New Year for employees: taxation of tangible and intangible gifts

On the eve of the New Year, many employers think about how to congratulate their employees. If you have decided to give your employees gifts this year, you should know that tangible and intangible gifts are accounted for differently and taxed differently.

Accounting and taxation of non-monetary gifts

The TCU has a concept of an additional benefit. If an individual receives goods or services for free, they must be included in his or her monthly taxable income and subject to personal income tax at 18% and social security at 1.5%.

However, if such a person receives a non-monetary gift whose value does not exceed 25% of the minimum wage (as of January 1 of the reporting year), then such a gift is exempt from taxation. In 2020, gifts worth up to UAH 1180.75 are not subject to personal income tax and military service tax. If you splurge and the value of the gift exceeds UAH 1180.75, then the excess amount is subject to personal income tax and social security.

Despite the fact that gifts may or may not be subject to personal income tax and social security, their value still needs to be shown in the 1-DF report (it is submitted for the last time in 2021 for the 4th quarter of 2020). Starting from 2021, we will submit a combined report on ERUs, personal income tax, and military contribution). A gift worth up to UAH 1180.75 should be reported with the income characteristic "160". The cost of the excess is reported with the income characteristic "126".

With regard to the unified social contribution, any gift (in-kind) is included in other incentive and compensation payments and, accordingly, its entire value is subject to the 22% unified social contribution. In this case, there is no minimum value of the gift that would be exempt from the UST.

In Appendix 4 (Single Social Contribution Report), the value of the gift should be shown along with the salary.

If you are a VAT payer, then when paying for gifts and you have a tax invoice from the supplier, you can include the VAT paid in your tax credit.

Giving out gifts to employees is considered a supply. Accordingly, you will have to accrue VAT liabilities. To do this, you need to prepare and register two tax invoices in the Unified Register of Tax Invoices:

• first TI - for zero (contractual) value of gifts;
• the second TI - for the amount of the minimum base with the reason type "15".

Accounting and taxation of cash gifts

If you decide not to bother with choosing a gift and give your employees money, it is best to do so in the form of a bonus. The amount of the bonus is included in the salary and, regardless of the amount, is subject to unified social tax, personal income tax, and military contribution. This option is suitable if the bonus is to be given to all employees or at least the majority of employees.

If you decide to congratulate only a few people, then the monetary gift should be formalized as an untargeted charitable donation. Such assistance is exempt from personal income tax and social security if the amount of the payment does not exceed UAH 2,940. If the amount exceeds UAH 2,940, then the excess amount is subject to personal income tax at the rate of 18% and social security at the rate of 1.5%.

Please note! If the same employee received untargeted charitable assistance more than once during the year, then all payments must be summarized. If the total amount of assistance for the year exceeds UAH 2940, then the excess amount is subject to personal income tax and social security.

Non-targeted charitable assistance is considered to be a one-time financial assistance and is exempt from the unified social tax regardless of the amount.

In the 1-DF report, the amount of the bonus is shown together with the salary with the income characteristic "101", and the amount of untargeted charitable assistance with the income characteristic "169" (the total amount: taxable and non-taxable personal income tax).