is a gross amount including VAT. VAT is therefore always part of the benefits. If the benefit provided free of charge at a team event of this kind is worth less than €110, input VAT can be deducted.

If the costs exceed €110 per head, the company is entitled to deduct input VAT. If you want to spare your employees paying tax and deduct input VAT in full, you should plan your company events carefully.

What are the rules if you hold several company events a year?

In principle, the €110 allowance applies to two company events or outings per year. From the third team event onwards, wage tax is payable in any case – even if the cost per head for that occasion is well below the allowance.

However, employers can choose which of the three events to pay wage tax on. Ideally that is the celebration with the lowest costs and therefore the smallest tax impact.

What counts as a benefit at a company event

In principle, all the employer’s expenses (including VAT) count towards the total value of benefits. It makes no difference whether the costs can be attributed directly to the individual employee or are general costs of staging the event. Typical examples of such cost items include:

• Costs of staging the event (e.g. the event manager’s fee, lighting, room hire, decorations and on-site first aiders or paramedics)
• Drinks, food, sweets, tobacco products, etc.
• Live band, other musical and artistic entertainment (including tickets to sports and cultural events, provided the company event involves more than just attending the cultural event in question).
• Any benefits for people accompanying the employee
• Gifts and raffle prizes (The gift must be planned as part of the company event and clearly attributable to it.)
• Travel and accommodation costs (see example)

How travel costs are allocated: examples

A: On a company outing, all employees of a company with only one site travel together by coach to a raft-building team event. In this case, the cost of travelling to the destination counts towards the total value of the event benefits.
B: A company with several sites organises a company outing starting from its head office. Because some participants first travel to the company’s head office, the travel costs and, where applicable, any accommodation costs and flat-rate meal allowances are not among the benefits attributable to the company event. Instead, a tax-free reimbursement of travel expenses is permitted.

Documentation is everything

For companies that want to be on the safe side, careful event planning is only part of the job. Keeping an attendee list is just as important. Recording every guest, including whether they are an employee or someone accompanying one, also helps you stay on the safe side in the event of a tax audit. Documentation is also important when customers attend a celebration.