The Tax Treatment of Gifts: A Clear and Concise Guide for 2023

In this guide, we will discuss the tax treatment of gifts, specifically the regulations that govern them.
Each year, as the Christmas holidays approach, it becomes crucial for companies to understand the rules related to gifts from a tax and administrative perspective. If you are an entrepreneur or work in the business world, it is essential to understand the tax treatment of gifts for 2023. In this article, we will examine the tax treatment of gifts in detail, providing clarity on how to manage this important part of business activity.

VAT Regulations for Gifts

Free transfers of goods, commonly known as gifts, represent a significant aspect for businesses, and therefore it is important to know the VAT regulations associated with such transactions. In particular, Italian legislation establishes the following:

Gifts produced or marketed by the company

If the company produces or markets the goods given for free and these goods fall within the company's own activity, the following VAT regulations apply:

• The company can proceed with VAT recovery, i.e., apply VAT in the invoice. This VAT will be paid by the customer and then paid to the Treasury by the company, but the customer has the right to deduct VAT.
• The company must issue an electronic invoice, specifying the debit of VAT.
• The customer records the received invoice in the VAT purchase register and can exercise the right to deduct VAT.

Gifts without VAT recovery

If the company decides not to recover VAT for gifts, it can follow one of the following operational methods:

a. Issuance of a regular invoice: The company issues an invoice but does not exercise the right to recover, specifying this choice in the invoice with an appropriate wording (in the case of an electronic invoice, the wording can be inserted in a text field). The customer receives the invoice and records it in the VAT purchase register without proceeding with the VAT deduction.

b. Keeping and recording in the gift register: The company keeps a gift register, which does not require a stamp, reporting the total amount of the normal values of the free transfers made on each day, separated by rate, and the global amount of VAT, separated by rate.

c. Issuance of an electronic self-invoice for gifts: The company can issue a single monthly self-invoice for all transfers of the month, containing the normal value of the goods transferred, the applicable VAT rates, and the related taxes. The taxable amount is part of the VAT turnover.

It should be noted that the invoice and VAT are only recorded in the VAT sales register in these cases.

Transport document

Gifts of goods that fall within the company's own activity require the issuance of a transport document (DDT) to avoid presumptions of transfer for both the seller and the recipient of the goods.

Goods with a value of less than €50.00

Free transfers of goods whose unit cost does not exceed €50.00 are exempt from VAT. However, this exemption does not apply to goods purchased to be given away for free, the production or trade of which does not fall within the company's own activity. In this case, the purchase of such goods constitutes representation expenses and VAT is not deductible.

Practical Examples – The Christmas Hamper

It is common for goods intended as gifts to be hampers or packages of foodstuffs, such as Christmas hampers. For these goods, the calculation of the limits indicated above must be carried out based on the value of the gift (the "Christmas hamper"). Even if they are food products, they should be treated in the same way as non-food products if their value is less than €50.00.

Gifts to employees

If a company makes year-end gifts to its employees, their taxation will depend on whether such transfers fall within the scope of the business activity or not:

• If the gifted goods do not fall within the company's activity, VAT is not deductible, and the non-deductibility of VAT on the purchase of such goods applies.
• If the gifted goods fall within the company's activity, VAT applies, and the transfer is subject to this tax.

Direct Taxes

Free transfers of goods, or gifts, can be considered representation expenses for businesses. The rules for the tax deductibility of these expenses are as follows:

• Gifts with a Value Up to €50.00: Gifts with a unit value not exceeding €50 (gross of non-deductible VAT) are fully deductible. In other words, you can consider them as business expenses.
• Gifts with a Value Over €50.00: Gifts with a unit value exceeding €50 (gross of non-deductible VAT) are deductible only as a percentage of characteristic revenue. Here are the details:
  • Up to 10 million euros in revenue/income: You can deduct 1.5%, with a maximum expense of €150,000.
  • From 10 million to 50 million euros in revenue/income: You can deduct 0.6%, with a maximum expense of €390,000.
  • Over 50 million euros in revenue/income: You can deduct 0.4%, with a maximum expense of €390,000 plus 0.4% of characteristic turnover.

The portion of expenses exceeding these percentage limits is considered entirely non-deductible.

IRAP

The deductibility of gift expenses depends on the accounting method used:

• Balance Sheet Method: If you use the balance sheet method, gift expenses fall under item B.14 of the income statement and are fully deductible for IRAP purposes.
• Tax Method: If you use the tax method instead, these expenses are not explicitly provided as relevant components and are therefore non-deductible for IRAP purposes.

Self-employed workers

For self-employed workers, such as artists and professionals, gifts of goods are excluded from VAT, as the objective prerequisite is lacking. It is not necessary to issue an invoice. However, it is possible to deduct VAT for goods given for free, provided they have a unit cost equal to or less than €50.00.

Christmas Dinners and Lunches

Regarding company dinners and lunches, the rules vary:

• VAT is non-deductible, but the cost is deductible up to 75% of the expense incurred for hotel and restaurant services.
• For IRPEF and IRES purposes, entertainment expenses (including gifts) are deductible up to 1% of the fees received in the tax period, regardless of the unit value of the gift.

In summary, the tax treatment of gifts is an important aspect for businesses and self-employed workers to consider. Make sure to comply with these rules to avoid problems with tax authorities. For further details and clarifications, consult the original source here.

Gifts between EU and non-EU countries

Companies can receive and make gifts to entities established or residing in other European Union (EU) countries or non-EU countries. The tax implications vary depending on the type of operation:

Gifts between EU entities

If you are making gifts between businesses established in European Union (EU) countries, you need to pay attention to the following situations:

• Transfers of Regularly Traded Goods: If you are giving away goods that you usually sell, VAT applies if the recipient is a VAT-registered entity established in another EU country. It is similar to transfers in Italy, so VAT is due.
• Transfers of Goods Not Regularly Traded: If you give away goods that are not part of your normal business activity, please note that these transfers are excluded from VAT, following the same Italian rule.
• Gifts Received from Another EU Country: If you receive gifts from an EU country, VAT is due in the country of origin of the gifts. You do not have to make an intra-Community acquisition, but you should be able to prove the legality of the transaction.

Gifts between non-EU entities