A business owner may claim expenditure on business-related entertainment of clients as a deductible business expense, provided the entertainment costs are not unreasonably high.
Entertainment expenses with a business purpose may include, for example, meetings about ongoing contracts. Potential clients may also be entertained in order to secure future contracts. The legislator requires, however, that the business entertainment figure is adjusted for a private element. This reduction of 30% of the documented expenditure is required because the business owner also participates in the entertainment and these costs are regarded as having a private element. The reduction does not apply to minor courtesies such as coffee and biscuits.
The entertainment receipt must be machine-generated and completed promptly. The receipt must contain the following details:
- Name and address of the restaurant
- Invoice date
- Invoice number
- Date of the entertainment, if different from the invoice date
- Quantity and type of food and beverages
- Invoice total as a single sum including VAT (Umsatzsteuer) and the applicable tax rate
- Purpose of the entertainment
- Names of those being entertained
- Signature of the host
For entertainment expenses exceeding 150, the following additional details must be included, in particular with regard to input tax deduction (Vorsteuerabzug):
- Separate statement of the net invoice amount broken down by tax rate, together with the VAT rate and VAT amount in euros
- Name and address of the host (a handwritten addition by the restaurant owner is sufficient where necessary)
- Tax number of the restaurant
It should also be noted that tips may be claimed as a business expense. As these are not shown on the till receipt, they can and should be noted directly on the invoice and signed by the recipient.
Treatment of Input Tax
The business owner may claim the full input tax deduction (Vorsteuerabzug) on entertainment expenses.
Summary
Reasonable business entertainment results in 70% being deductible as a business expense, but a 100% input tax deduction for the business owner.
Example of Unreasonable Entertainment Expenses
A business owner entertains a client at a five-star restaurant for a total of 560. Among other items, a fine bottle of wine costing 320 is consumed. In this case, the reasonableness of the entertainment may well be called into question, which could lead to a reduction of these costs as deductible entertainment expenses.