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Roman Burnus | December 5, 2023

Do not forget about taxes on Christmas presents

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Christmas will be here soon and the shopping spree in the stores is slowly reaching its peak. In addition to Christmas gifts within the family circle, corporate gifting to employees has also become a custom. In addition to bonus financial contributions, non-monetary benefits are also widely used to make the pre-Christmas period more enjoyable. Their non-monetary form consists, for example, in the provision of a voucher with specified purpose or a specific item or goods. It is essential that the employee does not “come into contact” with the money directly. The assessment of the form of benefits was also recently addressed in a judgment of the Supreme Administrative Court. The non-cash benefit is a more tax-advantageous option for employees, because under current tax legislation such gifts are tax-exempt under certain conditions.

However, from the New Year, employers may start giving fewer gifts as some restrictions on exemptions are planned as part of the consolidation package. The current provision of Section 6(9)(g) of Act No. 586/1992 on Income Taxes (hereinafter the “ITA”), which exempted gifts to employees provided by the employer from the cultural and social services fund or from the company’s after-tax profits up to CZK 2,000, is completely abolished. A new limit of half of the average wage (i.e. approx. CZK 22,000/year for 2024) is also introduced for the exemption of non-monetary benefits provided to an employee or his/her family member under the stipulation of Section 6(9)(d) of the Income Tax Act, in the form of the option to use recreational, medical and educational facilities, contribution to sports and cultural events, contribution to books, holiday trips, etc. Amounts above these limits are subject to income tax and insurance premiums for employees, which can easily spoil the joy of the gift.

According to the planned changes in Section 25(1)(h) of the Income Tax Act, from 1 January 2024, a part of the costs incurred for non-monetary benefits, which will not be exempt from tax for the employee, will be tax deductible from the employer’s perspective.

Giving gifts to business partners is also a common gesture to strengthen relationships. For tax recognition of costs incurred for the acquisition of these gifts, it is necessary to comply with the conditions set out in Section 25(1)(t) of the ITA. A tax-deductible gift must fulfil the factors of an advertising or promotional item, i.e. it must be marked with the company’s name or trademark, its value without the value added tax must not exceed CZK 500 and, with the exception of silent wine, it must not be subject to excise duty. However, we can now forget still wines among business partners – the consolidation package plans to remove their exemption. If you have a habit of donating still wines, this year is your last opportunity to make a tax-deductible purchase.

From the point of view of Act No. 235/2004 Coll. on Value Added Tax (hereinafter the “VAT Act”), nothing will change in the taxation of gifts under Section 13(7)(c) of the VAT Act from 2024. Donations with an acquisition value excluding VAT not exceeding CZK 500 are not subject to VAT and are therefore not subject to output tax. However, under section 72(4), you can claim an input tax deduction on the donation.