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Guideline on the tax regime for reimbursement of home office expenses

On 6 May 2022, the Slovak Financial Directorate issued a methodological standpoint (MS) governing taxation of employees’ income resulting from the use of privately-owned equipment and the tax deductibility of related costs for employers. The MS provides essential guidance for determining the tax regime of reimbursements related to expenses incurred by employees while working from a home office.

Situation

Working from home, the expansion of which was largely due to restrictions related to COVID-19, raised questions concerning the tax regime of expenses that employees incurred during home office working. In most cases these were related to electricity, water, heating and telecommunications services, plus asset depreciation.

In this respect, there was uncertainty over which expenses could be considered directly related to the performance of work from home and the method of calculating them.

Detailed discussion

The MS specifies rules and assumptions, which if met, should mean that reimbursement of employees’ expenses are not subject to income tax or social and health insurance contributions. At the same time, reimbursement would be considered a tax-deductible cost for the employer, thus achieving an advantageous tax regime.

For application of such an advantageous tax regime, it is important to determine whether the reimbursement qualifies as so-called claimable compensation, which has been agreed in a collective bargaining agreement or employment contract. Furthermore, claimable compensation must be based on provably increased costs for the employee (which may have a negative impact on existing lump-sum expenses incurred by employees regardless of home office use).

It follows from the above that these expenses should be higher than those otherwise incurred by the employee. In addition, expenses should be provably incurred and related to use of employees’ own equipment, required to perform work from home. An internal employer’s guideline should provide the scope of items that are considered employees’ own equipment. According to the MS, special rules apply in relation to the definition of employees’ accommodation as own equipment.

Notwithstanding the conditions above, the amount of employee compensation should additionally be substantiated through calculation of actual expenses, in order to achieve a tax advantageous regime.

The MS assumes that employees will submit documents required to assist their employer’s calculations, proving that expenses were incurred in connection with use of their own equipment, required for the performance of work. Employers should also consider other factors, for example, the estimated duration of equipment use. The MS provides examples of how to demonstrate increased expenses related to employees’ use of their own equipment when working from a home office.

Additionally, the MS recognizes situations in which employees are entitled to obtain tax advantageous payments reimbursing depreciation of their own equipment used during home office working.

Next steps

In connection with the publication of the MS and clear establishment of conditions for tax advantageous reimbursement by the Financial Directorate, we recommend that employers review their internal guidelines if they already compensate employees for increased costs of working from home. Moreover, employers should ensure that employment contracts and collective bargaining agreements comply with the MS.

If you have any questions or would like to obtain more information regarding this topic, please contact the author of the article or your usual contacts within EY.