Benefits in kind for employees - Tax exemption limits and the particularities in the case of vouchers
Many employers give their employees benefits in kind to show appreciation and to motivate staff. In particular, vouchers are very popular because of the many ways that they can be used. In order to benefit from the tax and social security exemptions it is necessary to take into account a number of conditions.
€60 tax-exemption limit - Token gifts on the occasion of personal events
For personal or business reasons it is possible to give employees small, tax-exempt, low-value token gifts worth up to €60 on a gross basis, for example, flowers, wine or chocolates. Here, the benefit in kind can be given not just to the employee themself, but also to a relative - as defined in Section 15 of the Fiscal Code (Abgabenordnung, AO) - living in their household. Typical occasions are, for instance:
- birthday, wedding, or the birth of a child
- company anniversary, or passing a test
Religious festivals, such as Easter or Christmas, do not constitute such an occasion.
General €50 tax exemption limit for benefits in kind
Moreover, employees can be given benefits in kind, for no particular reason at all, every month that are worth up to €50 on a gross basis and which are exempt from payroll tax and social security deductions. Typical examples of tax-privileged benefits in kind:
- all types of gifts in kind (e.g., gift basket, wine, product voucher or fuel card)
- reward meal outside of the canteen
- tickets (e.g., for the cinema or a museum)
- discounts through third parties (if no discount allowance applies)
Potential pitfalls in the case of vouchers
The aforementioned event-related and monthly limits for benefits in kind can generally also be used for vouchers. In this case, the vouchers have to satisfy the criteria for benefits in kind and may be redeemable solely for products and services.
The following situations would lead to vouchers not being treated as benefits in kind, but instead as cash payments that are subject to tax and contributions:
- where employees are able to receive a cash payment for the voucher;
- where employees are able to purchase marketplace vouchers, for example, via retail or petrol station vouchers.
A cash payment function would exist if the vouchers could be redeemed at any time and the remaining amounts paid out. Particular caution is required if the vouchers are operated via external payment service providers because, in this case, their redemption rights would apply.
There are now a number of service providers - so-called ‘voucher portals’ - where the business model consists in providing employers with an uncomplicated platform for issuing vouchers. In their advertising, these portals refer to the above-mentioned tax advantages; however, they would of course not be liable in the event that an audit of payroll tax and social security contributions were to conclude that the criteria for tax exemption had not been fulfilled. With regard to these voucher portals, it should be noted that if the vouchers solely give entitlement for these to be exchanged for other vouchers, then they would be deemed to be cash payments that are subject to tax and mandatory social security deductions.
Advance payroll tax ruling - certainty in cases of doubt
If there are doubts as to whether a benefit in kind can be given free of tax, we would recommend obtaining an advance payroll tax ruling pursuant to Section 42e of the German Income Tax Act. The ruling will create certainty as to whether and to what extent the rules on payroll tax would need to be applied in a specific case. Some voucher providers have already made templates available for this purpose.
Recommendations
Apart from the aforementioned option of obtaining an advance payroll tax ruling, the following advice should be borne in mind:
- Only use vouchers that do not allow third-party vouchers
- Use certified portals with the appropriate contractual restrictions
- Focus on a very limited offering of products and services (e.g., mobility budgets)
- Hand out real benefits in kind (e.g., drinks, foods, own range of products)
- Check regularly to see if, in the meanwhile, providers have introduced third-party vouchers.
In any event, the employer must always be the contractual partner and payer - because otherwise this would constitute a cash payment for a specific use or a subsequent reimbursement of costs.
