Many companies give gifts to their clients and employees at the end of the year, but may not be aware of the tax implications of their generosity.
Tax Implications of Gifts to Employees
Currently, gifts are taxed under paragraph 2(a) of the Seventh Schedule of the Act as an asset, commodity, goods or property of any nature provided by the employer to the employee at no cost or a cost which is less than the market value of that item. South Africa has no minimum floor value below which employer-provided gifts are tax-free.
Some examples include gift vouchers, prizes or awards; physical items such as a mobile device; and intangible gifts such as flights or accommodation. This applies whether the gift is given to an employee or an employee’s family member, such as a spouse or child. The cost to the employer of any such gift must be reflected as a taxable fringe benefit on the employee’s payslip, and PAYE must be calculated and deducted.
Tax Implications of Gifts to Suppliers and Clients
Corporate gifts are often given to suppliers and clients by companies to show their appreciation and build relationships. These expenses can be tax deductible as marketing expenses or as cost of sales expenses, but the onus will rest on the taxpayer to prove to SARS that these expenses were incurred in the production of income.
In order to claim the Input VAT, ensure your invoices meet the requirements for a valid tax invoices.