Tax allowable expenses and benefit in kind
Updated: Sep 1
TAX ALLOWABLE EXPENSES
In general, expenses incurred wholly and exclusively for the purpose of generating taxable income are deductible against the company's taxable income. Invoices, applicable receipts, and other supporting papers should be provided to back up such expenditures.
A list of tax allowable expenses which is not limited and exhaustive are as follows:
Business entertainment expenses (lower of 1% of the gross income or €17.086)
Contributions regarding the wages and salaries
Inland travelling and accommodation
Legal and professional
Licenses and taxes
Repairs and maintenance
Stationery and printing
Subscriptions and contributions (to approved charity organisations)
Telephone and postage
Wages and salaries
Water supply and cleaning
Also, the following income is exempt from corporate income tax:
Capital gain from the disposal of intellectual property rights under the new IP regime (the whole amount is excepted)
Dividend income (the whole amount is excepted)
Foreign exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives (the whole amount is excepted)
Gains arising from a loan restructuring (up to the whole amount is excepted)
Gains arising from the disposal of securities (the whole amount is excepted)
Interest income - excluding interest income arising in the ordinary course of business or closely connected with the ordinary carrying on of the business (the whole amount is excepted)
Profits of a permanent establishment maintained outside the Republic (the whole amount is excepted)
TAX TREATMENT OF BENEFITS IN KIND
Benefits are taxed under Article 5 of the Income Tax Law, which states that benefits from any office or employment, whether in cash or in kind, delivered to an employee or a member of his family, are taxable.
What is a benefit in kind?
“Benefit in kind” means the benefit that is, or is deemed to be, granted in connection with any employment or the holding of an office.
Scope of application:
The rules apply with reference to benefits in kind provided to:
persons who hold or are deemed to hold an office.
The benefit is deemed to be provided to a member of the person's family or household who is employed or occupies the position when the benefit is granted to that person.
Employers must keep documents demonstrating how the value of in-kind benefits was determined, and these records must be available for inspection by the Tax Department upon request.
Because benefits in kind are taxed in the same way that salaries are, the employer who bears the cost of giving them will be able to deduct that cost from his taxable income in the same way that a salary payment would be deducted.
Employers’ registration and obligation to pay the relevant tax
The Tax Department considers anyone who provides "benefits in kind" to an employee, as well as any company or corporation that provides benefits to its officers, even if it does not have employees, to be an employer and requires them to register on the Employers' Register and obtain a T.I.C, which allows them to file the Employer's Return (T.D. 7).
Through the filing of Form T.D. 7, the value of in-kind benefits is taxed in the same way as gross earnings. Employers are required to report any in-kind benefits they or their affiliated companies provide.
Categories of Benefits in Kind
1. Benefits in kind in relation to cars
Benefits in kind that relate to cars can be classified into three types:
a) Use of cars
A benefit in kind arises where there is a usual element of private use and its value is calculated as follows:
Value of Benefit in Kind = (Value of the use of the car + Value for repairs and maintenance + Value of the fuel) x Value of the private use of the car.
Value of the use of the car
17% of the car’s value or,
8% for cars older the 6 years from the year of manufacture
If the company leases the car under a finance lease agreement, then the value of the car is equal to the annual finance cost (lease expense)
Value for repairs and maintenance
The value is calculated as a percentage of the value of the car as follows:
- If the value of the car is equal or less than €28.000, 3% of the car’s value
- If the value of the car is more than €28.000, 4% of the car’s value
- In case of leasing, the value is considered to be NIL
Value of the fuel
If the fuel is paid by the employer, the value is calculated as a percentage of the value of the car as follows:
If the value of the car is equal or less than €28.000, 3% of the car’s value
If the value of the car is more €28.000, 5% of the car’s value
If the fuel is paid separately as a lump sum (cash), then the benefit of the fuel is not included in the calculation of the benefit related to the car. The cash compensation is taxed fully.
Value of the car
The value of a newly acquired car is calculated as:
The actual cost as shown on the invoice (including VAT, custom duties, registration fee, plus any other taxes and delivery expenses)
The value of discounts of a personal nature must be added back to the amount shown on the invoice.
The actual cost of any optional equipment added to the car should also be added to the amount shown on the invoice.
The value of second-hand and privately owned cars purchased before January 1, 2018, for which the actual cost (as if the car were new) cannot be determined readily, will be decided by the Tax Department, taking all necessary information into account.
Value of the private use of the car
The value of private use of the car is reduced to 20% when the car is used either exclusively or mainly for a journey between two points.
a) Commercial Cars (Van type)
Regardless of the type, model, or year of manufacture/registration of the relevant commercial vehicle, the yearly value of the benefit in kind for commercial cars is specified as a single sum of €500 per year.
b) Direct cash payments for car use
The benefit in kind is computed as 50% of the yearly remuneration (up to €3.000) paid to workers for the use of their own car for business activities, subject to certain restrictions. The value of the benefit in kind is equal to the annual compensation minus €1.500 if the annual compensation exceeds €3.000.
These repayments do not constitute a benefit in kind if they are given to an employee who uses his own automobile for business reasons and are based on the distance traveled (with a limit of 25 cents per kilometer) and the employer keeps a log book for at least six years.
2. Accommodation and use of assets
When assets (such as housing, furniture, boats, machinery, and so on) belong to the employer and/or are leased and/or rented by the employer, they might be considered benefits in kind.
The yearly value of in-kind benefits for the use of assets, including lodging, applies for as long as the asset is at the beneficiary's disposal and is calculated as follows:
Immovable property = 4% x Higher of the market value or initial cost + expenses incurred by the employer for the maintenance or use of the property/asset – amount paid by the employee.
Other assets = 15% x Higher of the market value or initial cost + expenses incurred by the employer for the maintenance or use of the property/asset – amount paid by the employee.
The price paid or due for the acquisition of the employer's immovable property is the original cost of the property, subject to the specific restrictions that apply to property held as a right in rem.
Immovable property: The value is determined as the estimated value of the Land and Surveys Department (LASD) as at 1/1/2013 or any other later assessment of the LASD.
Movable assets: The market value of a moveable asset is determined by the cost that the asset would earn in the market during its first year of availability.
3. Other benefits in kind
Any other benefit in kind that does not fall within the above categories, is considered to fall into this category and includes:
Provision of assets at subsidized prices,
repayment of personal expenses (benefits, fees, etc.),
free supply of goods or the sale of goods and services with discounts such as travel, entertainment, meals, domestic services, professional advice, transport etc.
The difference between the standard selling price less discounts offered to the general public less the price paid by the employee is generally used to estimate the value of benefits in kind, which are defined as a supply of products or a provision of services.
As a general rule, exclusions only apply when the payment or reimbursement to the employee is made against actual costs backed up by payment receipts. They don't apply if the relevant in-kind reward is in the form of cash.
Other specific exemptions mentioned in the guide include amongst others:
Goods consumed in the workspace
Awards for long-term service
Christmas parties and events
Subscriptions to professional bodies
Training Courses/scholarships to employees
Uniforms and specialized attire
*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.
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