Promotional gifts fall under the ‘limited deductible costs’, just like representation costs, digestion and accommodation costs. The deduction is limited. Up to an amount of $ 4,500 (2016) such costs may not be deducted for business. In addition, these can be booked as an expense for your company.
Now many (smaller) companies do not meet this limit. Fortunately, there is also an alternative.
You can also choose to deduct 73.5% of the costs. For the other part (26.5%) the deduction is then excluded. You can opt for this option in your income tax return in which you state your profit from business. This means that only from about $ 16,981 in mixed costs it is more attractive to assume the deduction limit on the basis of the limit amount ad. $ 4,500. The use of the Corporate Gift Supplier is important now.
Does this scheme also apply to VAT? No, in principle you are allowed to set off the VAT on these business gifts as an input tax in your VAT declaration.
However, if the person to whom you provide this gift could settle the VAT on it for less than 30% if it were to buy it yourself, you may be subject to a deduction limitation.
If you also donate to this person on an annual basis for more than $ 227, then the VAT is indeed not deductible. Of course, this means that the non-deductible VAT can be booked as an operating expense.
Tips for You
Give a business gift that can be used within the business of your business partner, such as a pen or writing folder. Then you know for sure that the VAT is deductible because such an expense could also be taken as a business expense by your relationship.
Are you dealing with a relationship without the right to deduct input VAT, such as a VAT-exempt entrepreneur? Make sure that you do not exceed the threshold amount of $ 227. This is very important to mention that for the Printed Umbrella or such products also, the rule is the same.
How do you strongly position the tax authorities?
Burden of proof
Certainly when you give a business gift of some size, the tax authorities could ask questions about the practicality of this publication. It is therefore advisable to mention the relationship to which it is intended and to honor which event when purchasing any business gift on the receipt. This way you immediately substantiated the practicality of the expenditure. You also prevent that you can no longer find out for whom certain gifts have been purchased at a later time, when there are questions from the tax authorities.