Methodological Information on the Taxation of Employee Benefits

Methodological information is divided into several parts. The first part focuses on the tax regime of income on the part of the employee, the second part is devoted to the tax deductibility of costs on the part of the employer. The last practical part contains an overview of the most typical benefits and their tax regimes. We would like to mention some interesting points in this post.

Meal Support

In the case of meals provided to employees, the GFD differentiates between situations where meals are provided as an employee benefit, which is taxable income of the employee from a certain level, and when it is a support provided by the employer, which is "consumed" by the employee in connection with the performance of a dependent activity, but the employer's interest in the necessary or effective performance of work prevails here (e.g. a working lunch with the employer's customer, or small refreshments during a work meeting). In the case of the latter option, the provided meal is not a taxable income of the employee, but de facto represents the creation of working conditions by the employer.

Possibility to Use Sports Equipment

Similarly, the GFD concludes that if the employer provides the employee with the opportunity to use sports or other similar equipment that is available at the employer's workplace and is intended to ensure relaxation, stress relief, etc. with the aim of improving the employee's work performance, it does not have to be taxable benefit of the employee, but rather fulfillment in the form of creating working conditions for the performance of work. However, these services may not be comparable to a normal commercial service, or one that would be indistinguishable from such a service, and which by its nature would replace publicly accessible sports grounds, lessons, courses or services that are normally provided to the public (e.g. yoga courses, sauna, massages, full-fledged sports grounds, fitness, etc.).

Participation in a Sporting or Cultural Event

A completely new provision that appeared in the Income Tax Act from January 2024 (and replaced in § 6 paragraph 9 letter g) the exemption of non-monetary gratuitous benefits from FKSP and similar sources up to CZK 2,000 per year) is the exemption of income derived by employees or by their  family members from participation in a sporting or cultural event organized by the employer for a limited group of participants, if, due to its nature, the organization of such an event is usual for the employer and its form and scope are reasonable.

In this context, the GFD explains that it sees this provision in principle as a subset of non-monetary benefits regulated in § 6 paragraph 9 letter d) of the Income Tax Act, i. e.  classic employee benefits, which are exempt from tax, among other things, on the condition that they are provided from the employer's tax non-deductible costs, and for which the tax exemption is newly limited by the value of half of the average monthly salary per year for one employee. However, due to the difficult traceability of the value of the fulfilment for the employee or his family member in the case of participation in sports or cultural events organized by the employer, these fulfillments were set aside in a special provision where, after the conditions are met, the amount of the tax exemption is not limited by any value. However, the GFD concludes that these non-monetary benefits exempted on the part of the employee must be provided from tax non-deductible costs on the part of the employer. In the Methodological Information, the GFD further discusses what is meant by a limited group of participants, whether the employer can hire a professional agency to organize the event, that the regularity of organizing the event will be assessed with regard to existing common standards in business practice, or that the adequacy of the scope of the event will be assessed, among other things, from the point of view of the location of the event and the regularity of repetitions of the event.

Determination of the Value of the Benefit

The GFD in the Methodological Information also addresses the issue of valuation of non-monetary income provided by the employer to the employee. Depending on the circumstances, this award may be made:

• in accordance with the Property Valuation Act,
• in the amount of the difference between the amount paid by the employee to the employer and the price charged by the employer to other persons (or the price according to the Property Valuation Act),
• in the amount of the price charged by the employer to other persons,
• in the manner specified in Instruction GFD D-10, i.e. using a comparable independent price or costs and mark-up, or in some cases due to the nature corresponding to the pure allocation of the costs rather than the provision of the service even without a cost surcharge,
• in the amount of costs incurred by the employer in the case of paid acquisition of the provided benefit from third parties.

The Moment of Arising of Income When Using So-called Benefit Cards

The GFD in the Methodological Information also addresses the moment when a non-monetary income in connection with usage if the so-called benefit cards arises. GFD has learned that in practice the conditions governing the operation of benefit cards may differ in detail, and therefore respects this practical variability when determining the moment of non-monetary income arising. Depending on the legal setting of the relationship between the participating entities, in some cases non-monetary income may arise as soon as the card is "charged" or a flat-rate payment is paid for the card holder, while in other cases non-monetary income only occurs at the moment of the employee's own drawing of the benefit and billing by the benefit provider.

As can be seen, the issue of employee benefits remains complex. If you have any doubts in the field of employee benefits, do not hesitate to contact our experts with confidence.

Authors:

Jana Nováková, Tax Manager

Gabriela Ivanco, Tax Manager