Employer Gift-Giving in Germany and China Explained

Christmas season is around the corner, and many companies are gearing up to prepare Christmas presents for their employees. Before diving into the festive spirit, it’s crucial for a company to pay attention to certain aspects in advance to avoid potential tax issues. This text will delve into the tax benefits associated with Christmas gifts for employees in both Germany and China. Additionally, it will highlight the ‘traps’ that companies should be wary of to ensure a smooth and compliant process.

The Case in Germany

In Germany, the so-called “Sachzuwendungsfreigrenze” (§ 8 Abs. 2 Satz 11 EStG), allows tax-free gifts valued under 50€ per employee. However, a careful approach is crucial, as cumulative gifts in the same month should not surpass the 50€ threshold. Company-held Christmas parties offer a higher gift price limit of 60€, with the total expense capped at 110€ per person.

Other considerations related to the “Sachzuwendungsfreigrenze” include:

• The 50€ should be classified as “extra welfare”.
• The gift cannot be monetary. If it is a coupon, it must adhere to additional requirements outlined in 2 Abs. 1 Nr. 10 ZAG.
• Recording this expenditure is obligatory.

Gifting “Kleine Geschenke” (small gifts) to the employees is also possible. These are categorized as an operational expense (Betriebsausgaben). However, the price limitation decreases to 35€ per person. If the present bears the company’s logo, the expense may be considered part of the “marketing and promotion” budget. While there’s no legal price restriction, companies opting for lavish gifts can address tax implications by choosing to pay a 35% tax on the gift amount. It is important to note that providing gifts is voluntary, and the article explores the nuances of navigating the tax implications for both employers and employees.

The Case in China

Unlike Germany, there is no fixed price or seasonal limitation on “welfare” for employees in China. Companies in China have the flexibility to provide “benefits” to their employees at any time. However, if a company is not careful, they may end up paying unnecessary tax fees.

Whether in cash or material form, any “welfare” (Fuli) given to an individual employee is subject to individual income tax (IIT). There is one exception. When the benefits are a “collective welfare”, meaning they are enjoyed collectively, indivisibly, and non-cash, they won’t be subject to IIT. For instance, if a company prepares mooncakes for its employees during the Mid-Autumn Festival and distributes them individually in boxes, IIT will be applicable. On the other hand, if the mooncakes are unpacked and placed in the company’s cafeteria for shared consumption, no IIT is involved. No VAT will be charged in this scenario as it is considered consumption rather than a transaction. It’s crucial to note that the “employee welfare expense” should not exceed 14% of the total wages and salaries; exceeding this limit may result in an increase in the corporate taxable income (CTI) amount.

Deductions are allowed for employee welfare expenses incurred by an enterprise up to 14% of the total amount of wages and salaries.

by Article 40 of the Regulations on the Implementation of the Enterprise Income Tax Law of the P. R. China

If you are not sure which gifts from your specific company count as which expense, contact a professional to make sure that you are compliant with everything.

The situation described above pertains to a company purchasing gifts from external sources. However, if the present is self-produced or commissioned goods by the company, they are a “deemed sale”. Even if they are intended for collective welfare. Hence, they are subject to VAT. Nonetheless, the input VAT can be deducted, so worth a consideration.

We are happy to support you about any tax, accounting or legal questions you may have. Our team from Ecovis Heidelberg and Ecovis Shanghai stand by your side in both countries. Contact us!