As Christmas approaches, it's a tradition in many companies to give out Christmas hampers or organize Christmas lunches and dinners for employees. In all cases, various considerations should be taken into account:
Fiscal Treatment in Corporate Tax
The amounts paid for Christmas hampers are a deductible expense in Corporate Tax, provided they are within the customs and practices of the company, meaning they are repeated over time.
Attention: the first year that Christmas hampers are given, the tax authority considers that it is not part of the company's customs and, therefore, it would not be deductible.
Fiscal Treatment for the Employee
This deductible expense implies that the cost of the hampers should be accounted for as additional salary for the employees. Consequently, the company must make a withholding and pay it into personal income tax (IRPF).
- For example, if the total cost of the hampers is €1,500 and the applicable average withholding rate for the staff is 20%, your company will have to pay €300 in personal income tax withholdings (1,500 x 20% = €300).
- This tax could be passed on to the employees. In this case, the company will not bear the additional cost, but the net amount received by the employees will be reduced.
Fiscal Treatment of VAT
VAT charges will not be deductible and, therefore, will be an additional cost for the company, since this VAT is intended for the private use of its employees.
When choosing the hamper, it might be worth considering incorporating a higher percentage of products with a reduced VAT rate (10%) over those with a general VAT rate (21%) as a form of saving for your company.
Example: assuming a cost of €1,500 for the Christmas hampers:
- Hamper A: 80% of the hampers with products at 21% VAT.
- Hamper B: all hampers have products with VAT at 10%
Fiscal Cost Hamper A: 1500x80%x21% + 1500x20%x10% = €282
Fiscal Cost Hamper B: 1500x100%x10% = €150
The same fiscal and accounting treatment should be applied to company lunches or dinners.
Gifts to Clients
When acquiring Christmas hampers for our clients/sponsors/suppliers, various considerations must be taken into account:
- To the extent that they are public relations expenses, they must meet accounting requirements, merit, correlation between income and expenses, and proper documentary justification.
- It is essential that the invoice reflects that these are personalized gifts, therefore, they will include engravings or logos of the company. It's very important to meet this requirement to justify it to the tax authority.
- The deduction of expenses is limited to 1% of the total turnover of the fiscal year. The amount exceeding this limit will not be deductible.
- Finally, the treatment of personalized low-value gifts should be mentioned. The amount of these gifts is limited to €200 per client and calendar year. The amount of this expense will be deductible in Corporate Tax, and the VAT charged can also be deducted in the corresponding VAT settlement.
In case of any doubt or query, it is advisable to contact your advisor.