Gift in the accounting and tax sense denotes a gratuitous transfer by a company to third parties (business partners, customers, employees or private individuals). Crucial are the purpose of the transfer, the documentation and the tax classification under German tax law (e.g. EStG, UStG, ErbStG). In accounting, proper allocation, proof and correct posting for deductibility as a business expense as well as possible VAT and payroll tax consequences are decisive.
Definition and differentiation
A gift exists when the company transfers something without direct consideration. Important distinctions are:
- Promotional gifts: Transfers with an advertising objective to customers or prospects.
- Tokens of appreciation: Small, occasional gifts to business partners or employees, often of negligible value.
- Benefits in kind to employees: May be subject to payroll tax and social security contributions if they are regarded as remuneration or a regular benefit.
- Private gifts: Lie outside the business purpose and may, if applicable, be subject to gift tax (ErbStG).
Tax treatment
The tax treatment depends on the recipient and the purpose. In principle: only gifts incurred for business purposes are deductible as business expenses (EStG). In addition, VAT law (UStG) and payroll tax law are relevant.
Gifts to business partners and customers
Gifts to business associates are deductible as business expenses if a business connection is documented. It is important to evidence the recipient, the occasion and the value. Under VAT law: the gratuitous supply of goods can, in certain cases, constitute a deemed supply subject to VAT; input VAT on the purchase is only deductible insofar as the gift serves the entrepreneurial purpose. If uncertain, clarify the specific VAT treatment with your tax advisor.
Gifts to employees
Gifts to employees are often subject to payroll tax because they are considered remuneration. However, there are payroll tax exceptions and allowances for occasional tokens of appreciation; these conditions must be strictly checked and documented. Caution is also required under social security law.
Private gifts
Purely private gifts from the entrepreneur to third parties are not business-related and therefore not deductible as business expenses. In addition, larger transfers may be subject to gift tax (ErbStG).
Accounting recording and documentation
Correct accounting treatment requires:
- Receipt and invoice for the purchase (if purchased goods are gifted).
- Proof of recipient (name, role/company, and address if applicable).
- Purpose and occasion (e.g. client meeting, anniversary, trade fair promotion).
- Date and value of the transfer.
Typical journal entries (simplified):
- Purchase of promotional items: Advertising expense (promotional gifts) to Bank/Creditor; simultaneously Input VAT to Creditor (if input VAT is deductible).
- Handing over the gift to a customer: no additional posting if already recorded at purchase as advertising expense; for internal reclassification: Advertising expense to Inventory/Goods received.
- Gift to employee (if subject to payroll tax): Expense account "Gifts/other benefits" to Bank; subsequent taxation through the payroll.
| Example | Amount |
|---|---|
| Purchase of promotional gifts (net) | 200.00 € |
| VAT 19% | 38.00 € |
| Total cost | 238.00 € |
In the case above, you book the net amount as advertising expense and may claim the input VAT, provided the gifts serve the business purpose and no VAT exclusion applies.
Practical examples and recommendations
Concrete cases as you may encounter in practice:
- Giveaways at trade fairs: Purchase: Advertising expense to Bank; keep a list of recipients; when distributing to end consumers, be aware of possible VAT consequences.
- Customer gift after contract conclusion: Document the occasion and recipient; record as a business expense; check whether input VAT deduction is possible.
- Christmas gifts to employees: Check whether payroll tax allowances apply or whether the benefit must be taxed via the payroll.
- Private transfer of high-value items: Not deductible as a business expense; observe possible declaration requirements and gift tax liabilities.
Recommendations for practice:
- Systematically document recipient, occasion and value.
- Separate marketing-related gifts from private transfers.
- Consider VAT and payroll tax issues early in the decision-making process.
- For higher values or doubtful cases, consult a tax advisor or payroll accountant.
In short: Gifts are relevant in many tax and accounting respects. Careful documentation, correct posting and knowledge of the applicable regulations (EStG, UStG, ErbStG as well as payroll tax rules) protect against disadvantages in tax audits and ensure clear, audit-proof books.