The company, taking care of its employees, decided to organize a corporate nutrition. How it be should registered and organized, and what tax consequences to be expected – in the following.
Registration
The procedure for nutrition of employees at the expense of the company should be prescribed in an employment or collective agreement. Also Provision on nutrition of employees or a separate order of the employer can be issued. Such documents should include:
- scheme of nutrition organization (directly in the dining room or other premises of the company, using the services of a third-party organization, etc.);
- sources of financing (at the expense of the company, the employees themselves, subsidies or other funds);
- procedure for calculating (use of vouchers, cards or other tools, prepayment, employee payroll, salary deduction, discount system, etc.).
The procedure of taxation of the cost of employees’ nutrition will depend on that.
Organization
The employees could be provided with the nutrition through:
- ¾ catering establishments on the basis of the relevant agreement;
- ¾ own dining room or buffet.
Another option is to compensate for the cost of nutrition in cash.
In the case of nutrition in the dining room, it is important for the company to determine the status of their own catering establishment. Namely, whether they provide services exclusively to employees of the company or serve third-party clients.
If employees are fed at a third-party institution, an agreement must be concluded with such an institution. It should be determined in it the procedure for identifying employees and fixing their receipt of nutrition (name cards, coupons, registers, information, etc.). It is necessary to provide a scheme of payments (fully at the expense of the employer or partly at the expense of employees, compensation by the employer of the cost of nutrition within a certain amount, self-payment of nutrition by employees, etc.), terms, periodicity, form and procedure for calculations, if necessary - an algorithm for documents circulation.
An option for organization is to fully or partially compensate for nutrition in cash. The company can give employees a certain amount of food. Or employees themselves pay for food, and then provide supporting documents on the basis of which compensation is paid.
Tax consequences
Regardless of the way employees’ nutrition is organized, for the purpose of the income tax imposing, no adjustments are required.
Accruing, deductions and payment of the personal income tax, the USC and the war tax depends on the organization and documentation of the nutrition (Table).
Table. Tax consequences of free employees’ nutrition
No. | Type of provision | PIT | War Tax | USC |
1 | Compensation in cash or in kind, | + | + | + |
2 | Compensation in cash or in kind, | + | + | + |
3 | Nutrition without personalization | - | - | - |
If the employees’ nutrition is prescribed in a labor or collective agreement, it will have a “salary” character and will be considered as a part of the salary as other incentive and compensatory payments, which are included in the salary fund (paras.2.3.4 of the Guidelines on Statistics of Wages, approved by the order of the State Statistics Committee dated 13.01.2004 No.5; hereinafter - Guidelines No.5).
As for “salary” nutrition, the same rules of taxation of PIT to be applied as for salaries. That is, the cost of nutrition should be taxed at a rate of 18%.
The cost of “salary” nutrition is also taxed by the war tax at a rate of 1.5%. It is not required to apply a “natural” coefficient in that case.
The USC is accrued on “salary” nutrition at a rate of 22%.
If the employees’ nutrition is registered by an order (regulation) of the head of the company, then this is an additional benefit.
In this case, the value of nutrition received free of charge by the payer is taxed at the rate of 18%. Also it is used a “natural” coefficient when determining the base.
The cost of such nutrition should be indicated with a sign of income “126” in the form No. 1DF.
The war tax should be withheld from the employee’s income in the form of an additional benefit.
Nutrition in the form of an additional benefit - it is not a salary and not a reward under the civil law contract. Consequently, according to the logic, it is not required to accrue the USC on it. However, according to para.2.3.4 Guidelines No. 5, social payments in cash and in kind, including payment of employees’ nutrition, is a compensation payment, which is a part of the wage fund. Therefore, the tax authorities insist that the USC is also required to pay (SFSU letter dated October 13, 2017, No. 2233/6/99-99-15-01-01-15/ІПК).
The object of taxation of the personal income tax does not occur when arranging a buffet free of charge for employees. It is impossible to determine how many products consumed by each individual, and the income received in the form of an additional benefit can not be personalized. Consequently, the cost of such nutrition can not be considered as the subject to PIT taxation (SFSU letter of November 23, 2016, No. 25307/6/99-99-13-02-03-15). There will not be also the subject to the war tax.
The cost of nutrition free of charge in the form of a buffet is not the basis for the calculation of the USC. The tax authorities also agree with it (SFSU letter dated March 22, 2017 No. 5683/6/99-99-13-02-03-15).
Regarding VAT
Depending on the way nutrition organized, there should be different tax consequences.
In the case of monetary compensation the cost of nutrition to employees, there is no VAT supply, but also there is no tax credit, as we have a business transaction between the company and the employee.
If the company has abandoned the “intermediary” roles of the employee and directly purchases food services at the food facility with VAT, then the tax amount will replenish the tax and credit treasury (in the presence of a tax invoice registered with the URTI). However, the other side of the coin is the accrual of tax liabilities for a free dinner. For VAT purposes, such a transaction is nothing more than supply (para. “c” of sub-para.14.1.185 and para. “c” of sub-para.14.1.191 of TCU). The obligation should be accrued, guided by the minimum base - not lower than the cost of buying dinners (para.188.1 of TCU).
Another option is nutrition in company’s own dining room. VAT-based products and various nutritional ingredients increase tax credits. Further, if there is a free distribution of dinners, then, by analogy with lunch in other dining rooms, there is a duty to accrue tax liabilities based on the minimum base.
Sometimes employers sell food to their employees (ready meals). For example, for their “- 50%”. At the date of implementation there is a duty to accrue tax liabilities. However, there is a zest in the minimum base for VAT.
If food products (ready meals):
- were purchased ready, then the minimum VAT base - the price of their purchase;
- were prepared in company’s own dining room - the usual price (para.188.1 of TCU).
The tax liabilities should be additionally accrued if supply of nutrition is lower that the minimum bases.
