• Flexi Group

Tax allowable expenses and benefit in kind

Updated: Sep 16


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

  • Electricity

  • Equipment maintenance

  • Inland travelling and accommodation

  • Insurance

  • Legal and professional

  • Licenses and taxes

  • Municipality taxes

  • Overseas travelling

  • Rent

  • Repairs and maintenance

  • Staff training

  • 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:


  • Employees, and

  • 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.


Keeping records

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.


Deductible expense

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.


Cost – 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.


Exemptions

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:

  • Computer equipment

  • Telephone services

  • Childcare facilities

  • Goods consumed in the workspace

  • Newspapers

  • Awards for long-term service

  • Christmas parties and events

  • Subscriptions to professional bodies

  • Training Courses/scholarships to employees

  • Uniforms and specialized attire

  • Recreation areas

  • Relocation expenses

*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.



We are a team of experienced professionals, all sharing a unique drive for learning and development through teamwork. The Group utilizes its various core activities to implement customized solutions for its clients. Our collective experience spans the areas of Global Corporate & Fiduciary Services, Assurance & Advisory Services, Fund Administration, Tax Advisory, Corporate Governance, Financial Services, Private Wealth Services and Compliance.


Start a conversation with us today to find out how you can benefit from a relationship with Flexi Group.

Please get in contact with our Head of Business Development:


Mrs Daniella May / Head of Business Development

Tel.: + 357 7000 2 5555 / + 357 22 87 57 55

E: inquiries@flexi-group.net

We also organize calls using Skype. Our flexi Skype ID is web@flexi-group.net

35 views0 comments