Every responsible company aims to create a pleasant work environment for its employees, develop team spirit and strive to nourish the best possible interpersonal relations, which are the prerequisites for the employees to achieve good results and remain productive and motivated.
What has recently become a popular means of achieving this objective is the increasingly popular concept of team building. Companies organize various forms of recreation for their employees, ranging from those taking place at the company premises, to different types of corporate recreation and events aimed at building a good relationship among the employees, as well as between employees and their employers.
IT companies in Serbia have become the leaders in organizing various team building events, so the novelties introduced by the Law will be particularly appealing to the IT sector.
Specifically, up to January 01, 2019, team building costs, organizing recreation and sports events have been considered as a profit, i.e., employee benefits, and therefore, companies had to pay the income tax for this disbursements, as well as contributions for obligatory social security based on income.
However, the amendments to the Personal Income Tax Law stipulate that team building costs are not subject to taxation if the requirements of certain (by)laws have been met. The enforcement of the Regulation on exercising the right to tax exemption for organizing recreation, sport events and activities for employees has closely regulated the requirements to be fulfilled by companies to achieve tax exemption on this basis.
This means that companies will be able to, for instance, buy exercise equipment which will be placed within the business premises, rent an indoor basketball or futsal court, take their employees mountain climbing, or to dinner, without being obliged to pay income taxes and contributions. As of now, these disbursements are as of now considered company’s business expenditures.
In order to be entitled to tax exemption, companies must first meet two general requirements:
1. Team Building Activities Shall Be Performed In Compliance With the Company Regulations.
This means that internal acts must be comprehensively drafted by experts, in order to be eligible for this incentive.
2. Every company employee is entitled to a recreation of the same type, quality and scope, i.e. recreation that involves the same kind of sport activities or disciplines, using the same sport courts or contents for each employee. In order words, such recreation involves the same service provider or the same service provision organizer, for each employee.
The second requirement does not have to be fulfilled if the company, based on appropriate documentation, provides confirmation that certain employees or employee group displays the need for recreation of a different type, quality and scope, in comparison to other employees.
The following company disbursements are subject to tax 1) to create and maintain conditions for employee recreation at the workplace, 2) for corporate employee recreation 3) to organize sport events and activities of employees conducted to improve the health of employees and/or building a better relationship among the employees, as well as between the employees and their employers (team building).
The recreation of the same type and quality is legally recognized as every type of sport activity that aims to improve the health of employees, regardless of the type of sport props or rooms which may be used by all employees on equal terms. Accordingly, the expenses of the recreation at the workplace would include all costs disbursed by the employer for the building of the premises and/or purchase of the recreation equipment – for instance, if you wish to place the basketball hoops in the backyard of your office, or to set up the table tennis in the chill-room, such expense would be classified under this category.
A company is eligible for tax exemption if the following requirements are met:
- if such company disbursements have been recorded in such a way as to confirm the type and amount of disbursement with certainty – hence, you have to keep the proof on how much have you invested in the paddles, and how much for the basketballs;
- if payment was performed directly to the account of the suppliers, with respect to company disbursements;
- if the General Rulebook of the company regulates the right of all employees to recreation at the workplace, whereby the company is obliged to enable conditions for recreation;
- if the General Rulebook of the company stipulates that all employees are entitled to use recreation rooms and equipment, as well are entitled to recreation of the same type, quality and scope.
However, if due to a large number of employees, physical or functional division of business and organizational units and other particularities of the company’s business activities, the use of recreation rooms and equipment by all employees is obstructed, the right to tax exemption may be achieved if other internal rooms or equipment allow adequate recreation of the same type, quality and scope , and this is also to be foreseen by a General Rulebook of the company. In other words, if your Belgrade crew prefers to play some minifootball afterhours, whereas your employees from Novi Sad branch are more eager to spend some time on Fruška gora on the Saturday mornings, that does not have to affect your eligibility for this benefit, as long as you provide the same conditions for the teambuilding for both teams.
Companies will be given the opportunity for tax exemption if they meet the following requirements:
- if the General Rulebook of the company regulates the right of employees to recreation in such a way so that reimbursement is performed on this basis;
- if teamwork recreation is available to all employees under the same conditions, i.e. recreation of the same type, quality and scope for all employees;
- if such reimbursement is recorded in a way as to allow the identification of the type and amount of disbursement;
- if teamwork recreation reimbursement is performed by direct payment to the account of the suppliers.
Teamwork recreation includes the following:
If you cannot provide teamwork recreation to all employees at the same time, at the same place, the same rule applies as for every other recreation organization of employees in the workplace. In other words, it is necessary to allow an adequate time and space arrangement which shall allow recreation of the same type, quality, and scope for all employees, and that it is particularly foreseen and elaborated in the General Rulebook of the company.
This form of recreation involves the improvement of the health of employees and building a better relationship between the employees, as well as between employees and the employer. Expenses for an escape room, paintball, or taking your employees to an amusement park fall under this category.
What Are the Requirements for Tax Exemption?
What does this practically mean? Simply put, two conditions must be met:
- on the number of employees that have the opportunity to participate = 70% of all the employees, as well as the condition
- on the number of employees that have actually participated = 70% of the employees who had the opportunity to participate.
However, if due to a large number of employees, physical or functional division of business and organizational units and other particularities of the company’s business activities the company organizes several individual sport events or activities, whereby their type and scope may vary in relation to such circumstances and particularities, the requirements are considered to be met if at least 70% of the total number of employees of the respective business year are entitled to participate in such events or activities.
Companies are required to provide the appropriate documentation as evidence, containing information on the sent invitation to sport events and activities and attendance.
It should be particularly emphasized that those employees prevented from participating in such activities (due to sick leave, vacation leave and other reasonable grounds for absence from work), are included in the total number of employees who have used the right to take part in such events or activities, provided that such employees provide adequate evidence on their grounded and justified absence from the teambuilding.
Are contributions calculated in the event when conditions for tax exemption are fulfilled?
The answer is no!
If the fulfilled conditions under which a tax exemption may be achieved on the basis of organizing the aforementioned activities, the employer, besides being exempt to income tax, during these disbursements, is not obliged to calculate the obligatory social security contributions, in accordance with the social contributions legal regulations.
Such tax treatment will certainly encourage companies to organize various forms of recreation for their employees to an extent greater compared to the period when these disbursements required the payment of taxes and contributions.
However, when organizing recreational events, companies must pay special attention to all the requirements stipulated by both the Personal Income Tax Law and the Regulation on exercising the right to tax exemption for organizing recreation, sport events and activities for employees, to become legally eligible for tax exemption.
Now, when you have adequately gathered all the information, it is time for a new teambuilding!