Tax on gifts is a mysterious concept that most organizations—let alone individuals—don't know much about. On personal terms, most gifts aren't considered taxable unless they involve large sums of money or assets that have a good value. But in the corporate hemisphere, the gift tax is a ubiquitous headache for accountants, HR, and CFOs. In the modern age of people engagement through extrinsic motivation, monetary and non-monetary gifts come handy in keeping employees charged up. But the bonus of these gifts is not just on the employer for the sake of gift tax, but it comes on the receiver's shoulders ass/he must figure it out too.
The global tax system is divided into sovereign boundaries. Each country has its own Internal Revenue Services(IRS) that decide its tax laws, and the tax system always provides clean ways for entities to make the most tax exemptions. Hence, every country has its tax benefits to offer when it comes to gifts.
Let's go through the tax laws of these 15 countries to figure out exemptions on employee gifting:
- United States
- United Kingdom
- New Zealand
Tax Exemption Limit: 50,000 INR Per Capita P/A
The Income Tax Department of India clearly states that any gift received by an individual from the employer, business partner, friend, kin, or anyone else is exempt from tax up to 50,000 INR for every financial year. If the gift value exceeds 50,000 INR, it'll be added to the employer's salary income and taxed accordingly on the total cost of the gift. For detailed information, check out the Official Government of India Income Tax Department Website.
2. The United States
Tax Exemption Limit: $25 Per Capita P/A
As per the Internal Revenue Service (IRS) of the USA, "You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year". Since most gifts given to employees are cash-based or cash substitutes (gift vouchers and branded currency), the IRS labels them as fringe benefits. The fringe benefits, in addition to the usual compensation, are taxable.
Non-taxable fringe benefits are necessary amenities given by the employer to employees for their healthy being. As per the Global Payroll Association, insurance, accident, and health benefits, and even dependent care assistance are some of the few non-taxable fringe benefits. These are excluded from some types of taxes, if not all. As a branded currency and gift vouchers are taxable, their value must be recorded by the employers to pay the proper taxes. Gift card taxation happens the same way as all supplemental wages, subject to federal income, Social Security, and Medicare taxes withholding Federal Income Tax on Gift Cards. Since branded currencies and cash aren't de minimis fringe benefits, one would have to withhold the Federal Income (22%) and Social Security/Medicare(7.65%) from the given amount along with local and state taxes. The employer can either:
Try the percentage method and withhold flat rate of Federal Income and Social Security (29.65%) from the employee's gift; or
Gross up the value and add the above 29.5% to the total gift value. Here's an example from Patriot explaining the grossing up method. Either way, gifts would be taxable as long as they are cash or cash equivalents. For more information, check out the official IRS website of the US Government.
3. The United Kingdom
The United Kingdom has no tax exemptions on gifts except trivial benefits. According to the IRS of the United Kingdom, there's no need to pay tax on an employee's benefits if all of the following benefits apply:
· it costs the employer £50 or less to provide
· it isn't cash or a cash voucher
· it isn't a reward for employees' work or performance
· it isn't in terms of their contract
Note: The only way the tax on gifts is exempted is to make it a trivial benefit if ALL OF THE ABOVE conditions apply. Please go through the Tax on Trivial Benefits Guide on the Official GOV.UK website. As for vouchers exchangeable for cash, they are taxable in employee's hands and add up to their other earnings. However, for non-cash coupons, certain exemptions (the list you can check out here) are disregarded while calculating an employee's earnings. Apart from these exemptions, it's all taxable income.
Both the above vouchers count as earnings, so the employer has to:
add their value to the employee's other earnings
deduct and pay PAYE tax* and Class 1 National Insurance through payroll
*PAYE tax is exempted in case of non-cash vouchers
Tax Exemption Limit: €500 Per Capita P/A
In the Republic of Ireland, a Small Benefit Exemption (SBE) can be provided to their employees for a handsome sum of €500 per person. Also, note that this exemption amount is only deemed tax-free if they're gifted in terms of vouchers or benefits, which can be used to purchase goods and services.
The vouchers, if redeemed for cash, are taxable. The employer can provide long service awards to employees who are not taxable at all. To mark long service, the employer can give €50 for every year of service and save on tax. Employees don't have to pay PAYE, PRSI, and USC on the value of the award—as long as it is in-kind (non-cash benefit). Here's a table signifying long service rewards and their tax-free nature. For more information, refer to the Revenue Commissioners, Ireland.
The National Revenue Administration of Poland has the ZFŚS, i.e., Company Social Benefits Fund. This fund houses a separate bank account for every worker and has an employee's and employer's contribution. The ZFŚS is allocated to leisure, healthcare, entertainment, sports, recreation, along other expenses. Any purchase of gifts that ZFŚS finance is tax-free. Meanwhile, the purchase of gifts partly from the ZFŚS and partly from current assets won't make it tax-free—no matter how much the amount is. However, if the employee funds the benefit partially along with the ZFŚS taking care of the other part, an exemption shall be applied for them. For detailed information, we advise you to connect with the designated tax office in Poland.
Tax Exemption Limit: €169 Per Capita P/A
The Ministry of Economics and Finance is the supreme tax collector in France. According to its instructions, the gift voucher value for every employee shouldn't exceed more than €169 per employee per year. The amount exempts from the tax irrespective of the occasion.
There are certain exemptions when this threshold is jumped over:
The gifts are given for an event that marks a significant milestone, e.g., wedding, birth, retirement, Mother's Day, Father's Day, etc. If the gift voucher given for the event (s)mentioned above, one can not redeem it for food or fuel (the voucher's value should still be €169 per event and calendar year)
Cultural events that promote the country's colors and traditions. For a detailed check, have a look at the France Tax Authority's website.
Tax Exemption Limit: €299 Per Gift P/A
The Agencia Tributaria of Spain states that the employer can spend up to €299 per gift on an employee every year. There are certain benefits besides it, like meal vouchers worth up to €11 per day, nursery vouchers, public transport vouchers within certain limits, medical insurance premiums up to a maximum annual amount of EUR500 per family member covered, etc. exempted from tax.
Tax Exemption Limit: NOK1,000 Per Capita P/A
The Norwegian Kroner (NOK) is the currency that does rounds in Norway, and as a general rule, gifts up to NOK1,000 every year on special occasions are tax exempted. All gifts to employees over this amount and without special events and taxable. In the case of long service awards, gifts up to NOK8,000 in value can be given for long service in the business. The first reward for long service opens up after 20 years of service and every ten years.
Gifts up to NOK4,000 can be given when the recipient gets married, reaches the age of fifty (and ten years after that), and retires. The exact amount of reward unlocks when the business comes to a jubilee landmark, i.e., 25 years, 50 years, and soon. It's a condition that to get tax exemptions, the gifts must be non-cash. Gift vouchers are acceptable. For more information, refer to the Norwegian Tax Authority's website.
In a general sense, there's no separate clause for the Dutch corporations signifying the gift tax rules for employees, so we will focus on what it says altogether. The tax exemption to others, i.e., anybody unrelated, can be claimed for donations up to €2,207 per annum. The Dutch tax authority identifies tax slabs on gifts according to the value of contributions. For donations ranging between €0 to €126,723, the tax rate is 30% on the gift value. Meanwhile, for assistance with a deal above €126.723, the tax rate is 40% on the gift value.
Tax Exemption Limit: DKK1,100 Per Capita P/A
Skattestyrelsen, the Danish tax authority, signifies that gift vouchers and other non-cash gifts aren't taxable up to DKK1,100 if they are unrelated to the employees' jobs. However, gifts going beyond this limit are taxable to the given slabs. Benefits related to employees' jobs have a more relaxed threshold, and they are tax-exempt until their value exceeds DKK5,600. These include a company car, telephone bill, food, accommodation, etc. For more information, check out the Skattestyrelsen website.
Tax Exemption Limit: $44 Per Capita Per Month
The Bundeszentralamt Für Steuern, aka the Federal Central Tax Office of Germany, indicates that an employee's additional pay for work is considered a non-cash benefit. Section 8 (para two; clause 11) of the German Income Tax Act (EStG) states that tax and social security contributions are exempted up to €44-a-month.
The given exemption limit is not to be collected/transferred to other employees as their expansion limit expires at the end of each month—which resets and starts a new cycle. And if the employee uses these benefits, it is called a gift. Section 19.6 (para one) of the German Income Tax Law (LStR) excludes tax and social security contributions up to€60 for special personal occasions.
Tax Exemption Limit: S$200 Per Gift P/A
Under its tax laws, the IRS of Singapore defines a gift as a 'substantial' one in case its value exceeds $200 per gift for every year. Do note that a person can receive multiple gifts under the amount of $200 without being taxed. If the nature of benefit or gift is grief, i.e., on the occasion of loss, it's exempted from any tax. Such gifts are never taxable, even if their value exceeds S$200. Do note that the above rules apply to cash and non-cash gifts.
For more information, visit the Official Website of the Singaporean IRS.
Tax Exemption Limit: $300 Per Capita P/A
The Government's Australian Taxation Office (ATO) signifies in their fringe benefits tax guide that all the non-entertainment gifts given to the employees are exempted from the fringe benefits tax—the condition being that its total cost is less than $300 (plus GST) per person.
As branded currency such as gift vouchers are a part of the non-entertainment category, the employer can claim a tax deduction and GST credit. The same exemption on minor benefits applies to gifts separately provided to the staff member's spouse, and yes—it comes with a favorable tax outcome. Entertainment expenditure incurred on non-employees like customers and clients is neither subject to the fringe benefits tax nor income tax deduction or GST credit.
14. New Zealand
Tax Exemption Limit: $300 Per Capita Per Quarter
The Inland Revenue department of the Government of NZ signifies that If gifts and prizes are provided, or goods and services are subsidized or discounted, then fringe benefits tax is not payable to the limit given above. If the monetary value of gifts and subsidies goes over the $300 mark, it has to be charged under the Fringe Benefits Tax. As for the employers, the maximum exemption on gifts can be claimed up to $22,500 per annum. Some items exempted from tax for employers are:
Lease paid on car parking within/apart from the premises
Frequent flyer schemes tied to the organization
For a detailed view on the topic, visit the Official Website of the Inland Revenue Department, New Zealand.
There's no tax exemption in China for gifts given by the employer to employees. It's added to the employee's income for tax purposes, and the tax is levied accordingly. However, the exchange of gifts between individuals doesn't call for a gift tax as there's no specific gift tax law in the People's Republic of China.
AUTHOR'S NOTE: This blog is for informative purposes only and should not be construed as professional, financial, or legal advice. The information does not constitute or form part of and should not be interpreted as a direct indication from the designated countries' tax authorities.
For updated information, please visit the official tax website of your country's government and feel free to correct us if we make an error. Cheers!