Deducting gifts – what does an employee need to know?

Published 29 February 2016

With the upcoming deadline for submitting tax returns employees often also ask if it is possible for them to also deduct gifts that they have provided during the past year. Employees have the same opportunities as entrepreneurs in this regard. Employers deduct gifts provided by their employees in the annual tax settlement. An employee must submit to his/her employer all the documents for any gifts that have been provided, by 15 February of the following year. This could apply, for example, to a donation agreement, a certificate of blood donation, a bank account statement or just a bill slip. It should be apparent from the document that it was for a gift that was provided and is not for payment of, for example, a healthcare charge, etc. So what then should be apparent from the accounting document? This can be summed up as follows:

-          Who gave the gift?

-          Who was the gift for?

-          Purpose of the gift

-          Gift amount

-          Date on which the gift was given

The sum total of the gifts that have been provided is not in any way restricted, but for tax purposes the lower limit of the minimum gift amount is CZK 1,000 and the upper limit is 15% of the annual tax base. How can employees find out how much their tax base is and whether gifts can be applied in full?

The example below answers this question in the best way:

The employee had an annual assessment base ……………………………….. CZK 350,000

Insurance premium for the employer was 34% of this amount, i.e. …..………. CZK 119,000

The tax base is determined at ..……………………………………………………. CZK 469,000

The employee donated CZK 50,000 in total for a club’s sporting activities. Can the employer deduct the full amount of the donation for him?

Answer: Yes, the whole amount of the gift is eligible in the annual accounts because 15 % of the tax base of CZK 469,000 is CZK 70,350. The gift of CZK 50,000 fulfils both criteria.

And what donations can an employee deduct? § 15 of the Income Tax Act provides a full list. In brief, we can only sum up that donations have to be for good causes, such as for the funding of science and research, culture, education, sport, healthcare, environmental protection, the protection of animals, etc. If an employee takes confirmation that he has paid for a gift to his/her employer’s payroll department, they will surely be able to help him.