Benefits in kind as a component of compensation - Scope for structuring in employment contracts
Apart from classic salary increases, the focus of modern compensation models is shifting to tax-privileged benefits in kind. When properly structured, such benefits can noticeably optimise net pay and, at the same time, they allow employers to keep their costs predictable and to remain within clearly defined tax parameters.
Observing the €50 tax-exemption limit
In the context of benefits in kind, it is necessary to take into account the monthly tax exemption limit for non-cash compensation in the amount of €50 - in accordance with Section 8(2) sentence 11 of the Income Tax Act (Einkommenssteuergesetz, EStG) -, as a key component of payroll tax planning. Insofar as the employer is entitled to deduct input tax, this would then be the net amount. Within this amount, the respective benefits remain exempt from payroll tax and social security deductions. However, the important point here is that this is a genuine exemption limit. If this limit is even slightly exceeded, then the tax exemption would lapse completely for the entire amount in the relevant month.
Moreover, there is a requirement for a benefit in kind to exist. A pure cash wage or a cash payment for a specific use would not satisfy the requirements. Vouchers and cash cards would only be tax-exempt if they satisfied the legal criteria under Section 8(1) sentence 3 EStG and, in particular, did not have a cash payment function. The contractual and actual arrangements here would determine the classification for tax purposes.
An overview of the individual tax concessions
Besides the general exemption limit for non-cash compensation, there are numerous specific cases with distinct tax regimes.
- Meal subsidies that are subject to favourable tax treatment can be granted by applying the official reference values for non-cash compensation or by means of digital meal vouchers.
- Mobility benefits (such as the provision of a subsidised season ticket, or assuming the cost of the Deutschlandticket [Germany-wide public transport flat-rate ticket]) are tax-exempt under certain conditions (Section 3 no. 15 EStG), or can be taxed at a flat rate.
- Recuperation allowances may be taxed at a flat rate of 25% in accordance with Section 40(2) no. 3 EStG, provided that the applicable limits in terms of the amounts are not exceeded.
- Internet and telecommunications subsidies are tax-exempt according to Section 3 no. 45 EStG if they are provided in addition to remuneration that would in any case be due.
- Perks for workplace health promotion remain tax-exempt up to a value of €600 per year pursuant to Section 3 no. 34 EStG provided that they relate to certified measures.
Depending on the specific situation, the benefit may take the form of a full tax exemption or a flat-rate tax by the employer, which can secure advantages under social security regulations and enable administrative simplifications.
Additionality as a mandatory requirement
A key defining criterion is the statutory requirement of additionality (Section 8(4) EStG). The benefits must be granted “in addition to remuneration that would in any case be due”. Deferred compensation or salary waivers routinely result in the denial of the tax concession. In this respect, the fiscal administration uses the effective basis for a claim under employment law as a key criterion. The additional benefit may neither be offset against existing salary components nor granted in lieu of them. In practice, it would be advisable to have clear contractual documentation in order to avoid subsequent payroll tax disputes.
Parallel assessment under social security regulations
Tax advantages routinely also have an impact on social security contributions. Tax-exempt benefits in kind are generally exempt from contributions. However, in the case of benefits that are taxed at a flat rate a differentiated assessment is needed to determine whether the exemption from social security contributions applies to them. An isolated consideration of the payroll tax implications would therefore not go far enough. A coordinated overall assessment is always required.
Combined models and compliance aspects
Non-cash benefit models can be combined in many ways. For example, the €50 tax-exemption limit can be used in addition to a tax-exempt subsidised season ticket or a health promotion perk. Hybrid models that combine tax-exempt components with ones that are taxed at a flat rate are also possible. Although, as complexity increases, so does the potential for errors.
