When are gifts subject to tax?

Customer gifts

This is how you tax gifts to business partners and employees

Udo Reuss
Tax Expert As of September 12, 2017

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

  • Entrepreneurs can deduct gifts to customers or business partners up to 35 euros per person and year as business expenses.
  • If the gift is more expensive, the entire expenses are not deductible.
  • A gift to an employee can always be claimed as a business expense. The gift is tax-free for the employee as long as the value is less than 60 euros.
  • The company can tax the gift at a flat rate of 30 percent of the value. If the entrepreneur has not paid tax on the gift, the recipient must pay tax on it: at his or her personal income tax rate as income or wages.
  • In addition to the flat-rate income tax, the giver also has to pay the solidarity surcharge and church tax.
  • Attention: If the giver pays tax on the gift, the tax office regards the taxes as a further gift to the recipient. As a gifting entrepreneur who wants to adhere to the value limit of 35 euros, you should only choose gifts that are worth well below 35 euros so that the total amount of the gift and "tax gift" is deductible as a business expense.

A bottle of wine for Christmas, a calendar for the New Year or a nice box of chocolates - small gifts not only preserve friendship. In the professional field, too, companies and customers like to show mutual appreciation with a small gift.

Often these Expenses tax deductible do. However, the tax authorities differentiate who you give something as a company: a business friend or an employee.

You should know that about gifts to business partners

If you, as the owner of a company, give something to your business partner, you can deduct the costs from tax as business expenses. However, it is important that you give the gift for operational reasons and that there is no consideration associated with it.

However, you can only deduct the purchase price as long as it is less than 35 euros per person and year. As soon as the price exceeds this limit, you can no longer book the amount as a business expense, not even the portion below 35 euros. Then it is simply a non-deductible business expense. You have to treat this like a private expense, as a so-called withdrawal from business assets. That means: You have to pay tax on the expenses for the gift as profit (§ 4 Abs. 5 Nr. 1 EStG).

In the bookkeeping, the company must record the expenses, the beneficiaries and the reason for every gift with a value of 10 euros or more, in order to offset them as business expenses. The receipt for the gift must be clearly assignable to the recipient.

Tip: If you give something to a business partner on behalf of your company that he can only use in the company, the 35 euro exemption limit does not apply. For example, if you give a customer an expensive computer program that he can only use for his professional activity, then it can cost more than 35 euros.

Whether the sales tax has to be included for the 35 euro exemption depends on whether the donating company is entitled to input tax deduction. If so, then the net value of the goods counts, otherwise sales tax must be added.

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Gifts can be taxed at a flat rate

The recipient must treat the gift as if it were a receipt: he must register the value and pay tax. If you do not want to annoy your business partner with this forced expenditure, you can tax the present at a flat rate of 30 percent of the purchase price - solidarity surcharge and, if necessary, church tax also apply.

Danger: These taxes taken over count as an additional gift. For tax purposes, they are treated in the same way as the gift itself. If the total amount - including the "tax gift" - remains within the EUR 35 exemption limit, the amount is deductible as a business expense; otherwise, the entire cost counts as a non-deductible business expense. This was decided by the Federal Fiscal Court (judgment of March 30, 2017, Az. IV R 13/14).

This means that the giver would not be able to deduct the gift from tax if the value limit was only exceeded due to the taxes assumed. If the value of the gift is just below this, it could happen that the tax assumed means that the total amount of the gift and “tax gift” is not deductible.

Fortunately, the financial administration is pragmatic and more generous: Only when the gift itself is worth more than 35 euros, the deduction as a business expense is omitted. The value limit is not exceeded solely through the flat-rate tax assumed. For gifts up to 35 euros, the tax assumed is also deductible as a business expense.

Nevertheless, an entrepreneur should calculate very precisely, otherwise the gift will cost him much more than the value that the business partner actually receives. The assessment basis for the flat-rate tax is the gross expenditure, i.e. including VAT.

The recipient no longer has to pay anything when paying the tax

The recipient then no longer has to pay taxes for the present. The best thing to do is to point out to your business friend that you have already paid tax on the gift so that he or she does not pay the tax as well. According to the Income Tax Act, you are even obliged to notify him of this (Section 37b EStG).

Danger: If you pay tax on a gift, you have to do it for all customers and all gifts - without exception. The lump-sum taxation is tied to a maximum limit, which is, however, very generous: You may tax a maximum of gifts with a value of up to 10,000 euros per person and year, this maximum amount also applies to individual gifts.

Tax-free giveaways - For smaller gifts such as pens or USB sticks with a value of less than 10 euros, no tax is due, neither from the giver nor from the recipient. These so-called giveaways are not considered a pecuniary benefit.

You have to keep this in mind when giving gifts to employees

If you give one of your employees a bottle of wine, flowers or a gift basket for the birth of a child, an anniversary or a wedding, then you can always deduct this attention as business expenses. The value doesn't matter. But it has to be a pure contribution in kind.

For the employee, however, the gift is only tax-free as long as the purchase price including VAT remains below a limit of 60 euros (until December 31, 2014: 40 euros). If the boss hands him a present with a value of more than 60 euros, he has to tax it in full as wages, including social security contributions. Cash gifts are always taxable, regardless of the amount.

Taxable benefits in kind are included in the gross wages in line 3 of the income tax certificate; this value is included in line 6 of Appendix N of the income tax return. Of course, as the boss, you can also assume the tax here at a flat rate, then your employees don't have to pay any tax.

Tip for employees: Tax-free benefits in kind up to 44 euros per month

Employees are allowed to accept a tax-free and social security-free benefit in kind from their boss to the value of 44 euros each month. This can also be a voucher. It can therefore be worth negotiating a special increase in salary and having the trip to work sponsored by the boss on a monthly basis with a fuel voucher or a subsidy for the ticket (small allowance in kind limit, Section 8 (2) sentence 11 EStG). Important: It must not be a banknote, only donations in kind are funded by the tax authorities.

Udo Reuss

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

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