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company outing employees tax-free
Tax-free company outing: Save money for you and your employees!
Planning an unforgettable company outing without breaking the bank? The good news: under certain conditions, company outings are tax-free for your employees. Sound complicated? Don’t worry, we’ll shed some light on the subject. Find out everything you need to know about allowances, calculation bases, and the latest rulings in this article. Need individual advice? Contact us for a non-binding analysis of your situation.
The topic, briefly and concisely
Note the 110-euro limit per employee and event to ensure tax exemption. A correct cost calculation is crucial to avoid unexpected tax back payments.
Utilise the flat rate tax of 25% (plus solidarity surcharge and church tax) to ensure social security exemption when the 110-euro threshold is exceeded or more than two events per year are held. The prompt registration is crucial in this case.
Document all costs and participants carefully to ensure the tax recognition of the company outing. The conditions of participation must be clearly defined, and the costs for accompanying persons are to be attributed to the respective employee.
Learn how to organize your company outing tax-free while complying with all legal requirements. Avoid costly mistakes and benefit from our expert tips!
What are corporate outings and why are they important?
Corporate outings are events organized by companies for their employees. They primarily serve to promote team spirit and employee motivation. Such outings provide a welcome break from the work routine and allow colleagues to get to know each other better in a relaxed atmosphere. This can significantly improve teamwork and strengthen company culture. A well-planned corporate outing can thus make a positive contribution to employee satisfaction and retention.
The tax relevance of corporate outings
The tax treatment of corporate outings is an important aspect that companies need to consider when planning. There are clear tax regulations that must be followed to make the outings tax-free. Adhering to these rules is crucial to avoid unwanted tax consequences. An essential factor is the allowance of 110 euros per employee per event. This amount covers all costs that can be attributed to the employee as part of the outing. Therefore, it is advisable to thoroughly inform oneself in advance about the applicable regulations and to carefully calculate the costs. Further information on tax aspects can be found, for example, at Lexware.
110 Euro Threshold: Ensure Input Tax Deduction Through Correct Application
The Allowance vs. the Tax Exemption: A Critical Difference
In tax law, there are significant differences between an allowance and a tax exemption that must be observed when planning company outings. The allowance, as applied in income tax, means that only the amount exceeding the 110-euro limit is taxable. In contrast, the tax exemption, which is especially relevant for value-added tax, means that if this limit is exceeded, the entire tax advantage is lost. It is therefore crucial to understand this distinction to optimally utilise tax benefits and avoid unexpected additional payments.
The Impact on Input Tax Deduction
The 110-euro limit has a direct impact on the input tax deduction. If the costs per employee exceed this limit, the input tax deduction is forfeited. This means that the company cannot reclaim the VAT paid on the costs of the company outing from the tax office. A judgement by the Federal Finance Court (Bundesfinanzhof, BFH) dated 10 May 2023, V R 16/21, confirms this regulation. It is therefore advisable to calculate the costs per employee accurately and, if necessary, take measures to adhere to the limit. Otherwise, the loss of the input tax deduction can significantly increase the overall costs of the outing. Further information on VAT for company outings can be found in our article.
What Counts Towards the Costs Per Employee?
When calculating costs per employee, all relevant expenses must be considered. These include food, drinks, music, artists, venue hire, decoration, and event manager costs. Travel expenses are also generally included, although tax-free travel cost reimbursements are an exception. It is important to create a detailed breakdown of all costs to ensure accurate calculations. A rough estimate can quickly lead to errors and jeopardise tax benefits. Careful planning and documentation are therefore essential. Also, see our article on booking costs for company outings.
Not all costs need to be included in the calculation, however. Internal employer costs, such as costs for payroll accounting or depreciations, are excluded. Tax-free travel cost reimbursements according to §3 No. 13 or 16 EStG are also not to be considered. It is advisable to consult a tax advisor in case of doubt to ensure that all relevant costs are correctly recorded and the tax benefits are optimally utilised. Correct recording of costs is crucial for the tax-free structure of the company outing.
Calculate employee costs accurately: Here's how
Detailed Guide to Cost Calculation
A correct cost calculation is essential for a tax-free company outing. The first step is to determine the total costs of the company outing. This includes all expenses related to the event, from venue rental to the cost of food and beverages. In the second step, you calculate the cost per participant, ensuring you consider the participants who are present. It is important here to allocate the costs of accompanying persons to the respective employee. The BFH ruling VI R 31/18G must be observed here: The calculation basis is the participants who are actually present. In the third step, check whether the 110-euro limit per employee is observed. If the costs exceed this limit, taxes apply.
Handling Last-Minute Cancellations and No-Shows
Last-minute cancellations and so-called no-shows can significantly affect the cost calculation. If employees cancel at short notice or do not show up without notice, the impact of cancellations on the cost per employee increases. Since the total costs have to be distributed among fewer participants, the cost per head rises. This can lead to exceeding the 110-euro limit and incurring taxes. The input tax deduction for no-shows is not permitted, which further increases the financial burden. It is therefore advisable to plan a buffer in advance and realistically estimate the number of participants. An early registration deadline can help plan the number of participants better and minimize last-minute cancellations.
Tax-free company outings: Observe participation conditions and documentation
Participation Conditions: Who Can Participate?
The participation conditions play a crucial role in the tax-free arrangement of company outings. In principle, the tax-free allowance can only be claimed if the event is open to all employees or at least to a specific department. Restricted participation, for example, only for managers, may result in the tax-free allowance not being granted. However, flat-rate taxation is possible even with limited participation, as confirmed by a decision of the Federal Fiscal Court on 27 March 2024, VI R 5/22. It is therefore important to clearly define the participation conditions in advance and consider the tax implications. Open communication with employees about the participation conditions is also advisable to avoid misunderstandings.
The Importance of Documentation
Complete documentation is essential to ensure the tax recognition of the company outing. A participant list is an absolute must to prove employee attendance. The list should be signed by all participants and serve as evidence of attendance. This is particularly important if non-employees, such as accompanying persons or clients, participate in the event. The costs for these individuals must be attributed to the respective employee. Careful documentation helps to calculate the costs per employee correctly and prove compliance with the 110-euro limit. Without proper documentation, the tax office may refuse tax recognition.
Dealing with Accompanying Persons (Partners, Family)
The costs for accompanying persons, such as partners or family members, are attributed to the respective employee. There is no separate tax-free allowance for accompanying persons. This means that the costs for the accompanying person are included in the calculation of the employee’s 110-euro limit. It is therefore important to consider the costs for accompanying persons when planning the company outing and, if necessary, take steps to avoid exceeding the 110-euro limit. Transparent communication with employees about the costs for accompanying persons is also advisable to avoid misunderstandings.
Two-Event Rule: Use Flat Rate Taxation as a Solution
The Two-Event Rule
The allowance of 110 euros per employee applies only to two events per year. This means companies can organise a maximum of two company outings per calendar year tax-free. But what happens with a third or fourth event? In this case, flat-rate taxation comes into play. This means the employer has the option to tax the costs for the additional events at a flat rate. It's important to be aware of this rule to make optimal use of tax benefits and avoid unwanted back payments. Therefore, careful planning and documentation of the events is essential.
Taxation Options When Exceeding the Allowance
If the 110-euro limit is exceeded, there are various taxation options. One possibility is flat-rate taxation at 25% (plus solidarity surcharge and church tax). The advantage of this option is freedom from social security contributions. However, prompt registration is crucial, as the BSG judgement B 12 BA 3/22 R shows. Late registration can result in the loss of social security exemption. Another option is to individually tax the pecuniary advantage. In this case, the employee must declare the pecuniary benefit in their income tax return. It is advisable to carefully consider the various options and choose the option that best suits the company and the employees.
Value Added Tax and Input Tax Deduction: Avoiding Pitfalls
The 110-Euro Threshold as a Tax Allowance for VAT
The 110-Euro threshold is significant not only for income tax but also for VAT. In VAT law, the 110-Euro threshold is considered a tax allowance. This means that if the threshold is exceeded, no input tax deduction is possible. Therefore, it is crucial to calculate the costs per employee accurately and adhere to the threshold to prevent jeopardizing the input tax deduction. The BMF letter dated 14.10.2015 provides important guidance and explanations on this matter. It is advisable to familiarise yourself with this letter to maximise tax benefits and avoid unwanted back payments.
Input Tax Deduction: When is it Permitted?
The input tax deduction is only permitted if there is a business-related reason for the event. This means the event must not solely serve the private purposes of employees. A purely private use of the event excludes input tax deduction. Therefore, it is important to emphasise the business nature of the event and document it accordingly. A clear objective and a programme containing both entertaining and informative elements can contribute to demonstrating the business purpose. Careful planning and documentation are therefore essential to secure the input tax deduction.
Current Jurisdiction: Documenting Cost Allocation Correctly
Constitutional Complaint on Cost Allocation (2 BvR 1443/21)
There is currently a constitutional complaint on cost allocation (2 BvR 1443/21) related to the BFH decision (VI R 31/18). This complaint addresses the question of how the costs of a company outing should be distributed among the participants. It is recommended to document the cost allocation based on registered and actual participants. This means that both the number of registered and the number of actual attendees should be recorded. Detailed documentation can help demonstrate the cost allocation transparently in the event of a tax office audit. It is advisable to keep up-to-date with the outcome of the constitutional complaint and adjust the cost allocation if necessary.
Artists Social Security Contribution: Don't Forget!
When planning a company outing, the Artists Social Security Contribution should not be forgotten. This fee is applicable if artists are engaged as part of the event. Therefore, it is important to check in advance whether there is a liability to pay and to remit the corresponding contributions. The Artists Social Security Contribution is an important aspect that should be considered in cost planning to avoid unwanted back payments. Careful planning and documentation are thus essential.
Tax-Free Corporate Outings: A Checklist for Successful Planning
Checklist for Planning Tax-Free Company Excursions
To ensure that your company excursion remains tax-free, consider the following points:
Careful Planning and Budgeting: Create a detailed cost plan and calculate the costs per employee precisely.
Clear Communication with Employees: Inform employees about the conditions of participation and the costs for accompanying persons.
Professional Advice from Tax Advisors: Consult with a tax advisor to ensure that all tax regulations are observed.
Careful planning and budgeting are essential for a tax-free company excursion. Clear communication with employees helps avoid misunderstandings and increases acceptance of the event. Professional advice from a tax advisor ensures compliance with all tax regulations and optimal use of the tax benefits.
The Role of Software and Tools
Modern software and tools can assist companies in planning and executing company excursions. They offer features for support in cost calculation and documentation. With the help of these tools, costs per employee can be accurately calculated, and compliance with the 110-euro limit can be monitored. The creation of participant lists and the documentation of all relevant information are also facilitated by the software. The use of software and tools can thus help reduce administrative effort and secure the tax recognition of the company excursion.
Tax-free company outings: Strengthening employee retention sustainably
More useful links
Bundesfinanzhof (BFH): Here you will find judgments and information on tax law, relevant for the correct handling of company outings.
BSG: The Federal Social Court offers judgments on social insurance obligations in the context of the flat-rate taxation of company outings.
FAQ
What exactly is meant by a tax-free company outing?
A tax-free company outing is an event organised by a company for its employees, where the costs per employee do not exceed a tax-free allowance of 110 euros per year and per event. If these rules are adhered to, no income tax or social security contributions are incurred.
What costs are included in the 110-euro allowance per employee?
The allowance includes all costs that can be attributed to the employee as part of the outing, including meals, drinks, venue hire, entertainment, and travel expenses. Tax-free travel reimbursements are excluded.
What happens if the costs per employee exceed the 110-euro limit?
If the costs exceed the 110-euro limit, the employer can tax the excess amount at a flat rate of 25% (plus solidarity surcharge and church tax). This leads to the freedom from social security contributions of the monetary benefit. Alternatively, the monetary benefit can be taxed individually.
How does the participation of accompanying persons affect the tax exemption?
The costs for accompanying persons (e.g. partners or family members) are attributed to the respective employee. There is no separate allowance for accompanying persons. Therefore, it is important to consider these costs in the planning.
What is the difference between allowance and exemption limit in the context of company outings?
The allowance (income tax) means that only the amount over 110 euros is taxable. The exemption limit (VAT) means that if the 110 euros are exceeded, the entire input tax deduction is forfeited.
How many tax-free company outings are possible per year?
The allowance of 110 euros per employee applies to a maximum of two events per calendar year. For further events, flat-rate taxation can be applied.
Do company outings have to be open to all employees to be tax-free?
To claim the allowance, the event must be open to all employees or a particular department. For limited participation (e.g. only for managers), flat-rate taxation is an option.
What role does documentation play in the tax recognition of company outings?
A comprehensive documentation is essential. A signed list of participants, a detailed breakdown of costs, and the correct allocation of costs per employee are important to ensure tax recognition.
