Tax and Christmas presents - Do you know the rules?

November has (almost) arrived, and as always, Christmas has already been underway in grocery stores for a while now. This also means that many employers are starting to think about what their employees should receive as this year’s company Christmas gift. Once that’s decided, the questions start coming: what are the VAT and tax rules regarding Christmas gifts for employees? Can employee Christmas gifts be deducted? And what about gifts for customers? 

In this blog post, we’ll answer the most common questions. 

Rules for Christmas Gifts 

As an employer, you are entitled to deduct the cost of Christmas gifts for your staff. Keep in mind that if the market value of the gifts exceeds DKK 1,300 (2024), the gifts become taxable for the employees. This is based on the annual tax-free allowance, and even if the total value of gifts during the year surpasses the allowance, Christmas gifts worth up to DKK 900 remain tax-free. However, the company can still deduct the expense as staff costs. As an employer, you must also remember to report the value of the gift to the Danish Customs and Tax Administration. 

If you choose to give your employees gift cards or cash as Christmas or New Year’s gifts, these will be taxable, as they are considered cash payments. However, if the gift cards are issued for specific products, they may be tax-free. 

Please note that VAT cannot be deducted on staff gifts, as they are considered gifts. 

Reporting 

Employees must report the amount on their annual tax return if the total value of gifts from the employer exceeds DKK 1,300 in 2024. The amount should be entered in box 20. 

Employers must report the full amount if it exceeds DKK 1,300 and can deduct the entire expense as an operating cost (gifts under DKK 1,300 can also be deducted as operating expenses). 

There is no VAT deduction for gifts to employees, as they are classified as gifts. 

A common pitfall: Gift cards and cash 

If you choose to give your employees gift cards or cash as this year's Christmas gift, the gifts are taxable, as they are considered equivalent to cash salary. 

However, if the gift cards are issued for specific products, they may be tax-free. 

Do you give customers gifts too? 

If you decide to spread the holiday cheer to your customers and treat them with gifts, the rules vary depending on the type of gift. Promotional gifts are fully deductible for both tax and VAT purposes. However, if the gift is considered a representation expense, VAT is not deductible, and only 25% of the total cost, including VAT, can be deducted for tax purposes. 

The classification of the gift as either promotional or representation depends partly on its cost price and partly on its nature. If the Christmas gift is non-consumable and costs no more than DKK 100 excluding VAT, it will be considered a promotional gift—provided that the items carry a logo and/or company name and are produced in large quantities for promotional purposes. Examples include pens, calendars, and similar items. 

However, if you choose to give your customers gifts such as wine, beer, spirits, or chocolates, the gift will not be considered a promotional item for VAT and tax purposes unless it is given to all your customers or to an undefined number of customers or potential customers. This applies even if the DKK 100 limit (excluding VAT) has not been exceeded and the Christmas gift bears the company name and/or logo. 

So, We Gather for the Christmas Party Once Again 

When you host your next Christmas party for employees, the company can generally deduct all related expenses for tax purposes. This includes everything from venue hire to food and drink, entertainment, and transport. The same applies if spouses are traditionally invited. 

Whether a VAT deduction is available depends on the location of the party. If the event is held on the company's premises, such as in the canteen, VAT cannot be deducted on the associated expenses. However, a full VAT deduction is allowed for the rental of items like chairs and tables, though no deduction is available for catering services. 

If the party is held off-site, for example at a restaurant, the company may claim a deduction of 25% of the VAT on the total cost per person.