It's December, and Christmas is approaching quickly. This also means that employees, customers,and partners may be looking forward to a nice Christmas gift. Therefore, we have prepared this overview for you, so you can understand the rules for Christmas gifts. Before we look into the underlying rules, there's one crucial rule to mention. If you own a business where no employees are employed, you cannot deduct the purchase of Christmas gifts for yourself through the company. The company must have employees before the deduction of Christmas gifts can occur, and this applies regardless of the type of business.
What are the rules for Christmas gifts for your employees?
As mentioned above,you cannot deduct the purchase of Christmas gifts for yourself or other owners of the company, whether it's a sole proprietorship (Enkeltmandsvirksomhed), Private Limited Company (ApS), or Public Limited Company (A/S), if there are no employees. However, as an owner, you are allowed to receive a Christmas gift if you have an employment contract and receive a salary as other employees.
In general, you can receive a Christmas gift with a value of up to DKK 1,300, including VAT, per year without being taxed on them. The employer can choose how to distribute gifts throughout the year. However, there are some special rules to be aware of:
1. A Christmas gift worth DKK 900, including VAT, is tax-free, even if other gifts received by the employee during the year exceed DKK 1,300, including VAT. The employee,however, must pay taxes on the value of those gifts, excluding the Christmas gift.
2. If your Christmas gift has a value exceeding DKK 900, including VAT, and the total value of your gifts exceeds DKK 1,300, including VAT, during the year, tax must be paid on the entire amount.
What if I receive a gift card?
If you can't find the right Christmas gift for your employee and choose to give them a gift card, the gift may be taxable since it is considered cash compensation as it can be exchanged for cash. However, if the gift card is given based on specific products,it may be tax-free.
Gifts for customers and partners
You may want to spoil your customers and partners with gifts during the Christmas season, and we understand that! But it's not always straight forward; you need to be aware of the rules, as they are treated differently for tax and VAT purposes depending on whether these gifts are classified as advertising or representation expenses. If the gift is considered advertising, there will be a full deduction in this situation, both for tax and VAT. On the other hand, if it is considered representation, VAT cannot be deducted, but there can be a tax deduction of 25% of the expense, including VAT.
When is it advertising, and when is it representation?
Gifts under DKK 100 excluding VAT, containing a logo/company name, and given to a larger orundefined number of customers or an undefined circle of potential customers,focusing on advertising, are considered advertising expenses, allowing for a full deduction. Gifts exceeding DKK 100 excluding VAT, such as wine, Christmas punch, chocolate, or flowers, are classified as representation expenses. These do not qualify for VAT deduction, but a 25% tax deduction is allowed.
Get both accountin gand tax advice
Considering professional advice for your Christmas gift purchases is a smart move. At Summ, we've got a team of experienced consultants ready to help you out. The holiday season can bring a lot of joy, but navigating the tax and accounting aspects of gift-giving can be a bit tricky. Our experts are here to simplify things for you. Whether you're unsure about the tax implications of your gift choices or want to ensure your accounting records stay in good shape, we've got you covered. We understand that this time of year is all about spreading joy, and we want to make sure your gift-giving experience is as smooth as possible.