Tax labyrinth of employee benefits - most discussed topics
Below, we summarise the problematic areas discussed during our January seminar focused on employee benefits and meals from 1 January 2024. Most questions were related to topics causing difficulties for employers in practice.
Employer contributions for employee meals and meal allowances on business trips
Employers appear to mix two separate areas, namely the provision of contributions for meals for employees and the provision of travel meal allowances on business trips. However, just as until the end of 2023, these are completely separate schemes governed by separate rules.
Business travel arrangements are governed by the Labour Code. Meal allowances on domestic or foreign business trips up to the amount provided for in the Labour Code are not subject to tax on the employee's part.
Employer contributions for employee meals are by their nature employee benefits (employers are not obliged to provide them) and exempt from tax under the conditions of the Income Tax Act, one of which being that the employee be not entitled to a travel meal allowance during the work shift.
Meals in company canteens
Given the employee’s exemption limit applicable to contributions for meals, many employers will have to determine the value of meals - either for in-house canteens run by the employers or for canteens on the employers’ premises where meals are provided by other caterers.
A new complication arises if former employees such as pensioners or employees on maternity or parental leave may take meals in the company canteen: these groups will no longer meet the condition for exemption.
Scope of leisure related benefits
For leisure related benefits, only the amount to which they are tax exempt on the employee's part is subject to limitation from 2024. The limit is half of the average wage (i.e., CZK 21,983.50 for 2024). Please note that there has been no factual change to the types of benefits covered by this scheme.
Non-financial benefits for any purposes other than those defined in that provision are not included in the limit of half the average wage (i.e., CZK 21,983.50 for 2024). If they are not eligible for any other exemption or not excluded from the subject matter of the tax, they will be included in the employee's taxable income.
Donations to employees
The abolition of the exemption of donations from tax on the employee’s part from January 2024 raises several questions for employers. It appears that even before the amendment to the Income Tax Act the procedure concerning donations was often applied incorrectly. Until the end of 2023, it was possible to exempt a non-monetary gift of up to of CZK 2,000 on the employee's part if it was provided from non-deductible expenses or from after-tax profit and if the purpose defined in the Decree on the Cultural and Social Needs Fund was fulfilled (e.g., work anniversaries of 20 years, life anniversaries of 50 years, the first granting of an old-age pension or disability pension for third degree disability, etc.). Under this provision, even before the end of 2023 it was not possible to exempt, e.g., Christmas gifts to employees. From 2024 onwards, regardless of the purpose of the donation, any gifts to employees are taxable unless they are exempt from tax under other provisions of the Income Tax Act.
(Anonymous) counselling for employees
One of the new employee benefits today is the possibility for employees to use online or telephone counselling of various kinds, often provided on an anonymous basis.
However, if such counselling is not meant to ensure working conditions for the performance of work or training
in connection with the performance of work, it will be taxable on the part of the employee. Employers will have to deal with how to identify and value the employee's non-financial income and how to keep records of the use of the service by individual employees.
Teambuilding events
A much-debated topic among many employers is the organisation of teambuilding events, the purpose of which can be wide-ranging. The nature of the event will have an impact on taxation on the employee’s part. The amendment does not introduce an approach different from the one that applied before it came into force. Only occasional cultural and sporting events organised by the employer for a limited number of participants are eligible for special treatment.
If you have any uncertainties regarding employee benefits, please do not hesitate to contact us. We will be happy to advise you on the correct benefits set-up or revise your company's existing internal policy to comply with current tax legislation. Or, as part of our advice, we can provide you with a recording of the seminar.