If an employee is permitted to use his or her employer’s telecommunications equipment for personal purposes free of charge, the monetary benefit is tax-exempt pursuant to Section 3 No. 45 of the Income Tax Act (EStG). If the employer reimburses an employee for expenses related to business calls that the employee made from his or her own private phone line, the employer may reimburse either the actual costs or a tax-deductible lump-sum amount.
The employer decides whether and to what extent an employee may use the company phone line for personal purposes. Clear agreements should be made in this regard, particularly in the case of a spouse-employee relationship. If the employee-spouse is permitted to use the business phone for personal purposes tax-free, the need for additional personal calls is significantly reduced. This means that the business owner then only needs to claim a nominal amount for his or her own personal calls.
Employers also provide their employees with a non-cash benefit when they allow them to use company-owned personal computers and telecommunications equipment for personal purposes. This non-cash benefit is exempt from income tax pursuant to § 3 No. 45 of the German Income Tax Act (EStG). Section 3(45) of the German Income Tax Act (EStG) applies to all data processing devices. The personal use of software (system programs and application programs) that the employer provides to the employee free of charge or at a reduced price for use on the employee’s own PC is also tax-exempt. It therefore does not matter whether the software is installed on the employer’s or the employee’s computer. However, this applies only to software used within the employer’s company.
Optimizing Employees' Use of Company Phones
Employees may use the company phone line tax-free. This also applies to the provision of a company cell phone. This means that the cell phone contract must be in the company’s name. In this case, the employee’s personal calls are always tax-free, even if the employee uses the cell phone almost exclusively for personal purposes. Records of the volume of personal calls are therefore not required.
Alternative version: If an employee frequently makes work-related calls from home because they often work remotely, the employer may install the telephone line at the employee’s residence as a business line or transfer the account to the employer’s name. The telephone company then bills the employer directly, and the employer may deduct the costs in full as business expenses. The employee’s personal use of the line is exempt from income tax regardless of the amount, pursuant to Section 3 No. 45 of the German Income Tax Act (EStG).
Company-Provided Cell Phone for an Employee: The best and simplest solution is for the employer to provide the employee with a company cell phone for business use. Any personal use does not limit the deduction for business expenses, nor does the employee have to pay taxes on this benefit as non-cash compensation.
The employer deducts the costs of a business Internet connection as business expenses under 100%. Private use of the Internet connection by employees is tax-exempt pursuant to § 3 No. 45 of the Income Tax Act (EStG). If the business owner covers all or part of the costs for the employee’s Internet connection at the employee’s home, this constitutes taxable wages, which the business owner must report pursuant to § 40(2), sentence 1, No. 5 of the German Income Tax Act (EStG)
- can be taxed at a flat rate of 25%,
- if he covers the costs in addition to his regular wages (in the case of a salary conversion, flat-rate taxation does not apply).
Both the (one-time) costs of Internet access and the ongoing costs of Internet use may be included in the flat-rate taxation.
Sales tax: To the extent that employees use the Internet free of charge for personal purposes, this constitutes a non-cash benefit that is exempt from income tax. This tax exemption applies to the use of the equipment as well as to the ongoing costs and fees. However, there is no corresponding exemption from value-added tax (VAT). According to Section 3(9a) of the German Value-Added Tax Act (UStG), a service provided to an employee free of charge is treated as a service provided for consideration. VAT is only due, however, if the service does not constitute a courtesy gift (up to a maximum of €60). If one assumes that the employee’s free internet access constitutes a courtesy gift, no sales tax needs to be charged. If the business owner does not wish to risk a dispute with the tax authorities, they can estimate the tax base, which is minimal in any case.
Tip: To avoid having to post small amounts every month, the amounts can also be combined into a single annual amount.