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Tax and Christmas presents - Do you know the rules?

Christmas is fast approaching, and that means gifts and Christmas parties. Every year around this time, however, we find that a lot of companies are unsure about Danish VAT and tax rules in connection with the joys of Christmas.

What are the rules for employee Christmas gifts? Are Christmas gifts for employee’s tax deductible? What about gifts for customers? What rules apply to the Christmas party (when once again relevant), and does it make a difference if spouses are invited? This article will give you a quick overview of the rules.

Rules for Christmas gifts

As an employer, you have the right to deduct Christmas gifts for staff. Remember that if the gifts’ market value exceeds DKK 1,300 (2023), the gifts are taxable for staff (basic allowance per year, and even if the total amount of gifts during the year exceeds the basic allowance, Christmas gifts worth a maximum of DKK 900 are not taxable). However, the company can still deduct the expense as staff costs. As an employer, you must remember to report the value of the gift to The Danish Customs and Tax Administration.

If you decide to give your employees gift cards or cash for this year’s Christmas/New Year’s gifts, these will be taxable as they are considered cash pay. If the gift cards are issued for specific products, the gift card can be tax-free.

There will be no VAT deduction for staff gifts, as they are considered gifts.

Do you give customers gifts too?

If you also choose to let your customers feel the holiday cheer and pamper them with gifts, the rules depend on the nature of the gifts. Promotional gifts are eligible for a full deduction against both tax and VAT. If, on the other hand, the gift is in the form of representation, no VAT can be deducted, while for tax purposes only 25% of the total expense incl. VAT may be deducted.

Whether the gift is considered promotional, or representation is determined partly on the basis of the gift’s cost price and partly on its nature. If the Christmas gift cannot be consumed and costs no more than DKK 100 excl. VAT, it will be considered promotional – provided that the gifts feature a logo and/or company name and are produced in larger quantities for promotional purposes. This can include pens, calendars and the like.

If you choose to give your customers gifts such as wine, beer, spirits, chocolate etc., the gift will not be considered a promotional gift for VAT and tax purposes, unless the gift is given to all your customers or to an indefinite number of customers or potential customers. This also applies even if the limit of DKK 100 excl. VAT has not been exceeded, and the Christmas gift bears a company name and/or logo.

So we gather for the Christmas party once again

When you celebrate the next Christmas party with your employees, as a rule, the company can deduct all related expenses for tax purposes. This applies to everything from hiring the venue to food and drink, entertainment and transport. This also applies if spouses traditionally participate too.

Whether it is VAT deductible depends on which rooms you choose to hold the Christmas party in. For example, if the Christmas lunch is held in the canteen, the company cannot deduct VAT in connection with the expenses. However, there is a full VAT deduction for renting e.g., chairs and tables, but none for catering. 

If your party is held in town, e.g., at a restaurant, the company may claim a deduction corresponding to 25% of the VAT for the total price per head.