Financial administration information on employee benefits
Financial administration information on employee benefits
With effect from 1 January 2024, the consolidation package includes a number of changes to benefits and other compensation provided by employers to their employees. We informed you about the changes in our previous articles. Given the significance of the changes, the tax administration issued a Methodological Information at the end of 2023. Below we provide a summary of its important points with our practical observations.
To assess the taxation of various employee benefits in excess of remuneration for work, it is essential to distinguish whether the benefits are of the following type:
Practical recommendations
For both these contributions, the Methodological Information strongly emphasises the adequacy of the benefits provided for the application of the tax regime described below. The tax authorities will focus avoiding abuse or concealment of expenditure on "working lunches" or "refreshments" for private consumption.
Working lunch:
As the employee consumes the benefit of food or drink provided by the employer at a working lunch primarily for the purpose of performing their work tasks (job performance), such income is not taxable and does not count towards the daily limit for the exempt meal allowance.
From the employer's point of view, the cost of the working lunch is considered a non-tax expense.
Refreshments at the workplace:
By providing or arranging for small snacks, food or refreshments to be made reasonably available at the workplace, the employer creates suitable working conditions for employees and promotes the efficiency of work performance. For this reason, the related income of the employee is not taxable and does not count towards the daily limit for the exempt meal allowance.
This category can include, for example, fruit, vegetables, yoghurt, milk, coffee or tea in the kitchen, but also snacks such as sandwiches, cakes, pies and wraps as refreshments at seminars
and similar work events. It is essential that these do not constitute a full main meal such as breakfast, lunch or dinner.
From the employer's point of view, the expenditure on refreshments is treated as a non-tax expense.
The provision of drinking water at the workplace is a special category from the point of view of tax. Its value consumed by the employee is not taxable and, unlike other beverages, it is a tax-deductible expense for the employer.
Expenses incurred by the employer for such events are considered tax-deductible expenses.
The exempt income includes both the actual attendance at the event and the refreshments or beverages consumed at the event by the employee or their family member.
For the above-mentioned tax regime, the Methodological Information lists the following as essential conditions:
The income related to the possibility of using sports equipment at the workplace during working hours is not taxable and the employer's related expenses are taxable. For these purposes, we recommend that the possibility of using sports equipment at the workplace be regulated in an internal directive or collective agreement. For this tax regime, the guidance note emphasises the link between the use of sports equipment and the work activities carried out, their location at the employer's workplace and the appropriateness of the sports equipment with regard to the number of employees, the style chosen for the design or concept of the workplace, or the type of work carried out.
However, this category does not include benefits that are comparable to a normal commercial service and by their nature would replace publicly accessible sports facilities, classes, courses or services normally provided to the public (e.g. yoga classes with an instructor, even though they are conducted in the workplace, sauna, massage, full-service sports facilities, etc.). Such benefits will fall under employee leisure benefits and be subject to the annual exemption limit. Also, the ability to use sports equipment without a direct connection to the work activities performed will result in the employee's related income being classified as a leisure benefit with an annual exemption limit.
The purpose (material scope) and the non-monetary form of the benefits required for the application of the employee's income exemption remain unchanged.
However, a new aggregate exemption limit of half of the average annual wage, i.e. CZK 21,983 for 2024 for each employer, has been introduced. This will apply to benefits provided from 1 January 2024. For benefits provided until 31 December 2023, the income exemption limit for holidays and trips was only CZK 20,000 per year.
Due to the introduction of an annual limit on exempt income, employers must keep complete and transparent records. Benefits that are actually provided to or consumed by a member of the employee's family are also regarded as income of the employee concerned.
The moment the benefit is provided:
The significance of the timing of the employer's provision of leisure-time benefits, and consequently, the moment of income generation for the employee, becomes crucial not only due to the change in the tax regime for such benefits.
It results from how such benefits are provided and the moment when the benefit or resources are made available to the employee. So, for example, if an employer pays for an employee's child's school fees, purchases and gives an employee a gym pass, or purchases and gives an employee a theatre ticket, at that point in time the employee receives the related income regardless of
the period for which the service has been paid for.
A specific case are benefits provided through benefit companies, where the moment of income generation is primarily based on the specific wording of the contract between the employer and the company operating the benefit cards. The variants that come into consideration are mainly the following:
As we expected, in the Methodological Information, the tax administration emphasised that it would address situations in its audit activities where there was a non-standard higher provision of benefits before the end of 2023. We expect it to likewise focus on situations where, for the purpose of multiple use of the exempted limit, benefits are provided, for example, by different companies in a group without the existence of actual employment for the companies in question.
Valuation of benefits provided created by the employer's own activities
For benefits provided by the employer internally, the following valuation options are particularly relevant for the valuation of non-cash income:
Example: An employer removes a car from its assets and sells it to an employee. By making an internet search, the employer finds a comparable value for the vehicle.
Valuation of benefits provided by the employer acquired from third parties:
If the price at which the employer purchases the benefit is not influenced by specific relationships and can be considered market value, such value is the value of the employee's non-cash income. Thus, standard quantity discounts, for instance, can be considered in the valuation of non-cash income.
Example: An employer purchases theatre tickets at a standard quantity discount.
If the price at which the employer purchases the benefit is influenced by specific relationships (e.g. sponsorship, the supplier's interest in obtaining a certain consideration from the employer, etc.), the price cannot be considered the market price, and the value of the non-cash income must be determined based on the market value of the benefit.
Example: An employer received free theatre tickets because of the sponsorship of a theatre. The value of the employee's non-cash income will then be the market value of the tickets.
Fulfilment of working conditions and benefits
Any monetary or non-monetary benefits related to an individual's current, future or past dependent activity, whether from a legal employer or other entity, to the employee or their family members, are regarded as income from dependent activity.To assess the taxation of various employee benefits in excess of remuneration for work, it is essential to distinguish whether the benefits are of the following type:
- The provision or creation of working conditions and the execution of work tasks are benefits which the employee consumes in connection with the performance of the dependent activity, but are overridden by the employer's interest due to their direct link to the performance of necessary or effective work.
- Benefits represent a certain advantage, profit or gain over and above the remuneration for work. This form of compensation brings a tangible profit or gain to the employee's personal sphere.
Meals for employees (meal allowance)
An employer may provide a meal allowance to its employees as a benefit over and above their wages. Until the end of 2023, the tax regime for cash and non-cash allowances differed. From 2024, the taxation of the two types of allowance will be aligned, as shown below.| Type of contribution | Scheme until 31 December 2023 | Scheme from 1 January 2024 | ||
| Employer | Employee | Employer | Employee | |
| Cash contribution for meals (meal allowance) |
Unlimited tax deductibility, required presence at work during the shift according to the Labour Code at least 3 hours | Limited exemption up to CZK 107.10 (2023) per shift according to the Labour Code, above the taxable limit including insurance contributions | Unlimited tax deductibility if the entitlement arises from a collective agreement, internal regulation, employment or other contract |
Limited exemption of up to CZK 116.20 (2024) when working at least 3 hours per shift according to the Labour Code or 3 hours within a calendar day; contribution above the limit taxable and subject to insurance contributions |
| Non-cash contribution to meals (meal vouchers, meal cards, discounted price of meals in the canteen, organised buffet lunch, etc.) | Limited tax deductibility, max. 55% of the value of the meal voucher/food or CZK 107.10 (2023), presence at work during the shift required by the Labour Code for at least 3 hours | Unlimited exemption, regardless of the value of the meal voucher or meal | ||
Practical recommendations
- The cash or in-kind meal allowances for December 2023 (issued in December or January) are valid until 31 December 2023.
- For the meal allowance to be tax deductible, your employees must now be entitled to the allowance under a collective agreement, internal regulation, employment contract or other agreement. If you already have a written entitlement, we recommend that you revise the configuration of the entitlement to qualify for the more favourable taxation rules from 2024 onwards.
- You can now apply the exemption from the meal allowance up to the limit to employees who do not work in shifts (e.g. executives), provided they work at least three hours in a calendar day.
- If your employees have a shift longer than 11 hours, including mandatory breaks, they may be eligible for an additional meal allowance and an additional exempt limit may apply.
- You can now combine types of meal allowance. The exemption limit is cumulative for all types of allowance.
Meals or drinks in addition to the meal allowance
If the employer provides the employee with a benefit in the form of food or drink outside the allowance for meals (above), the purpose of this provision must always be evaluated. This may be:- carrying out a work task, e.g. working breakfast, lunch or dinner in a meeting with a business partner or customer of the employer ("working lunch");
- provision of refreshments during work meetings or food and drink freely available to employees at the workplace during their shift ("refreshments").
For both these contributions, the Methodological Information strongly emphasises the adequacy of the benefits provided for the application of the tax regime described below. The tax authorities will focus avoiding abuse or concealment of expenditure on "working lunches" or "refreshments" for private consumption.
Working lunch:
As the employee consumes the benefit of food or drink provided by the employer at a working lunch primarily for the purpose of performing their work tasks (job performance), such income is not taxable and does not count towards the daily limit for the exempt meal allowance.
From the employer's point of view, the cost of the working lunch is considered a non-tax expense.
Refreshments at the workplace:
By providing or arranging for small snacks, food or refreshments to be made reasonably available at the workplace, the employer creates suitable working conditions for employees and promotes the efficiency of work performance. For this reason, the related income of the employee is not taxable and does not count towards the daily limit for the exempt meal allowance.
This category can include, for example, fruit, vegetables, yoghurt, milk, coffee or tea in the kitchen, but also snacks such as sandwiches, cakes, pies and wraps as refreshments at seminars
and similar work events. It is essential that these do not constitute a full main meal such as breakfast, lunch or dinner.
From the employer's point of view, the expenditure on refreshments is treated as a non-tax expense.
The provision of drinking water at the workplace is a special category from the point of view of tax. Its value consumed by the employee is not taxable and, unlike other beverages, it is a tax-deductible expense for the employer.
Events organised by the employer
In connection with the introduction of the limit on exempt income from leisure-time non-monetary benefits, the legislator introduced a new provision. This provision allows for the uncapped exemption of income from the participation of an employee or their family member in a sporting or cultural event organised by the employer for a limited number of participants, provided that, given the nature of the event, it is customary for the employer to organise it and that the form and scope are appropriate. This category also includes social events such as Christmas parties, company anniversary celebrations, children's days and other similar events.Expenses incurred by the employer for such events are considered tax-deductible expenses.
The exempt income includes both the actual attendance at the event and the refreshments or beverages consumed at the event by the employee or their family member.
For the above-mentioned tax regime, the Methodological Information lists the following as essential conditions:
- The employer must be the organiser of the event. While the employer may use a professional contractor to organise the event, it must not be an event organised by another organiser (e.g. concert or theatre tickets).
- A limited circle of participants in the sense of an "invite-only" event, typically employees, family members or business partners. Employers should keep a list of guests attending the event for demonstration purposes.
- The event is reasonable and customary in light of existing common standards in business practice, in relation to the range of persons invited and the type and regularity of the event. Employers should therefore avoid applying the employee exemption to events in, for example, exotic destinations or where the event is repeated, for example, once a week or once a month.
Sports equipment available at the workplace and similar facilities
In some cases, employers provide their employees with the opportunity to use sports or similar equipment. This equipment is made freely available to employees at the workplace during (or just before or after) their working hours to provide relaxation, stress relief, etc., with the aim of improving the employee's work performance. It can include equipment such as treadmills, ladders, weights, footballs, ping pong tables, pool tables, etc.The income related to the possibility of using sports equipment at the workplace during working hours is not taxable and the employer's related expenses are taxable. For these purposes, we recommend that the possibility of using sports equipment at the workplace be regulated in an internal directive or collective agreement. For this tax regime, the guidance note emphasises the link between the use of sports equipment and the work activities carried out, their location at the employer's workplace and the appropriateness of the sports equipment with regard to the number of employees, the style chosen for the design or concept of the workplace, or the type of work carried out.
However, this category does not include benefits that are comparable to a normal commercial service and by their nature would replace publicly accessible sports facilities, classes, courses or services normally provided to the public (e.g. yoga classes with an instructor, even though they are conducted in the workplace, sauna, massage, full-service sports facilities, etc.). Such benefits will fall under employee leisure benefits and be subject to the annual exemption limit. Also, the ability to use sports equipment without a direct connection to the work activities performed will result in the employee's related income being classified as a leisure benefit with an annual exemption limit.
Leisure time employee benefits
Widely used benefits, which are subject to a change in the tax regime, are non-monetary employer contributions to various leisure activities, kindergartens, health and medical services, trips and recreation, books, etc.The purpose (material scope) and the non-monetary form of the benefits required for the application of the employee's income exemption remain unchanged.
However, a new aggregate exemption limit of half of the average annual wage, i.e. CZK 21,983 for 2024 for each employer, has been introduced. This will apply to benefits provided from 1 January 2024. For benefits provided until 31 December 2023, the income exemption limit for holidays and trips was only CZK 20,000 per year.
| Non-monetary contribution by the employer for a specified purpose (cultural and sporting events, medical services, recreation, books, etc.) | The annual limit for 2024 is CZK 21,983 | Employer | Employee |
| Contributions up to the annual limit | Non-tax-deductible expense | Exempt income | |
| Contributions above the annual limit | A tax-deductible expense if the entitlement arises from a collective agreement, internal regulation, employment or other contract | Taxable income, subject to insurance contributions |
Due to the introduction of an annual limit on exempt income, employers must keep complete and transparent records. Benefits that are actually provided to or consumed by a member of the employee's family are also regarded as income of the employee concerned.
The moment the benefit is provided:
The significance of the timing of the employer's provision of leisure-time benefits, and consequently, the moment of income generation for the employee, becomes crucial not only due to the change in the tax regime for such benefits.
It results from how such benefits are provided and the moment when the benefit or resources are made available to the employee. So, for example, if an employer pays for an employee's child's school fees, purchases and gives an employee a gym pass, or purchases and gives an employee a theatre ticket, at that point in time the employee receives the related income regardless of
the period for which the service has been paid for.
A specific case are benefits provided through benefit companies, where the moment of income generation is primarily based on the specific wording of the contract between the employer and the company operating the benefit cards. The variants that come into consideration are mainly the following:
- The employer pays a monthly lump sum for individual cardholders (e.g. Multisport cards) or authorisations to visit private health facilities. Income is generated monthly based on the amount of the lump sum payment for each cardholder or entitlement.
- The employer charges certain "points" to the employee cards as the equivalent of a cash amount. The points are not further charged, and the employer is billed by the benefit company for the number of points charged. Income is generated monthly by crediting points to the benefit card.
- The employer charges certain "points" to employee cards, which are billed by the benefit companies based on actual usage. Income is earned at the time the points are redeemed.
As we expected, in the Methodological Information, the tax administration emphasised that it would address situations in its audit activities where there was a non-standard higher provision of benefits before the end of 2023. We expect it to likewise focus on situations where, for the purpose of multiple use of the exempted limit, benefits are provided, for example, by different companies in a group without the existence of actual employment for the companies in question.
Valuation of non-cash income for an employee
In connection with the introduction of the limitation of exempt income for employees (e.g. meals or leisure benefits), the valuation of non-cash income of employees is a crucial issue. In the guidance note, the tax administration provides the following appropriate valuation procedures for employers, where the non-cash income is the difference between the value determined according to the below procedures and the employee's salary.Valuation of benefits provided created by the employer's own activities
For benefits provided by the employer internally, the following valuation options are particularly relevant for the valuation of non-cash income:
- The employer provides the benefit to other persons for consideration - the price charged to those other persons may be used to value the employee's non-cash income if it is potentially available to the employee (e.g. a lower price for a certain quantity taken).
- The employer does not provide the supply to others - use of the comparable arm's length price method (e.g. conclusive internet research) or the cost plus mark-up method (the Methodological Information states a mark-up of 3-7% under certain assumptions), including all associated costs.
Example: An employer removes a car from its assets and sells it to an employee. By making an internet search, the employer finds a comparable value for the vehicle.
- The employer does not provide the performance to other persons - proportional allocation of costs incurred without a surcharge (not possible for service type performance).
- Valuation of non-cash income under the Valuation of Assets Act
Valuation of benefits provided by the employer acquired from third parties:
If the price at which the employer purchases the benefit is not influenced by specific relationships and can be considered market value, such value is the value of the employee's non-cash income. Thus, standard quantity discounts, for instance, can be considered in the valuation of non-cash income.
Example: An employer purchases theatre tickets at a standard quantity discount.
If the price at which the employer purchases the benefit is influenced by specific relationships (e.g. sponsorship, the supplier's interest in obtaining a certain consideration from the employer, etc.), the price cannot be considered the market price, and the value of the non-cash income must be determined based on the market value of the benefit.
Example: An employer received free theatre tickets because of the sponsorship of a theatre. The value of the employee's non-cash income will then be the market value of the tickets.