Gift

What it means

A gift is a contract under the Civil Code by which the donor hands over part of their property to the recipient free of charge and the recipient accepts it. For movable things it can be oral; for real estate it must be written, and ownership passes only on entry in the land register.

In business a gift differs from an ordinary transaction in that the company gets nothing in return. A gift made is therefore a non-deductible expense for the company, even a gift to a business partner as part of hospitality, except for promotional items up to a statutory value.

The line between a gift and sponsorship is counter-performance. If the company receives real advertising on a reasonable scale, it is a service and the cost is deductible. If the logo at an event is merely symbolic, the tax office may treat the payment as a gift.

How it works in practice

For a company receiving a gift, it is income and taxed in the ordinary tax base. A non-cash gift is valued at replacement cost, the price at which the item could have been bought at the time of the gift, and if it is an asset it is depreciated from that value.

An entrepreneur who receives a gift in connection with their business taxes it as business income. Gifts to individuals outside business are generally tax-exempt, but there are exceptions for gifts connected with business or employment, so we assess them case by case.

A VAT payer that gives away goods on which it deducted VAT must account for output VAT on the gift as a free supply. The taxable amount is the price at which the goods could have been bought at the time of the gift, and the exception for promotional items applies to small gifts.

What to watch out for

Giving company property to a shareholder or director is not a gift in the ordinary sense but a benefit to a related party. At an audit it is judged by the usual market price, and the recipient may have non-cash income or a hidden profit share.

A company wanting to support a public-benefit cause with a tax effect has other tools, above all the tax assignation. A gift to an association or foundation is a good deed, but it creates no deductible expense, and the client should know what they are choosing.