Recently MultiSport cards are gaining in popularity as employers’ social policy. Further to that tendency, some practical questions arise. How the MultiSport cards provided to employees should be treated under the tax and social insurance legislation?
The MultiSport cards are nominal and are always provided through the employer’s company.
The possible financing options for these cards are as follows:
- At the expense of the employer – the employer covers entirely the expenses;
- Co-financing – the employer and employee cover the expenses in some proportion, most often 50/50;
- At the expense of the employee – the employee covers entirely the expenses.
There is also the possibility of additional cards for the benefit of a significant other. Those deserve separate scrutiny and are therefore not covered by this article.
In general, the following practical questions arise regarding the MultiSport cards provided to employees:
- Do the expenses for the MultiSport cards represent taxable social costs to the employer or does the value of the card generate taxable income for the user?
- Are social insurance contributions due on the value of the MultiSport cards?
- Shall VAT be charged on the value of the MultiSport cards?
- Application of the Corporate Income Tax Act (CITA)
If, according to the way of provision of in which the MultiSport the latter represent “social costs provided in kind”, an obligation incurs for the employer to tax the costs in compliance with the CITA.
That obligation for the employer will occur when the following conditions are at hand simultaneously:
- The employer solely or jointly with other authorities and organizations provides employees with MultiSport cards;
- The cards are available for all the employees;
- The way the cards will be used is specified by the general meeting of the employees or by the management of the employer’s enterprise;
- The cards are reported as costs and are justified through documents under the sense of the CITA;
- The cards are provided in kind, i.e. they are entirely at the expense of the employer and no financial relations with employees arise in respect of these cards.
The tax base will be formed by the accrued social costs, provided in kind, less the income associated with those costs for the respective calendar year. The rate of tax is 10%. The tax is declared with the employer’s annual tax return.
- Application of the Individuals Income Taxes Act (IITA)
The taxable income generated by employment relations does not include the social costs at the expense of the employer, taxed in accordance with the CITA. Therefore, social costs provided in-kind are not included in the taxable income of individuals and are not taxed under the IITA.
There will be no social cost which has been provided in kind if the MultiSport cards are entirely or partly at the expense of employees. This is most often done through withholding from the salary after the employee’s explicit written consent for the withholding. The rules for taxation of the individual’s income will then apply, including regarding the assessment of whether taxable income is generated and the amount of the tax rate.
If the value of the MultiSport cards is entirely at the employee’s expense, neither social benefit will be at hand nor the value of the card will be taxable income.
- Application of the Social Insurance Code (SIC) and Health Insurance Act (HIA)
As a rule, social insurance contributions are paid on the social costs in cash or in kind.
State social insurance, supplementary mandatory pension insurance and health insurance contributions are due regarding the part of the value of the cards paid by the employer as a social benefit in kind. The contributions are due in compliance with the rules of the SIC and HIA.
If the part of the value of the cards paid by the employer is not at the expense of the social costs, then the value should be included in the monthly salary of the employees and on these sums social insurance contributions, supplementary compulsory pension insurance and health insurance in compliance with the rules of the SIC and HIA are due.
The portion of the value of the cards that is deducted from employees’ salaries is not social insurance income and no social insurance contributions are due on these amounts.
In this sense are the explicit replies of the National Revenue Agency.
The clarifications given by the National Revenue Agency confirm the above as well.
- The application of the Value Added Tax Act (VATA)
The most important question is whether the right to deduct tax credit in connection with the provision of MultiSport cards arises for the employer’s company. For tax purposes, the subject of the supply is the supply by the company of a sport-related service.
If the cards are entirely paid by the employer, i.e. free for the employees, then a right to deduction of tax credit for the employer will not be at hand. If the cards are entirely at the expense of the employees, then there will be a right to deduct tax credit in respect of the tax charged on the acquisition of the cards.
In case of provision of the cards to the employees for consideration, VAT should be calculated in compliance with the VAT rules for determination of the tax base for related parties, since the employer and the employee are namely related parties.