Tax Deductibility of Corporate Parties: Are company events tax-deductible?

If the allowance is adhered to, the company party is fully tax-deductible for companies. This makes good planning all the more important when the next company party is coming up. Ideally, company parties for the whole year should be planned in advance and the costs incurred should be determined in advance.

Here you can find out how much the allowance for a company party per employee is, how many company parties per year are tax-deductible at what cost, and how this is calculated.

What is a company party?

For a company event to be considered a company party, certain conditions must be met:

• A maximum of two company parties may be held per year. If two other company events have already taken place in the same calendar year, the company must decide which event to claim for tax purposes.
• All employees of the company, at the company location or from the company department must be invited to the company party. It is important to note who the company party is being held for. If certain groups of employees are excluded, § 19 (1) sentence 1 no. 3 EStG (German Income Tax Act) comes into force and it is considered a privileged company party without tax exemption.

• The majority of participants should be employees and their families. Companies also like to invite business customers or partners to company parties. If these make up the majority of participants at the company event, it is not a tax-deductible company party.
• According to the tax office, only guests who are actually present should be included in the per capita price of the company event.

How much is the allowance per employee for company parties?

For company envents and company outings, expenses up to a tax allowance of €110 gross per employee and event (including VAT) can remain tax- and social security-free. However, this rule only applies to a maximum of two events per year. It is important to note that the amount of €110 must be used in full for one event and cannot be divided between several events. If the amount is exceeded, only a flat-rate tax payment by the company is possible as a tax relief.

How are the costs for a company party calculated?

To calculate the costs for the company party, these three steps should be followed:

1. Calculate the total costs
2. Calculate the per capita costs
3. Include accompanying persons in the calculation

1. Calculate the total costs

The first step is to calculate the total costs of the company party.

According to Section 19 (1a) of the German Income Tax Act (EStG), all expenses incurred by the employer, including sales tax, are added together to calculate the total cost of the company party.

The following costs should be included:

• Catering costs
• Entertainment and activity costs
• Event manager costs
• Venue rental costs
• Decoration costs
• Travel expenses
• Accommodation costs
• Gifts
• Vouchers or cash for the items listed
• Allowances for employees' accompanying persons

2. Calculate per capita costs

The total costs for the company party are broken down into a per capita price per participant.

To do this, the total costs are divided by the number of participants.

Cancellations increase the per capita price per employee

The costs for the company party are only distributed among the employees who actually participate. This means that if ten employees cancel their participation in the company party at short notice, even though they had previously registered, the costs that are still incurred are distributed among the participating employees. The per capita price for the company party can therefore increase as a result of cancellations.

When planning the company party, it is therefore important not to calculate too tightly. If employees cancel their participation spontaneously, the per capita costs may exceed the allowance unexpectedly.

3. Include accompanying persons in the calculation

If the employee has brought family members to the company party, the costs for the accompanying persons are charged to the employee.

Please note: If an employee brings relatives to the company party, the tax office will allocate the costs incurred for the accompanying person to the employee. If this exceeds the €110 allowance per employee, this must be taken into account for tax purposes.

What taxes are payable for the company party if the allowance is exceeded?

If the allowance of €110 is exceeded, the employer must pay tax on the excess amount at a flat rate of 25 percent plus solidarity surcharge and flat-rate church tax. Flat-rate taxation ensures that no social security contributions are payable.

The advantage of the allowance rule for the employer is that only the amount above $110 per employee counts as wages. Income tax therefore only has to be paid on the portion that exceeds the allowance.

Costs are not included

The employer's calculated costs, such as payroll accounting, are not taken into account for tax purposes in the case of company parties. Costs are not considered to be expenses incurred for the company event and are therefore not included in the calculation of the total costs for the company party. The same applies to pro-rata depreciation or energy costs if the party takes place on the employer's own premises. In addition, companies can apply the regular exemption limit for benefits at company parties.

Travel expenses incurred for the company party

Travel expenses can only be taken into account if the company party does not take place on the company's own premises.

If the company party takes place outside the company's own office or premises, travel expenses can be included in the per capita price per employee. In order for travel expenses to be included, the employees' travel must be for the purpose of participating in the event. Employees must also organize and arrange their own travel.

If these conditions are met, companies may reimburse employees for travel expenses, including meal allowances and accommodation, tax-free (Section 3 No. 13/16 EStG).

An exception is made if a group trip is organized—for example, if employees travel together in a bus.

Company parties – are they worth it?

A company party boosts employee motivation and team spirit, making it an investment in the working atmosphere. So a company party can definitely be worthwhile for a business.