Representation expenses: what can you deduct?

What are representation expenses?

Representation expenses are costs you incur to present your business or maintain contacts without direct consideration. They include expenses for eating and drinking with customers, receptions, business gifts or other forms of hospitality, or limited deductible expenses. The tax authorities do not see these as purely business expenses, as they often also provide a personal benefit. Only expenses that demonstrably have a business purpose may be deducted to a limited extent. It does not include private dinners or luxury expenses for yourself.

Representation expenses deductible

The Inland Revenue offers two methods to deduct entertainment expenses: the 80/20 rule or the threshold amount. You choose which is most favourable to you each year.

The 80/20 rule

This rule allows you to deduct eighty per cent of your entertainment expenses. The remaining twenty per cent is not deductible. This is the simplest method and usually favourable for lower expenses.

Calculation example

If you incur EUR 4,000 in entertainment expenses in a year, deduct EUR 3,200 and leave out EUR 800. You don't need to calculate a threshold here.

Threshold amount

You can also opt for the threshold method. This allows you to deduct expenses only once you exceed a fixed amount. The threshold for 2026 is EUR 5,700.

Calculation example

For 6,000 euros of entertainment expenses, only the amount above the threshold is deductible, i.e. 300 euros. In most cases, the 80/20 rule yields more deductions, except for very high expenses.

Which entertainment expenses are deductible?

The Inland Revenue considers the following expenses as entertainment expenses:

• Eating and drinking with clients or business associates
• Receptions, events and corporate gifts

These expenses are limitedly deductible via the method chosen. You cannot claim expenses that have no business purpose, such as personal gifts or private dinners. Keep receipts and note the business purpose of each expense to keep the distinction clear.

Conferences and seminars

Expenses for conferences, seminars and study days have limited deductibility. They often have a partly business, partly informal character. If the congress is about your field or business, you may deduct the costs. Think of registration fees, admission tickets and travel expenses. Keep the programme or invitation as proof of business use. Luxury or non-business-related events are not deductible.

Travel and accommodation expenses

Travel and accommodation expenses for business events, client visits or conferences are usually deductible for 80% (73.5% in the case of a PLC). This applies to transport, hotel nights and meals along the way. If you combine the trip with private purposes, split the costs: only the business part can be deducted.

Representation expenses and advertising

However, advertising costs are fully deductible. Think of advertisements, online campaigns or sponsorships where your company name is visible. As soon as you get a clear form of publicity in return, the costs fall under advertising. Representation costs, on the other hand, do not provide direct visibility and are therefore limited deductible.

Counterpart

The difference between representation costs and advertising costs depends on the quid pro quo. A quid pro quo means that you get something concrete in return for your payment, for example publicity or name recognition. If you pay for visibility, then it is advertising. If you do not get anything tangible in return and it is mainly about relationship management or a good impression, then it is representation.

Gift vouchers

Give your customers gift vouchers, then those fall under entertainment expenses. You may only partially deduct them. Make sure that the expense can be justified on a business basis, for example as a thank-you or a gift for a collaboration.

Business gifts

Business gifts are gifts to customers or business associates, such as wine, flowers or a small package. These costs are also only marginally deductible. Promotional material with your logo intended for wide distribution, on the other hand, falls under fully deductible advertising costs.

VAT on entertainment expenses, what can you claim back?

VAT on entertainment expenses is not always deductible. If you use something yourself or give it to your staff, you are usually not allowed to reclaim the VAT. Only if the total costs per person per year remain below EUR 227 excluding VAT may you deduct the VAT. If you go over that, you lose the right to deduct.

For customers and business associates, the situation is different. As long as the total value of gifts, dinners or events per person per year remains below EUR 227, you may reclaim the VAT. If you spend more on the same customer, you can no longer deduct VAT on that full amount.

Difference between representation costs and advertising costs

The difference between entertainment expenses and advertising expenses is important for your tax return. Both types of expenses have to do with promoting your business, but the tax authorities treat them differently. The table below shows at a glance what falls under which category and how the deduction works.

How do you record entertainment expenses in your accounts?

Book entertainment expenses in a separate ledger account for easy retrieval. When filing your income tax return, choose the 80/20 rule or the threshold method. Add the non-deductible amounts to your profit. For VAT, you take into account the limit of EUR 227 per recipient. If you exceed this, you correct the VAT in your accounts. Many accounting programs have an automatic calculation for this.

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