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How to tax employee benefits from 1 January 2024?

The General Financial Directorate has issued its Methodological Guidance on the Taxation of Benefits and Other Types of Performance Provided by Employers to Employees from 1 January 2024 in connection with the amendment to the Income Tax Act included in the consolidation package. This is an extensive and complex document for taxpayers that may in practice raise further questions. In our article, we comment on the most important areas.

Meals for employees

The methodological guidance specifies the conditions under which small refreshments provided at the workplace as well as meals provided as part of work-related breakfasts, lunches or dinners are not subject to tax for the employee.

In a similar manner, the methodological guidance specifies the forms of providing meals (financial or non-financial, or meals at an entity’s own catering facility) whose total the employer must track to determine the exempt income amount on the part of the employee.

Corporate sports facilities and courses

The methodological guidance specifically addresses the topic of gyms, exercise equipment, and similar sports equipment that is freely available to employees at the workplace. It determines when the use of exercise equipment is regarded as the use to achieve better work performance, which is not subject to tax, and vice versa, when it is regarded as the use of a sports facility, which should be included in the tax exemption limit for defined leisure-related benefits (culture, sports, medical devices, printed books...). It also provides that, e.g., lessons, courses or services that fully substitute for commercial services must be included in the tax-exempt benefit limit.

The guidance also lists the conditions under which non-financial income derived by employees from participation in sports and cultural events organised by the employer is not subject to tax.

How to measure an employee's non-financial income?

A complex issue for many employers will be the determination of the amount of the employee's non-financial income where a non-financial benefit has been produced internally using the employer's own activities (a benefit that may or may not also be provided to third parties) or the amount of non-financial benefits affected by various discounts obtained by the employer from providers of services or goods. The guidance offers several options for determining the amount, depending on the specific situation. It also provides various options and examples that may complicate the choice.

Benefit cards and the moment in which non-financial income arises

When does an employee’s non-financial income arise in the case of various benefit accounts currently offered by different benefit scheme operators?

The methodological guidance only notes that the moment of provision of the benefit depends primarily on the legal setting of the relationship of the parties concerned - not only between the employer and the benefit scheme operator but also with the final benefit providers.

It can also be assumed that the tax authorities will increase their oversight of non-standard transactions where employees were granted benefit points just before the end of 2023 to avoid the new rules.

Assessing the deductibility of costs incurred for employee benefits by employers

Again, rather general principles are described in the methodological guidance in the chapter dealing with the tax deductibility of costs incurred by employers for employee benefits and meals.

The guidance specifically mentions, e.g., the new taxation on the part of employees (and tax deductibility on the part of employers) for above-limit leisure-related benefits used by employees; the limitation of the deductibility of costs by the amount of income for facilities designed to satisfy employees’ needs; or the newly established possibility of full tax deductibility of costs related to contributions to employee meals.

The methodological guidance concludes with a table summarising the tax treatment of selected benefits and other types of performance by both employees and employers.

A link to the methodological guidance can be found here.