Whether it's a summer party, team event or Christmas party. A company event is always something special and a nice gesture that employers can use to increase cohesion and motivation among the workforce. However, companies must also pay attention to the issue of taxes here. If the tax-free allowance of 110 euros is exceeded, income tax is due - and input tax can no longer be deducted. We explain what you need to pay attention to.
What actually counts as a company event?
The legislator considers events of a social nature that take place at company level to be company events that are generally open to all employees. It is irrelevant whether companies invite all employees or limit the group of participants to jubilarians, for example.
It is only important that the group of participants is primarily made up of company employees and their accompanying persons. Typical company events include Christmas parties, summer parties, pensioners' meetings and the annual company outing.
Important: Traditional work lunches do not count as a company event, nor does honoring an individual employee, e.g. on the occasion of their leaving the company.
Benefits up to 110 euros tax-free
Companies wishing to organize a company event or a company outing have always had to pay attention to tax aspects. Since 2015, however, some things have changed in favor of companies and employees. At the start of 2015, the tax-free limit of 110 euros became an allowance of 110 euros. This applies per company event and participating employee. Expenses for accompanying persons are added to the allowance of each individual employee.
This means that employees can enjoy tax-free benefits from a company event of up to 110 euros. For benefits that exceed the tax-free amount, wage tax is due for employees. A flat-rate tax rate of 25% plus solidarity surcharge and church tax is possible here. Unlike the exemption limit that applied until 2015, income tax does not have to be paid on the total amount, but only on the difference above 110 euros.
Example:
A: The costs for a Christmas party amount to 105 euros per employee. The benefit is exempt from tax for the employee.
B: A company outing costs 160 euros per employee. 110 euros are tax-free for the employees. The difference of 50 euros is taxed at 25 percent.
Important information: The Cologne Fiscal Court has now issued a business-friendly ruling. This stipulates that the tax-free allowance is not calculated per employee, but per participant. However, payroll tax auditors and tax offices generally do not yet apply this ruling. (Cologne tax court, ruling from 27.6.2018, ref. 3 K 870/17)
Input tax deduction only within the tax-free amount
The statutory allowance of 110 euros is a gross amount including VAT. The latter is therefore always part of the benefit. If the free gift for such a team event is less than 110 euros, input tax can be deducted.
If the expenses exceed 110 euros per head, companies are entitled to deduct input tax. If you want to save your employees the deduction of tax and deduct the input tax in full, you should plan your company events carefully.
What is the procedure for several company celebrations per year?
In principle, the allowance of 110 euros applies to two company events or company outings per year. From the third team event onwards, income tax is due in any case. This applies even if the per capita costs for this event are significantly below the tax-free amount.
However, employers have the right to choose for which of the three events the wage tax should be paid. Ideally, this is the celebration with the lowest costs and therefore the lowest tax impact.
What counts as benefits from a company event
In principle, all expenses incurred by the employer (including VAT) are included in the benefits. It is irrelevant whether the costs can be directly attributed to the respective employee or whether they are general costs. Typical examples of such costs include
- Expenses for the event setting (e.g. fee for the event manager, lighting, room rental, decoration, paramedics present)
- Drinks, food, sweets, tobacco products, etc.
- Live band, other musical and artistic entertainment (also tickets for sporting and cultural events, provided the company event includes more than just attendance at the cultural event in question).
- Any benefits to persons accompanying the employee
- Gifts and raffle prizes (the gift must be clearly designed as part of the company celebration and clearly assigned to it).
- Travel and accommodation costs (see example)
Examples of travel expense allocation:
A: During a company outing, all employees of a company with only one location travel together by bus to a raft-building team event. In this case, the travel costs to the excursion destination are added to the benefits of the event.
B: A company with several locations organizes a company outing from its headquarters. As some of the participants travel to the company headquarters first, the travel costs and any accommodation costs and lump sums for meals are not included in the benefits attributable to the company event. Instead, tax-free reimbursement of travel expenses is permissible.
Documentation is everything
Companies that want to be on the safe side should not only plan their company events in detail. Documentation using a list of participants is just as important. By recording all guests, including their status as employees or accompanying persons, you also create security in the event of a company audit. Documentation is also important when customers attend a celebration.
