Employee discount
The term Employee discount refers to the benefits employers grant their employees when purchasing goods or services from their own company. The legal handling of the employee discount is primarily regulated in Germany by tax law, but also by employment and social security law. The following provides a comprehensive overview of the full legal scope of the employee discount.
Definition and distinction of the employee discount
Definition
Ein Employee discount is a benefit granted by an employer to its employees, allowing them to purchase products or services of the company at a price below the retail price. It is also referred to as a staff discount or employee benefit.
Distinction from other benefits
Employee discounts are clearly to be distinguished from other employee benefits, such as monetary advantages from company cars or accommodation. While the latter are often assessed and taxed as non-cash benefits, a specific tax privilege applies to the employee discount.
Legal basis of employee discounts
Income tax treatment (under § 8 para. 3 EStG)
The Income Tax Act (EStG) regulates the employee discount in § 8 para. 3. It specifies to what extent the benefit is considered a non-cash benefit for tax purposes.
- Non-cash benefit: An employee discount generally constitutes taxable employment income, as it arises from the employment relationship.
- Tax exemption amount: According to § 8 para. 3 sentence 2 EStG, a discount exemption amount of 1,080 euros per year and employee remains tax-free.
- Basis of valuation: For taxation, the difference between the usual retail price at the place of delivery and the price actually paid by the employee must be determined.
- Discounts from third parties: If price reductions are granted by third parties (suppliers, partner companies), these are generally not eligible under § 8 para. 3 EStG. Here, a taxable non-cash benefit may exist.
Example of taxation
If an employee purchases a product with a market price of 1,200 euros for 600 euros, the discount is 600 euros. After deducting the exemption amount (1,080 euros), there is no taxable benefit.
VAT treatment
For transactions between employer and employee, the standard VAT rules apply; this means the employer must pay VAT on the discounted price. Special rules may apply under § 3 para. 9a no. 2 UStG if the transfer to employees is considered a barter-like transaction.
Social security treatment
The valuation of the non-cash benefit from employee discounts is relevant for remuneration under § 14 para. 1 sentence 1 SGB IV. If a non-cash benefit exists, it is generally subject to contributions, provided the discount exemption amount is exceeded.
Practical requirements and forms of employee discounts
Requirements for tax privilege
- Spatial relevance: The benefit must relate to goods or services of the company that are also offered to third parties on the market under comparable conditions.
- Actual procurement of goods: The discount is only granted if the employee acquires goods or services for personal use or for the needs of their household.
- No cash payments: Monetary compensation payments are not recognized as employee discounts.
Forms
- Direct price reduction: The price for a product or service is reduced directly.
- Bonus systems: If the company uses point systems, these can also qualify as employee discounts.
- Sale of defective goods: It must be ensured that the usual retail price at the place of delivery remains the benchmark for valuation.
Tax and legal risks
Incorrect or missing documentation
Incorrect or improper documentation of granted discounts can lead to back taxes and social security consequences. Employers should document the application of the exemption amount in a verifiable manner.
Impermissible cash or voucher grants
If the employee receives cash payments or general vouchers instead of the discounted product, this does not constitute an employee discount within the meaning of § 8 para. 3 EStG. Incorrect handling can lead to tax disadvantages.
Special cases and exceptions
Public companies and corporate groups
In group companies, it is possible for employee discounts to be granted by affiliated companies. The prerequisite is a corresponding economic relationship between the companies.
Third-party providers and cooperation models
If a discount is granted by external providers, it is not covered by the tax exemption under § 8 para. 3 EStG. The non-cash benefit is fully taxable.
Case law on employee discounts
The interpretation of the term “usual retail price at the place of delivery” and the tax classification of discounts to employees have repeatedly been the subject of highest court rulings. For example, case law specifies the requirements for providing proof and differentiating from other non-cash benefits.
Summary
Der Employee discount is a benefit granted by the employer to its own employees for the acquisition of company goods or services. Legally, it is primarily regulated under income tax law, with companies bearing special documentation and valuation duties. Significant tax advantages can be obtained through the application of the exemption amount under § 8 para. 3 EStG, provided the statutory requirements are met. Errors in handling, however, can lead to additional wage tax and social security charges, which is why careful implementation is recommended.
Frequently Asked Questions
How should the employee discount be treated for tax purposes?
The employee discount that employers grant their employees on goods or services from their own company is generally regarded as a non-cash benefit and is therefore subject to income tax regulations. According to § 8 para. 3 EStG, a price reduction up to an exemption amount of 1,080 euros per calendar year and employee remains tax-free. To determine the non-cash benefit, the market price (reduced by usual discounts) is decisive. If the granted discount exceeds the exemption amount, the excess is to be treated as taxable income. Special rules apply for certain types of discounts (e.g., in catering or for subsidized meals). A flat-rate taxation of wage tax at 25% under § 40 para. 2 sentence 1 no. 5 EStG is possible in certain cases, especially when non-cash benefits exceed the exemption amount. Employers are subject to extensive documentation and proof obligations.
What requirements must be met for an employee discount to be recognized?
First, the discounted good or service must be one that the employer normally offers as part of its operations (“employer’s own products”). Discounts on third-party goods or services that are merely brokered usually do not fulfill this condition. The employee must also be in an employment relationship with the employer, which can also include apprentices, part-time staff, and, in some cases, pensioners or other beneficiaries. The provision of the good or service must be based on the employment relationship – a private agreement or usual customer discount campaign is not sufficient. The discount must be granted in addition to the salary owed in any case and must not represent a disguised salary conversion.
Are social security contributions also payable on employee discounts?
Yes, insofar as the value of the granted discount, after deducting the annual exemption amount of 1,080 euros and taking into account normal market prices, constitutes a non-cash benefit, social security contributions must generally be paid on this as well. The valuation is analogous to the tax treatment. For the assessment of social security, the non-cash benefit must be added to the contribution-based income, so that the employer has to calculate and remit the total social security contribution as well as income tax.
What documentation obligations does the employer have when granting employee discounts?
The employer is obliged to document all non-cash benefits from employee discounts without gaps. This includes the type and quantity of granted benefits in kind, the respective market price (reduced market price) and the actual prices paid by the employee. Additionally, the employer must be able to demonstrate how the taxable benefit is calculated and when the exemption amount of 1,080 euros has been exhausted. These documentation records must be kept in accordance with statutory retention periods (generally ten years) and presented to the tax authorities or social security carriers upon request.
Are employee discounts also granted voluntarily, or can employees claim a legal entitlement to them?
Employees generally have no legal entitlement to employee discounts without a corresponding contractual arrangement or established company practice. They are usually granted voluntarily by the employer, for example as an additional social or HR measure. Only when employee discounts are expressly provided for in the employment contract, collective agreement or due to long-standing regular practice (“company practice”) may a legally enforceable claim arise. Without such arrangements, the employer remains free to decide whether and to what extent to grant or discontinue discounts at any time.
Are there special features regarding employee discounts in corporate groups?
In corporate groups, there may be tax specifics if employees of one company receive employee discounts from another affiliated company. The prerequisite for applying the exemption amount under § 8 para. 3 EStG is that the companies are deemed “affiliated companies” within the meaning of the law. In practice, documentation obligations must also be observed across the group, and a clear assignment of discounts to individual employees ensured. The tax and social security treatment is then based on the general requirements, with particular attention to transfer pricing and the actual market standard of the discounts.
How does the employee discount affect VAT?
Even when granting employee discounts, special attention must be paid to VAT. The discounted provision of goods or services to employees generally constitutes a taxable transaction for VAT purposes, where the actual payment by the employee is the tax base. If goods or services are provided for free or below purchase price, a free-of-charge benefit as defined by § 3 para. 9a UStG may be present and also subject to VAT. The employer must therefore always check how the transaction is to be classified for VAT purposes and pay the corresponding VAT amounts. Input VAT adjustment is not required, as the transaction serves the business purpose.
Who is responsible for incorrect tax treatment of employee discounts?
The responsibility for the correct tax treatment and payment of tax as well as social security contributions for employee discounts lies in principle with the employer as employer and declarant. If incorrect treatment – such as failure to apply exemption amounts, incorrect calculation of the discount, or lack of documentation – is identified, this can lead to back taxes and contributions as well as late payment fines and possibly penalties. The employer is also required as part of their duty of care to ensure that accounting and allocation of discounts is done properly and that their staff (in particular payroll personnel) are sufficiently trained. In cases of intentional or grossly negligent breaches of duty, criminal consequences may also arise.
