In our newsletters of 27 November 2018 and 10 December 2018 we recalled the possibility for employer to present year-end gifts to employees with a maximum value of EUR 40 for the occasion of Saint-Nicholas, Christmas and New Year. Indeed, provided that certain conditions are met, these gifts can be free from social security contributions and income tax in the hands of the employees. Moreover, the related costs can be 100% deductible in the hands of the employer.
What if a company wants to give year-end gifts to certain business relationships (such as independent contractors or freelancers who are working with or within the company)? In such case, the abovementioned regime (which is designed for employees) is clearly not applicable.
Specific rules?
Of course, in practice it is also possible for companies to provide year-end gifts to certain business relationships such as contractors or freelancers. It mostly concerns luxury articles (a good book, a bottle of quality wine or office equipment).
As a general rule, from a corporate income tax perspective, the relating costs will only be deductible for 50% in the hands of the company which is providing the gifts. In principle, such gifts will not be taxed in the hands of the receiving business relationships.
However, in case the gift is regarded as an incentive, the company is obligated to mention the (value of the) gift on a tax form 281.50 in the name of the beneficiary. In that case the related expenses will be 100% deductible for corporate income tax purposes in the hands of the company and will constitute a taxable benefit in the hands of the beneficiary (business relationship who receives the gift).
If the amount per beneficiary per calendar year is not exceeding EUR 125 there is no obligation for the company to draw up a tax form 281.50. Following the administrative point of view, the gifts will in that case only tax deductible for 50%.
VAT?
When a company purchases goods which it intends to provide as a gift to its business relationships, the VAT can be deducted provided that certain conditions are met. Business gifts are gifts that are common in professional relations, like X-mas gifts.
If the purchase price (VAT excluded) of the gift is less than EUR 50 (per item and per client / per business relationship – excl. VAT – not related to liquor (more than 22% degrees alcohol) or tobacco), then the supply will not qualify as a taxable supply and the company will be able to deduct the VAT.
If the purchase price (VAT excluded) of the gift is equal to EUR 50 or exceeding then the company will not be able to deduct the VAT.
It is highly recommended to keep an eye on certain limit amounts when giving business- and employee gifts, to prevent unpleasant consequences.
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Please do not hesitate to contact us in case you have any further questions.
