Metodika ke zdaňování benefitů vydána

Methodology for taxation of benefits issued

The Tax Administration has given us a compelling read for Christmas in the form of the Methodological Information on the taxation of benefits provided by employers to employees from 1 January 2024 (from the perspective of the Income Tax Act - ITA). It is a comprehensive document covering a wide range of areas and practical situations.

Below we provide you with selected simplified insights:

• Further answers/opinions on issues that arise in practice are likely to be published in the future.
• Food
  • Business breakfasts, lunches, dinners with business partners - generally understood as performance of work and not subject to tax according to §6/7/e of the ITA (proportionality/normality must be respected). Deductibility - according to the methodology, this is a non-deductible cost under §25/1/t of the ITA.
  • Minor refreshments at the workplace (not reaching the intensity of a main meal) - generally not subject to tax under §6/7/e of the ITA (proportionality/normality must be respected). Deductibility - according to the methodology, this is a non-deductible cost under §25/1/t ITA.
  • A full main meal generally falls under the category of employer-provided meal allowance within the meaning of the exemption limit under section 6(9)(b) of the ITA (need for record keeping). Deductibility - tax deductible costs if they meet the conditions of §24/2/j/4 of the ITA, i.e. as employee rights arising from a collective agreement, an employer's internal regulation, or an employment or other contract.
• Sports equipment at the workplace - not subject to tax under §6/7/e of the ITA if:
  • in temporal connection with the performance of work;
  • used for recreational purposes;
  • located at the workplace;
  • it is proportional;
  • It is not a full-fledged alternative to a commercial sport/service.
  • Deductibility - according to the methodology, tax deductible costs under §24/1 or 24/2/ j/4 of the ITA.
• Non-monetary benefits according to §6/9/d of the Income Tax Act (e.g. health benefits, culture, sport)
  • The exemption limit for 2024 is CZK 21,983.50.
  • If provided by more than one employer, then limit applied by each employer separately.
  • Benefits for family members are also included in the limit.
  • Proof of record required.
  • Deductibility - the costs of those benefits that are exempt income for the employee will not be tax deductible under §25/1/h of the ITA, any "over-limit" portion of the benefit will be a tax deductible expense under §24/2/j/4 of the ITA if it concerns employee rights arising from a collective agreement, an employer's internal regulation, employment or other contract; this also generally applies to expenses incurred for social conditions or health care for a family member of the employee, if these are employee rights arising from a collective agreement, an employer's internal regulation, an employment or other contract.
• Events organised by the employer (§6/9/g ITA) - special exemption (not included in the limit under §6/9/d ITA) if
  • The organiser is the employer.
  • Limited circle of participants.
  • It is not a recreation/trip.
  • Proportionality and normality met (exotic destinations or regular events may be an issue).
  • Importance of documentation.
  • Deductibility - according to the methodology, not deductible under §25/1/h ITA or 25/1/t ITA for refreshments.
• Valuation of non-monetary income
  • General reference to valuation under the Valuation of Assets Act. The methodology indicates possible specific approaches:
  • Situations where an employer provides an employee with a non-monetary benefit generated by the employer's own activities that
    • provides in return for consideration to others, charging those third parties a price depending on the quantity of the purchase - if it is the case that a group of employees or other persons who would join together to acquire the supply in question to a similar extent would also obtain a lower price, it is acceptable to use that price charged to third parties - however, this price must be in accordance with normal commercial relations and not influenced by a specific relationship or intention (e.g. barter or below cost price);
    • does not provide to other parties - reference to TP of CUP and cost+ methods (under certain conditions possibility of simplification according to GFD Instruction D-10).
  • Situation of benefits procured by employer from third parties - employee's income generally derivable from cost incurred by employer (assuming price is not affected by specific relationship or circumstances - sponsorship, barter, etc.).
• Benefit cards - the moment of income recognition
  • In general, the specific legal setting needs to be assessed. Indications given:
    • For food stamp cards - generally upon credit.
    • Employer pays monthly lump sum for individual cardholders (e.g. Multisport) - generally monthly.
    • Employer "charges points" to the card and usage is not charged - points are fully at the employee's disposal (usage is not charged to the employer, employer has no further control over usage by individual employees and nothing is refunded) - generally by crediting points.
    • Employer "charges points" to card and usage is accounted for - provider accounts for actual usage by employee and so employer has information regarding when and how much the employee has drawn) - generally only when the employee actually draws down.
  • The methodology includes a warning against crediting an excessive amount of funds/points at the end of 2023.

The above summary is not complete and does not constitute tax advice. We will be happy to assist you with any assessment of your particular situation.

If you have any questions, please contact the authors of this article or the EY advisory team you are working with.

Authors:

Lucie Říhová

Ondřej Polívka

Michaela Felcmanová

Adam Linek