deAlexandra Ristin September 12, 2023

What are social expenses and their deductible limit?

Among the facilities that companies can benefit from when calculating corporation tax are social expenses.

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Social expenses are certain types of expenses that companies can incur and which have a limited deductibility for corporate tax purposes. More specifically, social expenses are deductible up to a rate of 5% applied to the value of staff salaries, according to the Labour Code.

The classification of expenditure as social expenditure is important for corporate tax payers. Payroll expenses are those recorded in the accounts as gross payroll expenses.

Here are the types of expenditure that can be covered:

  • funeral aid, aid for serious and incurable illnesses, aid for childbirth, aid for prostheses, aid for losses in one’s own household, aid for children in schools and care homes
  • expenditure on the proper functioning of establishments run by the firm, such as schools, museums, libraries, canteens, sports centres, clubs, retirement homes and similar establishments
  • expenditure on: gifts in cash or in kind, including gift vouchers for employees and their minor children, health services for occupational diseases and accidents at work up to admission to a health establishment, cultural and crèche vouchers granted by the employer in accordance with the law, the cost of tourist and/or treatment services, including transport, granted by the employer to its own employees and their family members, and contributions to the intervention funds of miners’ trade associations
  • other expenditure of a social nature incurred on the basis of a collective labour contract or an internal regulation

Expenditure under the collective labour agreement is expenditure of a social nature laid down in collective labour agreements at national, branch, group of units and unit level.

The deductibility of this expenditure is limited to 5% of staff salary costs, meaning that:

  • if you incur social security expenses up to 5% of staff salary costs, these are fully deductible in the calculation of corporate income tax
  • if the amount of this expenditure exceeds 5% of the wage bill, the part exceeding this amount will be considered non-deductible expenditure.

The nature of this social expenditure is specified in Article 25(3)(a) of the Tax Code. Paragraphs 1, 2 and 3 list the types of expenditure considered to be of a social nature; in paragraph 4 of this article the legislator leaves it up to the taxpayer to decide what other expenditure of a social nature he will grant for the benefit of employees. These other expenses will have to be included in the internal rules of the company. Therefore, in these rules you will indicate what other types of expenditure you wish to grant to employees.

As regards the transfer of money to electronic gift cards, since point 3 states that gifts in cash can also form part of social expenditure, without specifying the specific method of settlement of the sums, it appears that it is possible to grant sums via gift cards.