The booking of entertainment costs is part of the everyday life of accounting. However, the hospitality receipt is important for the tax recognition of entertainment costs as business expenses. The tax authorities have recently announced the principles for which hospitality receipts will be recognised.
It is not uncommon for customer meetings or possible cooperation talks between business partners to take place over a joint meal. If the invoice is then taken over by the company, the question arises for the accounting department: How is the business transaction to be booked?
Claiming entertainment costs for tax purposes
In principle, entertainment costs are only partially recognised for tax purposes: According to Section 4 (5) No. 2 of the Income Tax Act, only 70% of entertainment costs are tax-deductible. However, this part is only deductible if appropriate proof is provided. According to § 4 (5) sentence 1 number 2 sentence 2 EStG, this must be written proof of the place, day, participant and occasion of the hospitality as well as the amount of the expenses.
The prerequisite is a hospitality receipt
The accounting department must therefore ensure that both the entertainment costs are correctly booked with a deductible and non-deductible part, and that there is a hospitality receipt that is accepted as proof. In a letter from the Federal Ministry of Finance dated 30 June 2021, the tax authorities have taken an up-to-date position on the requirements placed on a hospitality receipt. In this context, the Federal Ministry of Finance first points out that written information must be provided promptly to prove entertainment expenses. The hospitality receipt can be created as a self-receipt. An informal document is sufficient, but must be signed by the taxpayer.
Contents of a hospitality receipt
If the business meal takes place in a catering establishment, for example a restaurant, then the invoice must be attached to the hospitality receipt. The requirements for the invoice are based on the VAT requirements according to sec. 14 of the German VAT Act. The letter explains the following contents of a hospitality invoice:
- Name and address of the supplier (catering business)
- Tax number or VAT identification number
- Date
- Invoice number
- Specifications
- Time of performance
- Amount invoiced
- Name of the host
Note: Special regulations apply to small-value invoices up to 250 euros. In this case, information according to sec. 33 of the German VAT Implementing Ordinance is sufficient, i.e.: the full name and address of the supplier of the supply, the date of issue, the quantity and type of the goods supplied or the scope and nature of the other service and the consideration and the amount of tax attributable thereto for the supply or other service in one sum as well as the applicable tax rate or, in the case of a tax exemption, an indication that that a VAT exemption applies to the supply or other service.
In the letter, the tax authorities expressly address hospitality receipts created by electronic recording systems. Catering establishments must take care to create receipts that meet the verification requirements. In addition, the tax authorities explain special features, such as:
- How should the receipts be prepared if the certified technical safety device (TSE) fails?
- How are food vouchers handled?
- How can hospitality receipts be created and stored digitally?
- What should be considered when hosting abroad?
Tax audits often take a close look at entertainment costs
Entertainment costs are regularly in the focus of the tax offices. The accounting department should therefore make sure that the costs are not only booked correctly in terms of amount, but also that the receipts are created and stored correctly. Tax auditors regularly like to take a close look at these documents. Accountants should always be up to date on the requirements of the administration. If a tax audit finds that the burden of proof is not sufficient, the expenses are regularly not recognised and high back tax payments may be due. This can be avoided in advance.
With external accounting services, your accounting is always up to date. Are you already using external support in finance and accounting? If you are thinking about outsourcing parts of your accounting, please feel free to talk to us. We will be happy to advise you.
Image Credit: Unsplash, Photographer: Shangyou Shi
Author
Sylvia Meier
Guest Author
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