Tax advantages for employee gifts

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p. 3 Employee gifts: how to use tax advantages

p. 4 What are employee incentives?

p. 6 Legal basis of employee benefits

p. 9 Gifts to employees: do not disregard the record-keeping obligation

p. 10 Some specific examples

p. 12 Employee incentivization: best-practice examples from the working world

Table of contents

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Christmas party, birthday, employee anniversary: in a company, there are many occasions on which to give an employee a small present. After all, this not only enhances employee motivation, but is also al-ways a sign of allegiance or a way of saying thank you for work performed. Since employee gifts often constitute an additional performance incentive, it is always worth giving gifts, benefits or other in-centives. Bosses can even benefit doubly from this, since employee benefits can be linked to a number of tax incentives. In this article, you will read about how to achieve tax advantages through employee gifts, as well as which legal principles are applica-ble to this in Germany.

Employee gifts: how to use tax advantages

Please note that this selected information does not constitute individual tax advice and does not replace the advice of a tax consul-tant. In particular, the specific facts and indi-vidual circumstances must always be taken into account here, as well as further current aspects relevant to tax and social insurance that go beyond the income tax presentation.

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Chocolates or a bottle of wine at the Christmas party, movie gift cards for a birthday, or a financial reward for an employee’s 10th anniversary at the company – all these are classic gifts to employees and, in particular cases, can bring tax advantag-es for companies. However, the modern working world offers a lot more possibilities for offering employees a performance incentive. Many com-panies now even specifically aim to attract new employees to the company by offering benefits. The advantage: incentives are an essential aspect of a company’s public image. After all, those who offer a lot to their employees are ultimately viewed as being attractive employers. This can be used, for example, to attract coveted and highly qualified expert personnel to the company, thus generating a win-win situation. However, incentives are not always just non-cash benefits: the topic of “work-life balance” can also play an important role when offering gifts to employees. Employee gifts can therefore be subdivided into the following exem-plary areas:

Monetary incentives

> Bonus and reward payments

> Profit-sharing

> Paid overtime

> One-off special payments

> Occupational pension

Non-cash benefits

> Company cellphone with private use

> Company laptop with private use

> Internet flat fees

> Company car with private use

> Shopping and staff discounts

> Shopping gift cards, gas gift cards, monthly season tickets, meal vouchers

> Low-interest loans

> Canteen use

> Bonus programs

Work-life balance

> Flexible work hours

> Company parties, trips, events

> Occupational healthcare (back training courses, yoga, massages)

> Childcare

> Relaxation and recreation rooms

> Home office

> Recuperation assistance

> Career models

> Paid further training

> Mentor programs

> Internal training

> Food

> Free beverages (coffee, water, tea)

> Fruit baskets

> Boxes of candy

1. What are employee incentives?

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Various surveys commissioned by cadooz show that the culture of employee incentives is now firmly embedded in many companies. In a survey, a total of 529 company decision-makers stated that incen-

tives were already being used in their companies, chiefly for employee motivation (40%). A further 24% can imagine operating in this area1.

In a survey in which employees were asked what they would like to receive from their employer during Christmas, universal gift cards (49%) were the most popular gift. Restaurant gift cards (81%) and non-

cash gifts (73%) are also very popular with em-ployees2. But which preconditions make these gifts tax-deductible?

1 Survey: Representative online survey of 529 company decision-makers in Germany, July/August 2018; conducted by YouGov Deutschland GmbH for cadooz GmbH2 Survey: Representative online multi-topic survey of 1,000 persons (16-70 years old) in Germany, 2016; conducted by IPSOS for cadooz GmbH

For what purpose(s) do you currently use incentives in your company, or for what purpose(s) can you imagine using them? Please indicate for each of the following categories whether your company uses them or whether you can imagine that your company might use them in the future.

My company cur-rently uses them

My company does not currently use them, but I can imagine doing so in the future

My company does not currently use them, and I cannot imagine doing so in the future

Don’t know/not applicable

Incentives for new-customer recruitment (e.g. customers-recruit-customers campaign, bonus on first purchase, advantage club as additional benefit when choosing a provider)

7%20% 28% 45%

Incentives for customer loyalty (e.g. points which are collected in a bo-nus program and can be converted into rewards)

7%40% 24% 29%

Incentives for employee motivation (e.g. benefits to employees, like gifts on occasions such as birthdays or anniver-saries, etc.)

7%18% 26% 49%

Incentives for sales promotion (e.g. as bonus or profits from campaigns) 9%21% 25% 45%

The survey

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First of all, employee benefi ts must be subdivided into two main groups. If the non-monetary benefi t constitutes additional pay for work performed by the employee, it constitutes a non-cash benefi t. If the benefi t is made without a return service by the employee, it is known as a gift.

2.1. Use tax advantages purposefully for non-cash benefi ts

Non-cash benefi ts which are granted for work performed in addition to the normal pay effec-tively constitute pay and are therefore subject to income tax. Therefore, in order to be able to grant non-cash benefi ts to employees without paying income tax, employers must observe a few import-ant regulations. If these are observed, however, non-cash benefi ts to employees offer many ad-vantages up to and including state subsidies!

In the case of smaller benefi ts, tax law is fortu-nately very clear: for non-cash benefi ts of up to 44 euros per month, the legislator prescribes a so-called non-cash benefi t exemption limit. In accordance with Section 8 paragraph 2 clause 11 of the German Income Tax Act, smaller non-cash benefi ts of up to 44 euros per month and employee are tax-free.

Such benefi ts only remain tax-free if they do not involve sums of money. Whereas gas or shopping gift cards for a fi xed amount therefore present no problem for the tax authorities, envelopes containing cash are, of course, taboo from an income tax point of view. It must also be observed that this so-called exemption limit of 44 euros per month and per employee may not be collected over the course of several months and may not be transferred to other employees. Rather, the non-cash benefi ts exemption limit expires at the end of the month – in other words, it is reset. For example, if the exemption limit is not used up in June, there is no potential for an increased tax-free alloca-tion for July. In other words, the unused amount “expires” and a new 44-euro limit applies to the following month.

2. Legal basis of employee benefi ts

€528 per year

Employee receives €44 per month

Employer costs in comparison

€528tax-freeper year

€696saved€1,224

payraiseper year

1. Non-cash benefi ts 2. Gifts

Section 8 para 2clause 11 of the German

Income Tax Act (EStG)exempt from tax and

social security contributions within

the monthly €44 exemption limit

€44Section 19.6 para 1 of the German Income

Tax Law (LStR) exempt from tax and

social security con-tributions up to €60 for special personal

occasions

€60

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This tax advantage is also no longer applicable if the non-cash benefit amount of 44 euros per em-ployee per month is exceeded. For example, if you give an employee a movie gift card with a value of 20 euros, the remaining tax-deductible amount for this month is now 24 euros. If you plan a further non-cash benefit in the same month, for example, which costs more than 24 euros per person, the total amount of the monthly benefit, i.e. the total benefit from the first euro on, is no longer tax-free and is treated as taxable income. However, these higher non-cash benefits may also be taxed at a flat rate at 30%, plus church tax and solidarity surcharge, according to the preconditions of Section 37b of the Income Tax Act. This means that taxation of the employee is waived.

Does it seem to you that employee benefits involve a lot of administrative work? Not necessarily – with a cadoozCard, for example, you have a convenient and flexible solution at hand that offers great pos-sibilities of employee incentivization and only takes five minutes of your time per month.

2.2. Tax advantages for employee gifts

Of course, in Germany, it is not possible to shower employees with gifts, rewards and non-cash benefits at will. Whereas small gifts can be said to maintain friendship, expensive presents are quickly tainted by a suspicion of corruption or bribery. For this reason, there is a legal basis which unambiguously regulates the handling of employee gifts. In Section 516 of the German Civil Code (BGB), the term “gift” is defined in the following way:

“A benefit by means of which someone enriches someone else from his own assets is a gift if both parties agree that the benefit occurs free of charge.”

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Therefore, an employee gift may represent an in-centive for the employee, but the person receiving the gift is in no way obliged to provide particular services as a result of the gift, nor has the gift been made on the basis of services already provided. In addition, the recipient of the gift must be in agree-ment with the benefit, since it is further noted in the Civil Code:

“If the benefit is made without the will of the oth-er party, the person allocating the benefit may demand a declaration of acceptance, setting an appropriate deadline. (…)”

This means that the following also applies to employ-ee incentives: Employees may refuse inappropri-ate or too-expensive gifts, and are not obliged to accept them.

While these basic rules are relatively easy to under-stand, since they are part of “good manners” any-way, the tax-related aspects of employee gifts are a little more complicated. Gifts which are exempted from taxation only refer to gifts of up to 60 euros per occasion which are granted to an employee for particular personal events (so-called “attentions”, in accordance with Directive 19.6 paragraph 1, Ger-man Income Tax Act (LStR)). “Personal occasions” can be, for example:

> Employee anniversaries

> Weddings

> Promotions

> Exams passed

> Birthdays

> The birth of a child

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3. Gifts to employees: do not disregard the record-keeping obligation

In order for the distribution of employee gifts to be transparent to the financial management, the ben-efits must be recorded in the accounts accordingly. Separate accounts must be kept for this purpose in the financial accounting. Not least in order to retain an overview of non-cash benefits and gifts, the accounting department should record the expenses promptly. Similar presents can be combined in an uncomplicated collective posting. However, make sure that the names of the recipients of the benefits are noted in the posting receipt.

Christmas parties and other company parties, on the other hand, unfortunately do not constitute personal events in the eyes of the law. If employers wish to hand out gifts to their employees at such events, however, the tax exemption for company events may apply. According to Section 19 para-graph 1 clause 1 No. 1a of the German Income Tax Act, this is set at 110 euros per company event and employee for a total of two events per year, and can contain a gift to the value of max. 60 euros per employee. As soon as an employee receives a “gift” outside the above-mentioned events or with a value of over 60 euros, the benefit is no longer viewed as a gift under tax law and must be includ-ed in the pay which is subject to income tax. The same applies to the granting of sums of money.

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4. Some specific examples

4.1. Gifts cards are attractive, tax-free benefits

Gas, movie or shopping gift cards are extremely popular employee incentives. However, in order for this benefit to remain tax-free as an employee gift or as a non-cash benefit of up to 44 euros, it must be precluded that the employee can demand (partial) cash payment instead of the gift card. This would namely be a financial payment which, as a rule, cannot be granted tax-free. Universal gift cards are viewed as being very flexible to use. In this case, general shopping credit is given as a gift – your employee can then decide for him/herself which retailer to redeem the credit from. Gift cards for virtual entertainment have also emerged as a trend product: giving credit for music down-loads, e-books, apps or streaming services as a gift means that you are definitely in touch with the latest trends, and gives the company image an update!

4.2. Employee incentives: further training produces a win-win situation

Monetary incentives are always a very good way of motivating employees and keeping them loyal to the company. Unfortunately, this form of employee benefit has a serious disadvantage: the state, too, may also receive a substantial “mone-tary present” by means of the higher income tax incurred by bonus and reward payments. For this reason, many companies have already made the decision to design employee benefits in a tax-free way. A simple way from which both employer and employees can benefit is to subsidize further training. That’s because if an employee wishes to attend a further training course which is directly connected with his/her occupation, the employer can reimburse the costs for this tax-free (Directive 19.7 of the German Income Tax Directive (LStR)). Depending on the type and extent of the training, an immense financial benefit can arise for the employee.

Tip: The BestChoice ShoppingGiftCard by cadooz generally fulfills all the precondi-tions for non-deductible employee gifts. The product is accepted by over 500 retail part-ners in 30 countries and is the first choice for incentivizing employees in many companies. The gift card is available in paper form, card form or as a digital version, for example as a PDF document. As an alternative, there is also BestChoice Entertainment, the gift card with credit for Spotify, iTunes and other digital services.

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4.3. Save taxes by promoting employee health

As well as being interested in having technically expert colleagues, entrepreneurs also naturally wish employees to be in a good state of health. This is understandable from a business point of view, as it ultimately reduces the level of sickness. But this is not the only aspect that makes health promotion attractive to employers: the tax-free allowance of 500 euros per employee per year is another good reason to take fitness into account when considering employee incentives. This tax-free allowance applies to services which are pro-vided in addition to the pay which is already due. Many activities the employer organizes in the context of internal company measures, or which the employees undertake externally for their own healthcare, are subsidized by the state. Member-ships to fitness studios or sports clubs, however, are not normally included. However, preventa-tive courses and other healthcare provisions that have to fulfill certain requirements imposed by the health insurance companies may be included: Back-training courses, relaxation programs or nu-tritional coaching by expertly qualified trainers are often eligible for subsidy and therefore a sensible incentive for contented and healthy employees.

Relaxation workshops, massages or stress manage-ment seminars held within the company may also be eligible for tax relief according to Section 3 No. 34 of the German Income Tax Act. It is therefore doubly worth offering health-promoting measures as employee gifts.

Tip: If the company itself does not have the possibility of offering such programs to its employees, or if the health measures which are carried out do not fulfill the tax criteria for a subsidy, there is also the possibility of sup-porting occupational healthcare generally by means of non-cash benefits. The employ-ees can therefore select providers of certain measures themselves, for example, and can have them entered into a bonus booklet pro-vided by the employer. If the employee has completed a certain number of activities, you can incentivize him, for example – within the monthly non-cash benefit limits (see above) – with a gift card.

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4.4. Further tax-free employee benefits

As well as the above-mentioned allocations such as non-cash benefits, further training and health promotion, there are other possibilities for employ-ers to design their employee rewards in a tax-free way. According to Section 3 No. 33 of the German Income Tax Law, for example, there is a possibility for the employer to pay subsidies for childcare. A further possibility of rewarding employees for their loyalty to the company is by giving discounts on the company’s own product range. Both for goods and for services, there is a legally pre-scribed discount allowance of max. 1,080 euros per employee per year. Employees can use this up as they wish, thus benefiting from products or services from their company tax-free.

The above-described methods of distributing tax-free employee benefits give employers good possibilities of enthusing new employees about the company, and of rewarding and motivating long-standing colleagues. With a little creativity and a small financial input, measurable results for growth and employee satisfaction can be achieved, while the tax authorities do not neces-sarily also make money in the process.

For these reasons, modern companies deliberately choose employee incentivization. The reward is a good working atmosphere, efficient and healthy employees, and a positive public image for their company.

5. Employee incentivization: best-practice examples from the working world

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This topic is becoming increasingly relevant in Ger-many, as well: For example, SAP, IKEA and Munich Airport are using employee benefits successfully with a strong partner in cadooz. innogy is even going so far as to provide its employees with a re-chargeable cadoozCard also available in an EC card format.

They were looking for a way to incentivize the employees in telephone sales in the most intensive way possible. When the target is reached, the cadoozCard plus is automatically charged up with the corresponding amount. In addition, the card has been adapted to innogy’s corporate design – an unusual and also effective incentive solution.

At Munich Airport (Flughafen München GmbH), among other things, employee ideas manage-ment is encouraged by integrating a rewards shop into the existing airport system. When employees submit ideas or offer contributions, they can choose a corresponding reward in the redemption shop.

Incentive events are now also trending and offer another example of best practice. Various team events motivate employees. Everything is possible, from cooking events to a breakout experience or attending a sporting event.

Would you like to incentivize your employees and enhance their motivation? Feel free to contact us! We at cadooz can help you to find a suitable solution for your plan.

cadooz GmbH | Osterbekstraße 90b | 22083 Hamburg

Phone: +49 40 27 14 82-0 | business@cadooz.de | www.cadooz.com