Taxing Gifts: How Business Owners Can Save Money with a Small Token of Appreciation

Everyone knows the saying: “It is more blessed to give than to receive.” Giving a gift can bring joy, especially if you save on taxes in the process. As a business owner, you have the option to deduct certain gifts as business expenses. Before you start shopping for gifts, however, you should familiarize yourself with the relevant guidelines. Our tax advisors in Düsseldorf and Oberhausen have compiled the most important information for you.

Basics of Tax-Deductible Gifts

Giving a business partner a bottle of wine for Christmas or rewarding employees for a job well done with chocolates. These small gestures not only show your appreciation but can also be claimed as tax deductions by you as a business owner.

There are several legal considerations to keep in mind. For example, a distinction must be made between whether a business partner or an employee receives the gift. Since the regulations for customers and employees can differ significantly, it is advisable to carefully verify who is receiving the gift.

Furthermore, it must actually be a gift:

• A gift is a gratuity in the form of an item or service.
• A gift must not be intended as consideration.

If business owners adhere to the guidelines, the costs can be claimed as business expenses. To ensure this runs smoothly in your company, our tax advisors in Oberhausen and Düsseldorf have summarized the most important guidelines.

Gifts to Business Partners

If you, as a business owner, plan to give a gift to a business partner, you can claim it as a tax deduction. However, not every gift will benefit you from a tax perspective: You can only deduct the purchase price as long as a tax-exempt limit is not exceeded.

For gifts to business associates that are not given for a personal occasion (such as a birthday or wedding) but for another reason (e.g., Christmas), this exemption limit is 35 euros per person per year. If the price exceeds this limit, you can no longer deduct the amount as a business expense. Proportional shares also cannot be deducted.

Whether the exemption limit applies to the net or gross value depends on whether the company giving the gift is entitled to input tax deduction. If so, the net value applies. Otherwise, the gross value applies.

However, there is a small exception to the aforementioned exemption limit. If you give your business partner a gift for a special personal occasion, costs up to 60 euros gross are deductible as business expenses. If the price exceeds this limit, you can no longer deduct the amount as a business expense.

Your accounting records should document the expenses, the recipient, and the occasion for the gift. The value is offset against business expenses.

To ensure that the business partner receiving the gift does not have to pay tax on it, you, as the business owner making the gift, must in certain cases pay a flat-rate tax to the tax authorities. However, you should seek individual advice from a tax advisor regarding this matter.

Gifts to Employees

Different guidelines apply to gifts for employees than to business partners or customers. As a business owner, you can generally give your employees as much as you like. Even a high-priced gift can be deducted as a business expense without an exemption limit.

However, there is still a limit. In this case, however, the limit applies to the employee and thus only indirectly to the business owner. If this limit is exceeded, the gift must be taxed as wages. The employee pays taxes and social security contributions on the value of the gift.

Cash gifts are also always taxable for the employee, regardless of the amount.

The amount of the tax-free limit depends on whether there is a special occasion for the gift. On the occasion of a special event (e.g., weddings, birthdays, etc.), business owners may give tax-free gifts to employees up to a gross value of 60 euros per year.

For non-cash benefits that an employer provides to an employee in addition to the wages owed, the tax-free limit is 44 euros gross per month. Gift cards are also tax-free within these limits. As an employer, you could, for example, regularly provide your employees with a gas card for their commute. In general, there are many different ways to give gifts to your employees, but the more expensive these gifts become, the more urgent it becomes to seek advice from your tax advisor. For the sake of your employees, it’s best to play it safe—after all, a gift can also become a tax burden for the recipient.

Make Friends with Gift-Giving and Save on Taxes

If you follow the guidelines described above, there are great opportunities to make someone happy while saving on taxes at the same time. Do you have any questions on this topic? Our tax advisors in Düsseldorf and Oberhausen would be happy to advise you. Industry-specific questions? Our tax advisors are experts in various industries! Contact us.