(Update 2022-11-21: Updated some phrasings and numbers)
‘Tis that time of year again, and we wonder what companies in Sweden can pay for in terms of Christmas gifts and Christmas parties.
See the end of the post for a brief description of the concepts “tax-deductible”, “employee” etc.
Christmas gifts for employees
(Update 2021-06-07: From 2021 the tax-free amount has been increased from 450 kr to 500 kr incl VAT)
These rules have been around for quite some time. An employer can give each employee a tax-free Christmas gift with a value of up to 500 kr (from 2021, earlier 450 kr) including VAT (but excluding freight costs). The value is the amount it would have cost the employee to buy the item, not what the employer actually paid for it (after e.g. volume discounts, wholesale prices etc).
So what if the item is on sale? I haven’t been able to find anything explicitly about that, but personally I think that the employee could have then bought the item for the same price, so it should be OK if the sale price is no more than 500 kr.
The gift cannot consist of money, be exchangable for money or consist of a gift to charity in the name of the employee. Apart from this there are no limitations regarding the type of gift allowed. Gift certificates are OK as long as you can’t exchange them for money.
A tax-free Christmas gift needs to be given to all employees (or at least a large group of employees) in order to be tax-free. If the gift is worth more than 450 kr, the entire amount will be taxed.
Note that in 2020 and 2021 the Christmas gift could be combined with the “Corona gift” for a total value of 1450 kr (2500 kr for 2021), see below.
These rules apply to all employees regardless of legal entity (aktiebolag, enskilda firmor or handelsbolag), but unfortunately not for the owners themselves in EFs and HBs.
Skatteverket’s information about gifts (in Swedish)
Tax-free gifts in 2020 due to Corona
In 2020 employers can give employees an extra tax-free gift for a value of up to 1000 kr including VAT (2000 kr in 2021). We use the same definition of “value” as for Christmas gifts above.
The gift may not be compensation for work, and as with the tax-free Christmas gift it cannot consist of money etc. And it can be combined with the Christmas gift for a total value of 1450 kr (2020) or 2500 kr (2021) including VAT. But contrary to the Christmas gift, if the value of the gift is more than 1000 kr only the amount above 1000 kr is taxed. So does this mean you can give a Christmas gift worth 1600 kr and only pay taxes on 150 kr? I haven’t read anything specifically about that, but that’s the only conclusion we’ve come to.
As with the tax-free Christmas gift, this rule applies to all employees regardless of legal entity, but not for the owners themselves in EFs and HBs.
Skatteverket’s information about gifts (in Swedish)
Christmas gifts to clients and other externals
There is unfortunately no similar rule for Christmas gifts to clients and other externals. As always, you can give representation gifts to clients and partners, to “start or maintain a business relation” (a classic phrasing for representation). You can then claim a cost of up to 300 kr per person excluding VAT, and can claim VAT on that amount, while the rest is a not tax-deductible cost. Likewise, “giveaways” (simple merchandise with the company logo etc) are tax-deductible up to 300 kr per person excluding VAT.
These are the generic rules for representation gifts and giveaways to clients. However, if a gift is given just because it’s Christmas, i.e. not as part of “normal representation”, it’s not tax-deductible and you can’t claim VAT.
And yeah, I don’t think “representation” is the accurate English translation, maybe “entertainment costs” is better. But since we’re dealing with a Swedish concept, you’ll have to bear with me. 🙂 “Meal representation” is basically “wining and dining” with clients.
Christmas staff parties
A Christmas staff party is seen as a staff party just like any other, which in its turn sorts under “internal representation”. And this is the deal:
- Tax-free for employees
- VAT can be claimed on costs up to certain amounts
- Meal costs are not tax-deductible
- “Other costs” (venue, music etc) are tax-deductible up to 180 kr per person
- Taxi and other travel costs to and from the event are tax-deductible
A common rule of thumb is that two staff parties per year are tax-deductible. Note that this regards the right to claim VAT and costs for venue, music, travel etc. But it’s definitely possible to have more than two staff parties per year, you just don’t get to claim as much of the costs and VAT for party no 3 and beyond.
You can bring family members to staff parties on the same conditions as for staff members.
Skatteverket’s information about VAT and claiming costs for representation (in Swedish)
Christmas parties with clients
Christmas parties with clients sort under “external representation”, so we use the same set of rules as normal representation – they should have a connection to the business, coincide with business negotiations, to celebrate a business deal etc. The rules for claiming costs are the same as for internal representation above.
Giving to charity
It’s probably more common to give to charity in Christmas time than during the rest of the year. Companies can absolutely give to charity, but the cost is non-deductible in the company (see below). Also watch out, if a company owner gives to charities that are in fact in his personal interest rather than the company’s, one may be taxed for this. And if an employer gives to charity in the name of its employees, it’s not a tax-free gift for the employees. If an employer gives to charity in its own name instead of giving Christmas gifts, this is ok.
Read more at Giving to charity from your company.
Tax-deductible and not tax-deductible
We often use terminology like “tax-deductible”, “not tax-deductible” and “claim VAT”, but what do they actually mean?
Simply put: a tax-deductible cost reduces the company’s taxable profit and thereby reduces income tax.
An aktiebolag has revenue of 1000 kr, tax-deductible costs of 100 kr and not tax-deductible costs of 50 kr, for a profit of 850 kr. But the taxable profit is 900 kr (1000 – 100 kr) and you pay corporate tax on 900 kr. You can say that not tax-deductible costs are paid with the company’s after-tax money.
The same goes for enskilda firmor and handelsbolag, but instead of corporate tax you pay social fees and income tax. This means that for EFs/HBs, a not tax-deductible cost is the same as paying with your own private money.
To “claim VAT” means that companies liable for VAT are paid back the VAT on costs in their VAT return. This is sometimes called (somewhat confusingly) that the VAT is “deductible”. If you for some reason cannot claim the VAT – e.g. if you’re not liable for VAT, or representation costs above certain limits – VAT is instead booked as costs. If the rest of the cost is tax-deductible, so is the unclaimed VAT, and vice versa.
We did a deeper dive on this topic over at Avdragsgillt och ej avdragsgillt (in English).
Employees, board members, consultants
As employees are normally considered:
- Common employees (full time and part time)
- Employed owners (not in EF/HB)
- Board members and deputy board members
For consultants we can assume this is only for consultants with longer assignments within the company, not when you buy 10 hours of web design. For any unclear cases one simply has to make a judgement call.
Skatteverket’s position on staff benefits to consultants