Gifts with Tax Benefits: Guide to Employer Gift Tax Laws: IN|US|UK|EUR|SG|AU|NZ|CHN

Syed Maaz

Tax on gifts is such a mysterious concept that most organizations—let alone individuals—don’t know much about it. On personal terms, most gifts aren’t considered to be 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 onus 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 is having its own Internal Revenue Services(IRS) who decide their tax laws, and the tax system always provides clean ways for entities to make the most tax exemptions. Hence, every country has its own 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:

1.      India

2.      United States

3.      United Kingdom

4.      Ireland

5.      Poland

6.      France

7.      Spain

8.      Norway

9.      Netherlands

10.  Denmark

11.  Germany

12.  Singapore

13.  Australia

14.  New Zealand

15.  China

Let’s begin!

India

Tax Exemption Limit: 50,000 INR Per Capita P/A

Income Tax department in India
Income Tax department in India

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 will be taxed accordingly on the full cost of the gift.

For detailed information, check out the Official Government of India Income Tax Department Website.

The United States

Tax Exemption Limit: $25 Per Capita P/A

Income Tax department in US
Income Tax department in US

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 substitutes of cash (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 well being. Insurance, accident and health benefits, and even dependent care assistance are some of the few non-taxable fringe benefits; as per the Global Payroll Association.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 right taxes. Gift card taxation happens the same way as all supplemental wages, which subjects to federal income, Social Security, and Medicare taxes.

With holding 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:

Tax Calculation
Tax Calculation

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.

The United Kingdom

Income Tax department in UK
Income Tax department in US

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 if ALL OF THE ABOVE conditions apply to make it a trivial benefit. 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 adds up to their other earnings.

For non-cash vouchers, however,there are certain exemptions (the list of which you can check out here) that 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

Ireland

Tax Exemption Limit: €500 Per Capita P/A

Income Tax department in Ireland
Income Tax department in Ireland

In the Republic of Ireland, a Small Benefit Exemption (SBE) can be provided by the employer to their employees fora handsome sum of €500 per person. Also, note that this amount of exemption is only deemed to be tax-free if they’re gifted in terms of vouchers or benefits—which can be used for the purchase of 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.

Poland

Income Tax department in Poland
Income Tax department in Poland

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 to it. The ZFŚS is allocated to leisure, healthcare, entertainment, sports,recreation along with 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 the intricate information, we advise you to connect with the designated tax office in Poland.

France

Tax Exemption Limit: €169 Per Capita P/A

Income Tax department in France
Income Tax department in France

The Ministry of Economy and Finance is the supreme tax collector in France, and 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:

When the gifts are given for an event that marks a significant milestone, e.g. wedding, birth, retirement, Mother’s Day, or 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 colours and traditions.

For a detailed check, have a look at the France Tax Authority’s website.

Spain

Tax Exemption Limit: €299 Per Gift P/A

Income Tax department in Spain
Income Tax department in France

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. that are exempted from tax.

Norway

Tax Exemption Limit: NOK1,000 Per Capita P/A

Income Tax department in Norway
Income Tax department in France

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 occasions and taxable.

In the case of long service rewards,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 after that in every 10 years.

Gifts up to NOK4,000 can be given in case when the recipient gets married, reaches the age of fifty (and ten years thereafter), and when the recipient retires. The same amount of reward unlocks when the business reaches 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.

Netherlands

Income Tax department in Netherlands
Income Tax department in Netherlands

In a general sense, there’s no separate clause for the Dutch corporations signifying the gift tax rules for employees,so we are going to 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 donations. For donations ranging between €0 to €126,723, the tax rate is 30% on the gift value. Meanwhile, for donations with a value that goes above €126.723, the tax rate is 40% on the gift value.

Denmark

Tax Exemption Limit: DKK1,100 Per Capita P/A

Income Tax department in Denmark
Income Tax department in Denmark

Skattestyrelsen, the Danish tax authority signifies that gift vouchers and other non-cash gifts aren’t taxable up to DKK1,100 in case 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.

Germany

Tax Exemption Limit: $44 Per Capita Per Month

Income Tax department in Germany
Income Tax Department in Germany

The Bundeszentralamt Für Steuern, aka the Federal Central Tax Office of Germany, indicates that the additional pay for work done by an employee is considered to be a non-cash benefit. As per Section 8 (para two; clause 11) of the German Income Tax Act (EStG), 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) exempt from tax and social security contributions up to€60 for special personal occasions.

Singapore

Tax Exemption Limit: S$200 Per Gift P/A

Income Tax department in Singapore
Income Tax department in Singapore

The IRS of Singapore, under its tax laws,defines a gift as ‘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 that of bereavement, i.e. on the occasion of loss, then 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.

Australia

Tax Exemption Limit: $300 Per Capita P/A

Income Tax department in Australia
Income Tax department in Australia

The Australian Taxation Office (ATO) of the Government signifies in their fringe benefits tax guide that all the non-entertainment gifts that are 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 for a tax deduction as well as 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 the non-employees like customers and clients, however, are neither subject to the fringe benefits tax, nor income tax deduction or GST credit.

New Zealand

Tax Exemption Limit: $300 Per Capita Per Quarter

Income Tax department in New Zealand
Income Tax department in New Zealand

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 go over the $300 mark, then 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:

Work apparel/uniform

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.

China

Income Tax department in China
Income Tax department in China

There’s no tax exemption in China for gifts given by the employer to employees. It’s simply added to the employee’s income for tax purposes, and the tax is levied accordingly. The exchange of gifts between individuals, however, doesn’t call for a gift tax as there’s no specific gift tax law in the People’s Republic of China.

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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 construed 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 made an error. Cheers!

 


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