More and more employers in the "race for talent" are creatively trying to offer an attractive and distinctive benefits package. In this contribution, we look at a common phenomenon: employee discount schemes on company products. For employers, this is often a relatively inexpensive way to give employees a little extra. But in practice, this often falls outside the rules of the working expenses scheme.
Targeted exemption in the WKR
Discounts on products from your own company are subject to a targeted exemption within the work-related costs scheme. Targeted exemptions are not at the expense of the free room, provided the conditions of the targeted exemption are met and the allowance or dispensation is designated as a final taxable benefit in good time.
Conditions
A targeted exemption applies to employee discounts if the following conditions are met:
- The products are not industry specific;
- The discount is up to 20% of the fair value of these products (cf. consumer price including VAT);
- The total discount does not exceed €500 per employee per calendar year.
Within these limits, it is possible, for example, for an employee to purchase a product through their employer's web shop using a discount code that is only available to employees, or for employees of a clothing store to receive a discount on the clothing they purchase from their employer, without this discount resulting in the imposition of payroll tax. Another example of a discount scheme is the situation where employees cede gross wages (e.g., overtime) through a so-called cafeteria plan and can instead purchase company-owned products at a discount. Also in these cases, apart from the requirements for being able to apply a cafeteria scheme, the standards described above should be tested.
When applying this regulation, it is first of all important that the employer keeps records showing which employee and when he or she received a discount. After all, the employer must check during the calendar year whether the colors are colored within the lines of the targeted exemption.
Equally important is how this discount is calculated. Using a lower price, such as the purchase value, is not allowed. For example, if the employer is a wholesaler that supplies only to other companies (so-called B2B transactions) and not to consumers, then the amount the employer invoices to its customers is not necessarily the fair market value for consumers. In that case, the lowest price that can be found for the product in the normal consumer market must be considered.
For the sake of completeness, it should be noted that if an employee discount plan does not meet the standards mentioned above, the excess portion of the discount can be designated as final taxable income charged to the free space.
VAT implications (BUA)
For sales tax purposes, when goods are provided to employees at a lower price, the question arises whether a VAT deduction limitation may apply under the Sales Tax Exclusion Act (BUA). This is particularly relevant when goods are provided free of charge, or at a price lower than the cost price (acquisition value or production value). If the price charged to the employee is higher than cost, it could possibly be argued that there is no BUA deduction, at least not with respect to the provision in question.
In conclusion
In practice, the targeted exemption for industry-specific products is often experienced as a very limited exemption, which is also administratively quite burdensome. For the proper application of the scheme, the employer must be able to demonstrate, upon request, how it calculated the discount per employee and what tax consequences it attached to it. Should you wish to introduce an employee discount scheme or need assistance with its application, please feel free to contact us via your relationship manager, via our contact form on the website or on our general telephone number 040 - 2 504 504.