Q: Every year, the our company rewards the highest achieving sales employees with a trip outside Bulgaria. Employees spouses and/or partners are able to join this trip and the company pays for all charges incurred whilst the employees are on this vacation.
Can you please advise about the correct treatment for these trips, also please answer the following questions:
1. Is the total amount of the trip a benefit in kind
2. Is only the spouse/partners costs considered a benefit in kind.
3. If a percentage of the trip is work, can the whole trip be claimed as work related and therefore non taxable
4. If the above is true, is then only the spouse/partners costs considered a benefit in kind and taxable.
Answer:
1. Is the total amount of the trip a benefit in kind? – The total amount of the trip could be treated either as “Benefit in kind” and processed through the payroll as taxable benefit or alternatively processed through the company’s accounting and treated as “Representation expenses related to the activity”. Provided that the employee’s regular monthly salary is more than BGN 2000, from tax implication point of view both options mentioned above are eligible. Through the payroll will be paid 10% Personal Income Tax or alternatively 10% Tax on the Representation expenses through the company’s accounting.
2. Is only the spouse/partners costs considered a benefit in kind? – The spouse/partners costs cannot be treated as benefit in kind as there is no employment relation between the company and the spouse/partner. You need also to consider that when there is no economic relation between the 2 parties, the individual is obliged to declare in his annual personal tax return any pecuniary and non-pecuniary awards in games and competitions, these awards not being provided by an employer or an assignor and to pay 10% Personal Tax on this income. Despite of that and due to the fact that there is only secondary relation between the parties and the individual spouse/partner receives indirectly the award, the above mentioned shall not be applied in this case. Therefore the total cost of the trip away shall be processed either through the payroll or through the accounting of the company.
3. If a percentage of the trip is work, can the whole trip be claimed as work related and therefore non taxable? – We’d rather say no. The percentage of the trip away which is related to work shall be processed through the company’s accounting as deductable business trip expenses to the extend and amounts determined in the Bulgarian accounting legislation. The other part which is connected with leisure, as previously advised, shall be processed and taxed either through the payroll or though the accounting.
4. If the above is true, is then only the spouse/partners costs considered a benefit in kind and taxable? – We deem incorrect the award’s separation between the employee and his spouse/partner due to the indirect and secondary relation between the company and spouse/partner. Therefore either the total cost of the trip away shall be treated as benefit in kind and processed through the payroll or alternatively processed through the accounting as Representation expense.
