Entertainment costs

What it means

Entertainment covers hospitality, catering, gifts and social events. The law excludes it from deductible expenses: the company pays but the tax base does not fall.

The exception is promotional items bearing the company name or trademark worth up to EUR 20 each. Those are deductible unless they are goods subject to excise duty.

The line between entertainment and advertising lies in purpose: advertising addresses an open group of people so they get to know the company, while entertainment hosts or gives gifts to specific partners to win their goodwill. A tasting for passing visitors at a trade fair may therefore be promotion, whereas dinner with three customers after a negotiation is a non-deductible expense.

How it works in practice

They are kept on a separate analytical account so the tax return can add them back easily. Mixing them into general overheads creates extra work at every close.

Refreshments at an internal meeting are assessed differently from hosting business partners. Travel allowances likewise have their own regime and entertainment is not part of it.

The same restriction applies to VAT: a VAT payer cannot deduct the tax on purchases used for entertainment, so the full amount including VAT goes to cost. When processing documents we therefore separate hospitality for partners at the moment of posting and claim no input VAT deduction on it, so nothing has to be corrected later in the return and the control statement.

What to watch out for

Excessive entertainment is a favourite item in a tax audit: restaurant receipts with no stated purpose or attendees are disallowed almost automatically.

A gift to your own employee is not entertainment of partners but, as a rule, the employee’s non-cash income, taxed and subject to contributions through payroll. Companies often book it together with gifts for clients, and in an inspection the employer then pays the tax it should have withheld and the contributions it never remitted.