Tax implications of New Year’s gifts and events

Corporate income tax

Are costs incurred for holding a New Year’s party deductible expenses for corporate income tax purposes?

Those costs can be deductible expenses if a company has a clear policy of holding a New Year’s party for its employees, and the party was held in accordance with that policy, and was for all employees, without preferential treatment of some employees.

Ruling No. Gor Kor 0706/9276 dated 9 November 2005

Personal income tax

Is the New Year’s party a fringe benefit for employees, subject to personal income tax?

If a company has a policy of holding a New Year’s party for employees, and the party is held in accordance with that policy, and is for all employees, it will be considered as income provided to employees in a ceremony or on occasions in accordance with established customs, and thus is exempt from personal income tax.

Ruling No. Gor Kor 0706/9276 dated 9 November 2005

Corporate income tax

Are the costs of New Year’s gifts given to employees deductible expenses for corporate income tax purposes?

If a company has a clear policy of giving New Year’s gifts to its employees, and the gifts were given in accordance with that policy, and were given to all employees, without preferential treatment of some employees, the costs of those gifts are deductible. Otherwise, they will be considered private expenses, and are non-deductible.

Section 65 ter (3) of the Revenue Code

Output VAT: Are New Year’s gifts given to employees subject to VAT?

Giving New Year’s gifts to employees is considered as sales for VAT purposes and therefore subject to the VAT. Accordingly, the company is required to pay 7% VAT on the value of the gifts given to employees (cost of purchase). However, the company does not have to prepare a tax invoice for such gifts if the company does not collect the VAT on such gifts from employees. Nevertheless, the company must include such gifts together with the VAT in the output VAT report.

Section 77/1(8) of the Revenue Code Clause 2(10) of the Departmental Instruction No. Paw. 86/2542

Clause 7(6) of the Notification of the Director-General of the Revenue Department regarding VAT (No. 89)

Personal income tax

Are New Year’s gifts given to employees assessable income of the employees, subject to personal income tax?

If a company has a policy of giving New Year’s gifts for employees, and the gifts are given in accordance with that policy, and given to all employees, it will be considered income provided to employees in a ceremony or on occasions in accordance with established customs, and thus exempt from personal income tax.

Section 42 (28) of the Revenue Code

Corporate income tax

Are the costs of New Year’s gifts given to employees in a lucky draw campaign deductible expense for corporate income tax purposes?

If a company has a clear policy of a lucky draw campaign, and the gifts were given in accordance with that policy, and all employees are eligible for a lucky draw, without preferential treatment of some employees, the costs of those gifts are deductible.  Otherwise, they will be considered private expenses, and are non-deductible.

Section 65 ter (3) of the Revenue Code

Output VAT: Are New Year’s gifts given to employees subject to VAT?

Giving New Year’s gifts to employees in a lucky draw campaign is considered as sales for VAT purposes and therefore subject to the VAT. Accordingly, the company is required to pay 7% VAT on the value of the gifts given to employees (cost of purchase). However, the company does not have to prepare a tax invoice for such gifts if the company does not collect the VAT on such gifts from employees.  Nevertheless, the company must include such gifts together with the VAT in the output VAT report.

Section 77/1(8) of the Revenue Code Clause 2(10) of the Departmental Instruction No. Paw. 86/2542

Clause 7(6) of the Notification of the Director-General of the Revenue Department regarding VAT (No. 89)

Personal income tax

Are New Year’s gifts given to employees in a lucky draw campaign assessable income of the employees, subject to personal income tax?

Gifts provided to employees in a lucky draw campaign are considered as assessable income of the employees pursuant to Section 40 (1) of the Revenue Code.

The company is required to include values of the gifts so provided as assessable income of the employees and withhold tax at the progressive rates.

Section 40 (1) and Section 50 (1) of the Revenue Code