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Company Christmas Party: What to Keep in Mind
Christmas parties are a way for business owners to thank their employees and foster team loyalty—whether the company employs 5 or 50 people. A company Christmas party is more than just a pleasant occasion; it’s a tool to cultivate corporate culture, boost employee motivation, and celebrate the team’s success. With well-planned events, your business can reap lasting benefits from the positive effects!
However, some (tax-related) regulations must be considered during planning and preparation. Here are some tips and pointers.
Is Payroll Tax Payable on a Christmas Party?
Christmas parties are considered company events and are generally tax-free as they are in the employer’s legitimate business interest.
- Important: Maximum Limit of €110 Gross!
If the maximum limit of €110 gross per employee is exceeded, the excess amount must be taxed either individually or at a flat rate of 25%. This amount includes spouses or children of employees if they attend the event.
Exceeding the limit also applies if the event is planned for more people than actually attend, causing the per-attendee cost to surpass €110.
All costs directly related to the event must be included in the calculation (e.g., food and drinks, transportation, accommodation, entry tickets, small gifts, etc.).
Note:
If your company employs mini-jobbers, adhering to the €110 limit is particularly important. Exceeding the limit may result in additional costs, as the tax office could add the excess costs to their wages. If this raises the mini-jobbers' wages above €538, they will no longer qualify as mini-jobbers and will instead be classified as regular employees subject to social security contributions (in the “transition zone”). This classification will apply at least from the month the Christmas party took place. However, mini-jobbers can be re-registered as such starting the following January.
Amounts exceeding €110 can be exempt from social security obligations under § 1 of the Social Security Remuneration Ordinance (SvEV) if they are taxed at a flat rate of 25% under § 40 of the Income Tax Act (EStG) and the total company contributions do not exceed €1,000 in a calendar year.
- No More Than 2 Events Per Year!
To qualify for tax exemptions, no more than two company events may be held per year. From the third event onward, the contributions—regardless of their amount—are considered taxable wages.
Tip:
For accounting and tax purposes, the two most expensive events in the year can be treated as company events, and the least expensive as taxable wages, as the chronological order of events is irrelevant.
VAT Implications
No taxable transactions occur if only two company events are held annually, and they remain within a customary framework.
This means: If the cost per employee per event does not exceed €110, including VAT, the event is considered a business-related benefit, and the company is entitled to deduct input tax.
However, if the cost per employee exceeds €110 per event (including VAT), the benefit is considered primarily personal and not business-related. In such cases, the company cannot claim an input tax deduction.
If only some employees’ costs exceed the €110 limit, the input tax deduction is only disallowed for expenses related to those employees. In other words, the €110 limit applies to each individual, and an average cost per person is not allowed. For instance, one employee may incur costs of only €60, while another who attends with a spouse may generate costs of €120. The average cost of €90 cannot be applied in such cases.
Important:
As with all tax-related matters, it’s best to consult your tax advisor for clarity and compliance!
What About Accident Insurance at a Christmas Party?
What happens if an accident occurs? Are participants insured during the event?
Employees attending a company Christmas party are covered by statutory accident insurance. This includes both the event itself and travel to and from it.
For insurance coverage to apply, the event must serve a business purpose. Specifically:
- The Christmas party must be organized by or in agreement with the company. This applies if organizers act on behalf of company management rather than on their own initiative.
- The organizers should also participate in the event.
- The event must be open to all employees of the company or the respective unit, including mini-jobbers.
Two Final Tips
If you’re considering a virtual Christmas party - perhaps because your team is spread across the country or works remotely - our GründerNews from December 6, 2021, offers ideas (originally inspired by the pandemic).
For something different than the usual “holiday hour,” check out our article on "Why a Company Outing Benefits the Business" for inspiration. You can easily adapt those ideas to fit the holiday spirit!
