VAT deduction and business lunches

Tip: read one of our most popular blogs about deduction of food and drinks. 

In Gekko, we have two types of expenses for food and drink: ‘hospitality’ and ‘non-hospitality’. There is an important reason for this. Expenses incurred in hospitality establishments cannot be deducted in your VAT return, but expenses incurred outside hospitality establishments can.

In this article, we explain:

• when a lunch is or is not business-related
• when you can deduct VAT on business lunches in your VAT return
• when you can deduct the cost of your business lunch from your profits 

When is a lunch considered a “business lunch”?

Business expenses are costs that are directly attributable to your business and are necessary within certain limits. A “business lunch” can therefore be counted as a business expense if you can justify that the costs are in the interest of your business. Examples include a business lunch with a potential customer, business partner, or supplier.

Claiming back VAT on business lunches

In certain cases, you can reclaim VAT on business expenses as input tax in your VAT return. Business lunches also fall into the category of deductible items.

However, you cannot reclaim VAT on all business lunches. The location plays an important role here. If you order lunch from a restaurant and take it back to the office, you can reclaim the VAT.

If you have lunch in a restaurant or have lunch arranged by a caterer in a special room, you cannot reclaim the VAT.

Deducting business lunches from profits

The Belastingdienst allows you to deduct certain costs from your profits. This is beneficial for you, because it means you pay less tax. Business lunches fall under the heading of ‘entertainment expenses’.

Entertainment expenses also include the costs of study trips, workshops, seminars, and conferences. You can claim these costs as business expenses, but not the entire amount. There are two options:

• Full deduction
  The costs of business lunches are fully deductible from profits above a threshold amount of EUR 4,600. However, for most small business owners, this threshold is far too high and not easily met.
• Limited deduction
  Can't reach that €4,600? Then you can deduct 80% (2017 and 2018) of the costs for business lunches from your profits. The remaining 20% cannot be deducted.

Please note: always check the Belastingdienst website for the latest rules regarding the amounts and percentages for deductions.

Tip: if you have a Premium account in Gekko, you can also customize your own expense types and specify for each expense type whether or not VAT can be deducted.