Christmas deductions with discounts on VAT and Personal Income Tax for the self-employed

• Self-employed people and entrepreneurs may deduct gifts and Christmas details if a series of conditions are met

Self-employed people and entrepreneurs will be able to deduct gifts and Christmas details at the end of their fiscal year if a series of conditions are met, as indicated by the Tax Agency.

Congratulating or celebrating the Christmas holidays with workers and clients can have consequences on the value added tax (VAT) and, especially, in the personal income tax (IRPF) and in the corporate tax (IS), if doing so meets the requirements of deductible expenses.

All disbursements of a business must be recorded in an invoice in accordance with their respective tax treatment and the degree of their use in the activity must be proven by any means of proof. That is why the Treasury and the courts have clarified what happens with some of these costs:

Christmas baskets for people employed by the entity

Even if the goods and services are used in the activity, it is not possible to deduct the VAT amounts incurred for their acquisition on those goods or services intended to serve clients, employees or third parties.

This includes Christmas baskets, food, drinks, tobacco and jewelry and objects made of gold or platinum, unless these are the object of the activity or their use may be exclusively industrial, commercial, agricultural or scientific.

The same happens with shows and recreational services and travel, hospitality and restaurant services, unless the corresponding expense is considered deductible in personal income tax or IS.

Free samples and promotional items of low value are excluded in this case.

Business lunches or dinners

They will be deductible in personal income tax or companies as long as there is an invoice for the company lunch or dinner and it meets the deductibility requirements:

• linked to the economic activity of the company
• conveniently justified
• recorded in the entity's accounting

Greeting and business cards

They are understood as an advertising expense with which to maintain good relations with customers, suppliers or employees.

They can be included as a deductible expense in VAT and personal income tax in the invoices of a self-employed person if they demonstrate that they are related to the activity they carry out professionally.

Another requirement, in this case, is that the cost of these gifts does not exceed 200 euros per year per recipient and that they bear the name of the businessman who produces or markets specific goods or services.

Christmas lottery

According to the Binding Consultation V2490-17, of October 4, 2017, and the provisions of article 27.1 of Law 35/2006, of November 28, the expenses incurred for the purpose of purchasing lottery tickets intended for clients will also be tax deductible as long as they comply with the established requirements.

On this occasion, the deductible limit will be 1 % of the net amount of the turnover for the tax period.

If, on the other hand, the self-employed person did not give away, but instead sold the tenths to their workers, this lottery would not be considered a deductible expense, since the employees would be paying for it and it would not be a courtesy of the company.