What are entertainment expenses?
Representation expenses refer to expenses incurred by an employee in the course of his or her professional duties, specifically to maintain, develop and consolidate the company's network of business relations, and to ensure rigorous customer follow-up. These expenses, borne by the company, are essential to enable an employee to establish, strengthen and retain his or her business network and clientele.
Types of entertainment expenses
Effective representation expenses
Effective entertainment expenses correspond to expenses actually incurred by an employee as part of his or her professional activity within the company.
These expenses, must in principle be reimbursed by the employer according to Article 327a of the Swiss Code of Obligations (CO) provided that the employee presents the justifying evidence of these expenses. Reimbursements made by the company are not considered taxable income for the employee.
All employees are entitled to effective entertainment expenses.
Flat-rate representation expenses
Flat-rate entertainment expenses are predetermined allowances granted by the employer to cover expenses related to representation, in which case the employee does not need to provide detailed supporting documents for each expense.
These allowances can be calculated as a percentage of the employee's total gross salary, with specific rates and ceilings set according to salary. If the employee fulfills the conditions, the lump-sum entertainment allowance received is not taxable.
Only certain employees are eligible for flat-rate entertainment expenses.
Who is eligible for flat-rate representation expenses ?
Eligibility for lump-sum entertainment expenses does not depend solely on the employee's function or professional title. In fact, the tax authorities have decided not to rely on these criteria. The reason is simple: a specific title or function does not necessarily guarantee an effective and personally assumed duty of representation.
To remedy this problem, the level of remuneration is used as the determining criterion. According to Information N°6/2005, an employee is considered to have a strong duty of representation as soon as his total gross salary reaches or exceeds the amount of CHF 150,000 per year, assuming a degree of occupation of 100%.
Please note that for employees with a total gross salary below the CHF 150,000 threshold, lump-sum payments for entertainment expenses will be taxed as income.
It is also important to note that even if the salary threshold is met or exceeded, the tax authorities may require the employer to provide further evidence of the employee's strong duty of representation.
How is the lump-sum representation allowance calculated ?
Rates and sample calculations
5% of total gross salary up to CHF 250,000
This rate applies when the employee's total gross salary does not exceed CHF 250,000 per year.
For example, if an employee has a gross salary of CHF 200,000, the lump-sum entertainment allowance would be CHF 10,000 (5% of CHF 200,000).
10% for total gross salary in excess of CHF 250,000
If the employee's total gross salary exceeds CHF 250,000, then a rate of 10% applies to the excess portion.
For example, if an employee has a gross salary of CHF 300,000, the allowance would be calculated as follows: 5% of CHF 250,000 (i.e. CHF 12,500) plus 10% of CHF 50,000 (i.e. CHF 5,000), the total entertainment allowance would be CHF 17,500.
Limits
An absolute ceiling of CHF 100,000 per year has been set for the lump-sum allowance. This means that, regardless of the gross salary, the lump-sum allowance cannot exceed this amount.
Admission protocol and procedure
When introducing lump-sum entertainment expenses, employers must follow a specific admission protocol to ensure that these lump-sum allowances are not considered as taxable income for their employees.
- Establishing a list: The employer must draw up a detailed list of personnel who benefit from lump-sum entertainment allowances. This list must include relevant information on each employee, such as name, position, total gross salary, and the amount of the lump-sum allowance. Download the list.
- Submission to the tax authorities: Once the list has been drawn up, it must be submitted to the tax authorities for approval. This is a crucial step to ensure that lump-sum allowances are not treated as taxable income.
- Waiting for approval: After submission, the employer must wait for approval from the tax authorities. If the administration has any questions or doubts, it may request additional information or clarification.
- Implementation: Once approval has been obtained, the employer can begin paying the lump-sum allowances to the employees concerned, in accordance with the rates and ceilings established.
- Monitoring and updating: It is essential to regularly update the list of personnel benefiting from lump-sum allowances, particularly in the event of changes in salary, position or other relevant circumstances. In addition, the employer must be prepared to provide justifications or evidence of the duty of representation if requested by the tax authorities.
An alternative, is to adopt the FER-Genève guidelines on expenses, thus dispensing the employer from the need to draw up a list of employees. On the other hand, the company is required to send a letter to the tax authorities each year, certifying that the lump-sum entertainment expenses paid to employees comply with the conditions set out in Information 6/2005.
Conclusion
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FAQ - Representation expenses
Criteria for lump-sum entertainment expenses include having a significant entertainment duty.
In Geneva, the salary criterion is decisive. Employees earning CHF 150,000 or more a year are eligible for this tax-free lump-sum allowance.
The lump sum is calculated on the basis of gross salary. A first bracket of 5% applies to salaries between CHF 150,000 and 250,000. A second bracket applies to salaries in excess of CHF 250,000.
The maximum limit is CHF 100,000.
The list of employees who will benefit from the lump-sum allowances must be drawn up and submitted to the tax authorities for approval.
Another solution is to adopt the FER Ciam agreement model.
Lump-sum expenses are paid at the same time as the employee's salary.
They do not form part of the salary and are not subject to social insurance.
