The financial and tax treatment of the tourism expenses paid and borne by the enterprise

In practice, an enterprise may organize employee travel based on factors such as incentives or collective benefits, and the enterprise will pay for and bear all or part of the travel expenses. For this kind of tourism expenses, many financial personnel of enterprises are confused about their VAT and corporate income tax treatment.

1. The input tax corresponding to the tourism expenses shall not be deducted

According to Article 27 of Annex 1 of Cai Shui [2016] No. 36, the input tax obtained as collective welfare or personal consumption expenditure shall not be deducted from the input tax. Therefore, the input VAT obtained from the tourism expenses is not deductible.

2. Pre-tax deduction of travel expenses

There are differences in the implementation caliber of the pre-tax deduction of tourism expenses in various tax bureaus.

Hebei Taxation: According to Article 12 of the Notice of the State Taxation Bureau of Hebei Province on Printing <企业所得税若干政策问题解答>and Distributing (Ji Guo Shui Han [2013] No. 161), whether the travel expenses paid by enterprises for employees can be included as employee welfare expenses, and Article 3 of the Notice of the State Administration of Taxation on the Deduction of Wages and Salaries and Employee Welfare Expenses of Enterprises (Guo Shui Han [2009] No. 3) stipulates that the travel expenses incurred by enterprises cannot be included as employee welfare expenses.

Henan Taxation (2021-04-23) replied: The expenses of the travel of all employees organized by the unit do not meet the scope of deduction of employee welfare expenses of the enterprise, and cannot be deducted before enterprise income tax as employee welfare expenses.

Shandong Taxation (2020-01-02) replied: According to the Enterprise Income Tax Law and relevant policies, the expenses incurred by enterprises in organizing employees to carry out tourism activities are not directly related to production and operation and shall not be deducted before tax.

Xiamen Taxation (2021-04-27) replied: After withholding individual income tax according to the individual income tax for the free travel expenses provided by your company for employees, if it is indeed the purpose of the expenses of the nature of employee welfare for the enterprise, and it meets the accrual principle stipulated in the "Tax Law", as well as the legality, authenticity, relevance, rationality and certainty of the pre-tax deduction of expenses, it can be deducted before the enterprise income tax as employee welfare expenses according to the regulations.

Suzhou Taxation: Q&A No. 6 of the Notice of Suzhou Local Taxation Bureau on Doing a Good Job in the Final Settlement and Payment of Enterprise Income Tax in 2009 (Suzhou Di Shui Han [2009] No. 278): "Q: Can the expenses incurred by enterprises in organizing employee travel be included in the employee welfare expenses and deducted before tax at a rate of no more than 14% of the total wages and salaries? No. 3) stipulates that employee welfare expenses include various subsidies and non-monetary benefits issued for employees' health care, living, housing, transportation, etc. From the perspective of the nature of organizing staff travel, it has the positive significance of relieving work pressure and further improving the quality of life, therefore, the expenses incurred by enterprises in organizing staff travel are temporarily included in the management of employee welfare expenses and deducted in accordance with tax regulations. If an enterprise lists the travel expenses incurred by the employees' families or other non-employees in the name of employee travel, it is an expenditure unrelated to production and operation, and shall not be included in the management of employee welfare expenses, nor shall it be deducted before tax. ”

More tax bureaus will not list them one by one, and enterprises need to understand the implementation caliber of the tax bureau where the enterprise is located when facing tourism expenses. For the local tax bureau, the implementation caliber is not allowed to be deducted before tax or "welfare expenses" are not allowed to be deducted before tax, which can be converted into incentives and so on to be circumvented.

3. Accounting treatment of tourism expenses

How to account for the tourism expenses paid by the company needs to distinguish the nature of the participants in the tour and make different accounting treatments according to different tax treatments.

(1) The tour participant is an employee of the company

Individual income tax: If the company provides travel expenses in the name of incentives, etc., and the company's employees participate, the travel expenses shall be incorporated into the employee's salary, and the individual income tax shall be withheld and paid according to the "income from wages and salaries".

(1) The local tax bureau shall not deduct pre-tax or pre-tax deduction of welfare expenses

In accounting, it is directly calculated according to "wages and salaries", and it can be deducted in full if it is deducted before tax and declared and deducted according to "wages and salaries". It cannot be directly deducted as "administrative expenses" or "employee welfare expenses".

Payment of the tour fee:

Debit: Other receivables - XX employees

Credit: Bank deposits

Note: When paying for the tour, it is directly reflected in the expenses paid on behalf of the employee.

When the salary is actually paid in the current month, the travel expenses will be added to the employee's pre-tax income as an incentive amount and paid as salary, and the advance will be deducted after tax:

Borrow: Employee remuneration payable - wages

Credit: Bank deposits

Employee remuneration payable - personal part of five insurances and one housing fund (or other receivables, etc.)

Other receivables – XX employees

Tax Payable – Personal income tax payable

(2) The local tax bureau can deduct the welfare expenses before tax

Accrual of Welfare Expenses:

Borrow: management expenses - welfare expenses, etc

Credit: Employee Compensation Payable - Benefits

When the actual tour fee is paid:

Borrow: Employee Compensation Payable - Benefits

Credit: Bank deposits

Tax payable - individual income tax payable (can also be temporarily not recognized, to be confirmed after the calculation of the consolidated salary)

(2) The tour participant is a marketing person other than an employee of the company

In accordance with the provisions of Cai Shui [2004] No. 11, in the marketing activities of commodities, enterprises and units organize tourism activities in the name of training courses, seminars, work inspections, etc., and the marketing performance rewards (including in-kind, securities, etc.) implemented by individuals through the exemption of travel expenses and tourism expenses, such incentives enjoyed by other employees of the enterprise shall be regarded as labor income in the current period and levied individual income tax according to the item of "income from remuneration for labor services".

For the free travel of outsiders in the marketing process of the enterprise, it is usually not included in the marketing service agreement between the two parties, and although Cai Shui [2004] No. 11 is regarded as the labor income of the external personnel, the external personnel usually do not provide the corresponding labor fee invoices, so they cannot be calculated as commissions. If the local tax bureau does not clearly stipulate that the tourism expenses shall not be deducted before tax, they can be deducted before tax according to the "business entertainment expenses", and the deduction limit shall be calculated according to the calculation limit.

Borrow: Administrative Expenses/Selling Expenses - Business Entertainment Expenses

Credit: bank deposits, etc

Tax payable - individual income tax payable (calculated on the basis of "income from remuneration for services")

In general, since no personal income tax is charged to marketers other than employees of companies that participate in free tours, it is necessary to convert the travel expenses paid into the amount including personal income tax and include them in the "business entertainment expenses". If the local tax bureau clearly stipulates that the tourism expenses shall not be deducted before tax, even if the accounting is included in the "business entertainment expenses", they shall not be deducted before tax, and the full tax increase shall be required when the enterprise income tax is settled.

For the free travel of external personnel in the marketing process of the enterprise, there is a clear agreement in the marketing service agreement between the two parties (for example, if a certain performance target is overachieved), and the other party provides an equal amount of invoices issued by the tax bureau according to the labor fee, it can be deducted as a commission expense in accordance with Cai Shui [2009] No. 29 and other regulations. In this case, the payment of the tour fee by the enterprise is effectively equivalent to the disbursement of expenses.

Debit: Other receivables - XX marketers

Credit: Bank deposits

When the marketer is actually paid monthly remuneration and receives an invoice from the other party at the tax office:

Borrow: Selling Expenses - Commissions

Credit: Bank deposits

Other receivables – XX marketers

Tax payable - individual income tax payable (calculated on the basis of "income from remuneration for services")

(3) The tour participants belong to the family members of the company's employees

Some companies will arrange for employees' family members to participate in free travel, which is in essence an encouragement and reward for the company's employees, so it should be regarded as the employee's incentive income, which should be incorporated into the employee's salary and salary, and the individual income tax should be withheld and paid according to the "salary income".

For specific treatment, please refer to the above-mentioned "(1) Tourism participants are employees of the company".

(4) The tour participant is a corporate affiliate or a winner of the promotional lottery

In order to maintain customer relations, the company invites company customers to participate in free travel, which is a kind of social remuneration behavior. In addition to the local tax bureau's implementation of the standard clearly stipulates that the tourism expenses shall not be deducted before tax, the tourism expenses paid shall be deducted before the enterprise income tax according to the "business entertainment expenses".

In addition, some companies often use free travel as a promotional gimmick and use tourism indicators for lucky draws.

Individual income tax: Article 3 of the announcement of the State Administration of Taxation of the Ministry of Finance on the application of individual income tax taxable income items to relevant income obtained by individuals (Announcement No. 74 of 2019 of the State Administration of Taxation of the Ministry of Finance) stipulates that if an enterprise randomly gives gifts (including online red envelopes, the same below) to individuals outside its own unit in business promotion, advertising and other activities, and gives gifts to individuals outside its own unit in annual meetings, symposiums, celebrations and other activities, the gift income obtained by individuals shall be regarded as "accidental income" Individual income tax is calculated and paid for the project, except for gifts such as consumption vouchers, vouchers, vouchers, coupons and other gifts with price discounts or discounts given by enterprises.

Therefore, for those who provide free travel, individual income tax should be withheld according to "accidental income". In practice, taxes are usually not collected from tour participants, but are borne by the enterprises themselves.

Borrow: Management Expenses - Business Entertainment Expenses (Entertainment Affiliates)

Selling Expenses – Business Promotion Expenses (Promotions)

Credit: bank deposits, etc

Tax payable – personal income tax payable (on "incidental income")

According to Article 8 of the Enterprise Income Tax Law, reasonable expenses actually incurred by an enterprise in connection with the acquisition of income, including costs, expenses, taxes, losses and other expenses, are allowed to be deducted when calculating the taxable income. Whether the accounting is included in the "business entertainment expenses" or "business publicity expenses", the relevant supporting materials must be collected and retained to prove that the tourism expenses are related to the income of the enterprise, otherwise even if the local tax bureau does not clearly stipulate that the tourism expenses shall not be deducted, there may be a risk of being inspected by the tax bureau and not recognized in the later stage.