Can the New Year be without gifts? Children are looking forward to them. That is why it is usual in many organizations to give presents for children of their employees. What should employers know about the taxation of such bonuses is in the following.
PIT
The first thing that comes to mind when giving gifts to children of employees is that the issuance of such presents falls within the scope of the tax benefits on the personal income tax (hereinafter - PIT). This is stated in para. 165.1.39 of the Tax Code of Ukraine dated 02.12.2010, No. 2755-VI (hereinafter -TCU).
It should be recalled that in accordance with this PIT-benefit, the employer has the right not to include non-cash gifts to the taxable income of the recipient, the value of which per month does not exceed 25% of the minimum wage established on January 1 of the reporting tax year. This privilege does not apply only to gifts provided in cash.
In 2017, the minimum wage amounted to UAH 3 200 on January 1. Therefore, the PIT-benefit deducts gifts from Santa Claus from the taxable income in a non-monetary form, the value of which does not exceed UAH 800 (per month). This is confirmed by controllers in the category 103.04 “ZIR”.
The value of non-taxable non-cash gifts (their parts) should be reflected with a sign of income “160” in section I of the Taxable Calculation of the Form No. 1DF.
If in the reporting month the value of the non-cash gift or the total value of several presents (if the employee also issued other non-cash gifts during the month) will exceed the non-taxable limit specified in para. 165.1.39 of TCU, then the excess amount should be taxed by the PIT under the rules provided for the taxation of the additional benefit (para. 164.2.17 of TCU). Since it is about the issuing a non-monetary gift, then the base for PIT taxation of the taxable value of a non-monetary gift (the value of a gift exceeding UAH 800 in 2017) should be determined using the “natural” coefficient.
The natural coefficient is calculated by the formula:
C =100 ÷ (100 − Tr),
where C is the coefficient;
Tr − the tax rate set for such incomes at the time of their accrual.
The value of the “natural” coefficient with the PIT rate of 18% in 2017 is 1.219512.
In the tax calculation according to the form No. 1DF, the company that donates gifts to children of its employees, should reflect the taxable portion of the value of a non-cash gift with a sign of income “126” as an income in the form of an additional benefit.
The War Tax
As for the rules for the taxation of gifts for the New Year to children of employees in non-monetary form by the war tax, they are similar to the rules of taxation of personal income tax. That is, only a part of the value of the gift taxed by PIT can be entered the tax base of the war tax (the value of the gift exceeding UAH 800 in 2017). The war tax should not be withheld from gifts (their part), which are not subject to taxation of the personal income tax.
At the same time, it should be remembered that as gifts to children of employees are provided in a non-monetary form, the basis for the war tax imposing will be the value of the gift given, which is reflected in the accounting, that is, taking into account the “natural” coefficient provided for the PIT withholding. It is no need to apply a separate natural coefficient for taxation of the war tax. The TCU does not provide for the use of such a coefficient for taxation of non-cash income (including gifts).
This is emphasized by the State Fiscal Service of Ukraine (hereinafter - SFSU) in its letters dated 20.11.2015, No. 24759/6/99-99-17-02-01-15 and 08.06.2016, No.12626/6/99-99-13-02-03-15, as well as in the Advice given in the category 103.25 “ZIR”.
The amount of the war tax withheld from the gift should be reflected in sec. II of the Tax calculation according to the form No. 1DF in the line “The War Tax”. In addition, in the graphs those are intended to reflect the income accrued and paid, it is necessary to specify the amount of income received in the form of a gift, which is taxed by the war tax as well as the tax-exempt amount (category 103.25 “ZIR”).
The unified contribution
Cost of gifts for holidays for children of employees is not included in the wage fund. This is indicated by paragraph 3.23 of the Regulations on Wage Statistics, approved by the order of the State Statistics Committee dated January 13, 2004 No. 5 (hereinafter - Regulations No. 5). It says that the cost of gifts for holidays and tickets for entertainment activities for children of employees does not belong to payroll. Consequently, it can be argued that the money spent on gifts given to employees of company for their children is not the subject to the unified social contribution (hereinafter - Unified contribution).
The correctness of the conclusion is evidenced by the List of types of payments, which are carried out at the expense of employers’ funds, for which unified contribution to the compulsory state social insurance is not accrued, approved by the Resolution of the Cabinet of Ministers of Ukraine dated December 22, 2010 No. 1170 (hereinafter - List No. 1170). It lists the payments that are not subject to the unified contribution. They include the cost of gifts for holidays for children of employees (para. 8 of sec. II of List No. 1170). Therefore gifts given to children are not subject to the unified contribution taxation.
According to the law, childhood is by 18 years old, therefore exemption from the unified contribution is valid only if the child has not yet reached the age of 18 at the time of giving the gift.
If an employee receives a gift for his or her child who is already 18 years old, then the value of such a gift will turn into a salary for this employee. Therefore, the exemption provided for in para. 8 of sec. II of the List No. 1170 will not be in effect. Therefore, it will be necessary to pay the unified contribution from the cost of the gift given.
VAT
As for the taxation of the transactions on giving gifts to children of employees by the value added tax (hereinafter – VAT), it should be remembered that when the buyer of gifts (the company) will have a tax invoice of the supplier, registered in the Unified Register of Tax Invoices (hereinafter - URTI), then the amount of the input VAT paid when the purchase of gifts, can be included in a tax credit (para. 198.3, 198.6 of TCU).
The transfer of gifts to employees is considered as a free transfer transaction, which is subject to VAT under the general rule. The point is that the free transfer (donation) of goods falls under the definition of the term “supply of goods” (para. 14.1.191 of TCU).
As it is about the free transfer of goods, the company will have to “pull” the base of VAT taxation of the transaction to its minimum limit (as required by para. 188.1 of TCU). In this regard, two tax invoices (hereinafter - TI) must be drawn up in the VAT account for such a transaction:
a) first TI − on the transaction for the supply of gifts (goods) within the donation contract on the name of the recipient, if it is registered by the VAT payer.
In the case under consideration, the company donates gifts to children of employees, that is, to individuals who can not be VAT payers. In order to do this:
- it is necessary to indicate the type of reason “02” (drawn up for delivery to the non-payer of the tax) in the upper left part of TI;
- it is necessary to indicate “Non-payer” in the column “Recipient (buyer)”;
- in the line “Individual Tax Number of the Recipient (Buyer)” − the conditional ITN “100000000000”.
Gifts for children of employees are transferred free of charge, and therefore the TI should be issued with zero value;
b) second TI – on the difference between the size of the minimum tax base and the actual delivery price. In the case of a free transfer, the delivery price is zero, so the second TI should be issued taking into account the minimum tax base.
Both TIs must be registered in the URTI.
