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Deductions for Christmas parties and Christmas presents – what are the rules?

 

Christmas isn’t far off and companies often like to invite customers and staff to Christmas parties and buy them gifts. Although the coronavirus will likely result in fewer Christmas parties, some companies may be planning to reward their employees with some slightly more expensive Christmas presents than usual instead. But have you checked the costs and rules on Christmas gifts and Christmas parties?

While both can lead to better business with loyal customers and committed staff, they can also lead to accusations of bribery and to staff being taxed on their gifts if you make a mistake. This article will help you avoid the typical pitfalls.

Christmas gifts for employees may have a value of up to SEK 450 per person tax free, including VAT and excluding any shipping costs. If the value of the Christmas gift is higher, the entire gift is taxable for the employee. Christmas gifts can be anything except for money (or cheques/bank drafts, which are treated the same as money). Gift cards that cannot be exchanged for money may be given as tax-free gifts.

In 2020 (the period 1 June to 31 December), a temporary rule has been added that makes gifts to staff deductible up to the value of SEK 1,000 including VAT. Note that only the portion of the gift that exceeds this SEK 1,000 is taxable, should this be the case.

In 2020 it is possible to combine these amounts into, for example, a Christmas gift for SEK 1,450. The gift is tax-free for the employee and a deductible expense for the employer.

Instead of giving Christmas gifts, many companies prefer to donate to a charity, but unfortunately such gifts are not deductible for the company. If the company gives money to staff to donate to charity, the money then becomes taxable for the employees, even if the entire amount is donated immediately.

Keep track of the rules and avoid unnecessary tax headaches

As a general rule, Christmas gifts for customers are not deductible. However, simple promotional gifts, such as a calendar or pen with your company logo or products that are directly linked to your company’s range or production, are fine. In that case the company should give these to a large number of customers and not just an individual one. 

The limit per gift is SEK 300 excluding VAT. It’s also fine to deduct gifts to customers in connection with representation, such as a business negotiation. In that case the deductible amount is SEK 300 per person excluding VAT and it’s a good idea to stick to gifts below that value. More expensive gifts may be considered bribery, which is illegal and definitely not deductible! In some industries gifts are not allowed at all, so be careful and check the rules.

Deductions for corporate parties, food, and drink

A Christmas party is a fun event that’s often appreciated, but nowadays food and drink are not a deductible cost for the company. However, you can deduct the VAT on expenses of up to SEK 300 per person for food and drink. In addition, you can deduct SEK 180 plus VAT per person for related costs, such as theatre tickets or musical entertainment. 

Refreshments or snacks that do not replace a meal may be deducted up to the value of SEK 60 excluding VAT. If you want to invite your customers to a Christmas dinner, you can deduct VAT only if this is in connection with a business negotiation. As with staff, you cannot deduct costs for food and drink at mealtimes.

At Azets we know what is and isn’t deductible

It’s not always easy to keep track of all the rules and deductible costs. At Azets we know how complicated a seemingly simple thing like buying employees Christmas gifts can be, especially if you’re a large company. We help companies in the Nordic region with accounting services and payroll administration. Don’t hesitate to get in touch.

That being said, now that you have a better understanding of the rules, Azets would like to wish you a very merry, deductible Christmas!