1. INTRODUCTION 

The Tax Department has announced in October 2018 its intention to terminate the previous tax practice in relation to the benefits in kind, and instead provide clear guidelines as to the proper valuation of the benefits in kind, for the purpose of consistency, clarity and uniformity, clearing any ambiguities.

The broad definition of the Article 5 of the Income Tax Law in relation to the tax treatment of the benefits in kind, necessitate for a change as the previous tax practice was leaving room for the taxpayers to define and calculate the value of the Benefits in Kind in accordance to their discretion, allowing a more relaxed approach.

Based on the guidance, clear provisions for the valuation of the benefits in kind are set out, applicable as from 01.01.2019. Nevertheless, the subject provisions may be applied for previous years as well.

1.     DEFINITIONS AND APPLICATION

Benefit in Kind ("BIK") is
considered to be the benefit that is, or is deemed to be, granted in connection
with any employment or the holding of an office.

The
benefit can be in the form of cash or any other cash equivalent received under
an employee - employer relationship, or by a connected person[1] of
the employer, or by third parties. The benefit is also applicable to self-employed
persons, but the tax treatment will not be covered in the present brochure.

I.
Application

The benefits in kind apply to the below individuals:

Ø    Employees:

• With or without employment contract
• Under a part time or full time employment
• Existing or former employees

Ø    Individuals, who are members of the
family / household of the employee

 

Ø    Individuals who hold or considered to
hold an office:

• Directors
• Individuals who exercise duties similar to
  the Directors'
• Individuals who exercise control

II.
Categories of benefits in kind

Benefits related to the use of cars

Benefits related to accommodation

Other benefits

2.     ANALYSIS
OF CATEGORIES OF BENEFITS IN KIND

I.
Benefits Related To the Use of Cars

A BIK related to the use of
cars arises where there is a usual element of private use as defined below:

• The car is at the disposal of an individual,
  or;
• The car is used on non-working hours, or;
• The car is not kept at the premises of the
  employer during the night or the weekends, or;
• The car is used for private purposes;

The BIK does not arise to
employees who are drivers, messengers, distributors or other persons, for whom
the use of the car is necessary for the execution of their duties, provided
that they use the car during working hours.

The
three types of benefits in kind related to the use of cars are as follows:

a.
Use of saloon car belonging to the employer

b.
Reimbursements / use of cars belonging to the
employee, for business purposes

c.
Use of commercial car (van) belonging to the
employer

a.
Use
of saloon car belonging to the employer

A BIK arises where there is
a usual element of private use and its value is calculated as follows:

b.
Reimbursements
/ use of cars belonging to the employees for business purposes

Reimbursements for the use
of cars belonging to the employees which are used for business purposes are
divided into the three following categories:

• Reimbursement for the wear & tear of the
  use of cars
• Reimbursement for both the wear & tear of
  the use of cars and the fuel expenditure;
• Reimbursement only for the fuel expenditure;

The valuation of the BIK is further analysed in the below
diagram:

Conditions for the use of
the "kilometres travelled" basis

In the case that the
employer compensates the employee on a "kilometres travelled" basis, then the
compensations received by the employee are not considered BIK, if the below
conditions apply:

Restriction

If an individual receives
multiple reimbursements either from the employer, or a related party of the
employer, or multiple employers (if the individual has more than one employment)
in relation to the use of private car or/and fuel expenditure, the deduction of
50% on the reimbursement or the € 1.500 deduction may only claimed once (i.e.
in respect of only one reimbursement).

c.
Use
of commercial car (van) belonging to the employer

Commercial car (van) for tax
purposes is considered to be:

• the vehicle that is manufactured for
  transportation of goods (rather than for transportation of persons), and
• with maximum weight 3.500 kg

Benefit is raised from the
use of commercial cars in the instance that such use is being made for private
purposes.

The BIK is valued at the
fixed amount of €500 per year, regardless of the type, model or year of
manufacture/registration of the relevant commercial car.

II.
Benefits related to accommodation

The provision of assets to
the employee when they belong to the employer and/or leased and/or rented by
the employer, can be considered as benefits in kind.

The private use of the below
assets, falls within the scope of benefits related to accommodation:

• Accommodation
• Furniture
• Boats
• Aircrafts
• Machinery

The BIK arises:

• On the date that the individual moves into the property, if the benefit is
  related to immovable property
• On
  the first day at which the asset is put to the disposal of the individual, if
  the benefit is related to assets other than immovable property

The annual
value of the benefits in kind for the use of assets applies for as long as the
asset is at the disposal of the beneficiary and is determined as follows:

Deductions:

The
amount paid by the employee in relation to the use of the assets (rent/lease/bills
or other expenses) is deducted from the calculation of the BIK.

 III.
Other benefits

Any other BIK
that does not fall within the Use of Car or Accommodation categories mentioned
above, is considered to fall into this category.

In general, the
value of the benefits in kind in this category is the market value (normal
selling price less discounts provided to the general public) reduced by the
price paid by the employee. However, the guidance issued by the Tax Authorities
provides for specific treatment for the following cases:

 

3.
EXEMPTIONS

There
are various cases where the employee receives a benefit which is not considered
to be taxable as a BIK. It is important however to stress out that as a general
principle, exemptions apply only to the extent where the payment or reimbursement
to the employee is made against actual costs supported by payment receipts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exemptions do not apply where the relevant BIK takes the form of cash.

Any payment receipts which
are reimbursed must be kept by the employer for future assessment carried out
by the Tax Department.

4.
TAX TREATMENT

The benefits are taxed in
accordance to Article 5 of the Income Tax Law, by which the value of the
benefit is added to the income of the individual. The value of the benefit is
calculated according to the guidance as analysed in the present brochure.

The BIK added to the income
of the individual is taxed under the progressive tax bands, and the respective
tax is withheld via the Pay As You Earn system on a monthly basis.

The individuals are
responsible for informing the employer for any benefits in kind received.
Failure to declare the benefits in kind entails to additional taxation in
accordance to the Assessment and Collection of Taxes Law of 1978.

5.     HOW
KINANIS LLC CAN ASSIST

Kinanis LLC is in a position
to assist you with the provision of the following services:

• Assistance to the computation and the tax
  treatment of benefits in kind
• Payroll and Accounting Services
• Completion and submission of annual tax
  returns
• Assistance to tax and legal related matters

6.     DISCLAIMER

This publication has been
prepared as a general guide and for information purposes only. It is not a
substitution for professional advice. One must not rely on it without receiving
independent advice based on the particular facts of his/her own case. No
responsibility can be accepted by the authors or the publishers for any loss.

March 2019

[1] (a) An individual is connected with another
individual if the first individual is the spouse or relative of the second
individual, or the spouse if a relative of the second individual, or relative
of the husband or wife if the second individual;

(b) a person is connected with any person
with whom he is in partnership, and with the husband or wife or relative
of any individual with whom he is in partnership;

(c) a company is connected with another company -

(i) If the same person has control of both. or a person has control of one and
persons connected  with him  have control of the other; or

(ii) if a group of two or more persons has control of each company, and the groups
either consist of the same persons or could be regarded as consisting or the
same persons by treating (in one or more cases) a member of either group as
replaced by a person with whom he is connected,

(d) a company is connected with another person if that person has control of it
or if that person and persons connected with him together have control of it

(e) any two or more persons acting together to secure or exercise control or a
company shall be  treated in relation to
that company as connected with one another and with any person acting on the
directions or any of them to secure or exercise control  of the company.