Free goods provided to the company's customers and contractors

Service-Tax

Marketing is a very important sphere of activity of every entrepreneur. An appropriate advertising campaign allows you to reach the widest possible group of potential customers and contractors. One of the ways to attract attention and interest in your offer is to give freebies as part of the promotional packages offered. We will explain the tax consequences of free goods being transferred, both for the sender and the recipient, in this article.

Free goods and the tax situation of the recipient

Whether tax income will arise from receiving the free bonus depends in the first place on determining the status of the free recipient.

If the recipient is a natural person who does not conduct business activity for free, it is worth pointing to the content of Art. 21 sec. 1 point 68a of the PIT Act, according to which the value of free benefits received from the service provider in connection with its promotion or advertising is free from income tax, if the one-off value of these benefits does not exceed PLN 200. It is essential that the gratuitous goods are provided for the promotion or advertising of the entrepreneur.

On the other hand, if the value of the free gift exceeds PLN 200, tax is applied to its entire value (not only its surplus over the above-mentioned limit). The value of the free gift should be classified as income from other sources.The entrepreneur who donated for free is not obliged to collect the tax. His only obligation is to prepare the PIT-8C information, which he should provide to the taxpayer (recipient) and the competent tax office by the end of February of the next tax year. The tax is paid by a natural person by showing the value of the gratuity in the annual tax return.

In a situation where the recipient of the gratuity is an entrepreneur, the value of the gratuity, as a rule, constitutes tax income for him. The tax exemption described above does not apply in this case. As a result, if it presents commercial value for free, the entrepreneur should recognize the income from the conducted business activity upon its receipt.

Example 1.

Mr. Tomasz bought a mobile phone worth PLN 700. As a free gift, he also received a pendrive worth PLN 50. There was an entrepreneur's logo on the pendrive. As a result, it can be assumed that the free offer was aimed at promoting the company. This means that the gratuity value is tax-exempt for Mr. Tomasz under Art. 21 sec. 1 point 68a of the PIT Act.

Example 2.

A taxpayer running a business purchased a car under leasing. Additionally, he received a set of winter tires for free. The value of the tires is the entrepreneur's income from the conducted business activity.

Free goods expenses as a tax deductible cost

It should be pointed out that expenditure on various types of campaigns and advertising campaigns, as a rule, are aimed at generating income or maintaining or securing a source of income. These activities are aimed at acquiring new customers and promoting the brand.

In the current legal status and in the light of the issued individual interpretations, if the free goods provided are provided with the company's logo and transferred in connection with the conducted business activity, then the expenses for the purchase or production of the bonuses constitute the entrepreneur's tax deductible cost (cf. individual interpretation of the Director of the Tax Chamber in Katowice of September 11, 2012, no.IBPBI / 2 / 423-612 / 12 / MS).

In addition, it is worth noting that if the entrepreneur provides free goods to a wide group of potential consumers or contractors, such actions should not raise any doubts. However, it may be risky to give expensive, one-off giveaways to specific contractors. This behavior may arouse the interest of the tax authorities.

Free goods and the consequences of VAT

Pursuant to the provisions of the Act on tax on goods and services, the free transfer of goods for which the input tax was entitled to deduct requires the payment of the tax due on such transfer (Article 7 (2) of the VAT Act).

However, pursuant to Art. 7 sec. 3 above of the Act, the above principle does not apply to gifts of small value and samples, if the transfer takes place for purposes related to the taxpayer's business activity.
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Gifts of small value (freebies) are goods transferred by a taxpayer to one person:

  • with a total value not exceeding PLN 100 in the tax year - if the taxpayer keeps a record allowing for the identification of these persons,

  • whose transfer is not included in the above-mentioned records, if the unit purchase price of the goods (without tax), and if there is no purchase price - the unit production cost, determined at the time of handing over the goods, do not exceed PLN 10.

As a consequence, if the entrepreneur, as part of the promotional campaign, provides the free goods to the customer or contractor that meet the above requirements, such transfer will not result in a tax obligation. In addition, the entrepreneur will retain the right to deduct the input tax charged on the purchase or to produce such a gratuity.

Example 3.

The entrepreneur purchased a set of calendars worth PLN 80 net each (VAT tax PLN 18). The calendars were free items. As a result, the provision of goods in the form of gratuities will not be subject to VAT. Nevertheless, the entrepreneur has the right to deduct input tax on the purchase of calendars.