Tax consequences of the employee discount

Many employers allow employees to purchase company-owned products and services at a discount. Few are aware of when such employee discounts need to be taxed.

Employers often grant their employees personal discounts on products produced by themselves or services rendered, enabling procurement at discounted rates. Such concessions must be taxed as income under certain circumstances. The legal bases for taxation can be found particularly in the Federal Law on Direct Federal Tax (DBG), the AHV leaflet on contributions on minor wages, and the guidelines for filling out the wage statement of the Swiss Tax Conference (SSK).

Employee discount as a taxable benefit

In Switzerland, all recurring or one-time income is subject to income tax. Income also includes benefits in kind of any kind, in particular free meals and accommodation as well as the value of self-consumed products and goods of the own business (Art. 16, para. 2 DBG). Although not explicitly mentioned, employee discounts are also subject to taxation if the following conditions are met:

1. No Insignificance

Employee discounts essentially become taxable only when they are no longer considered insignificant according to the AHV leaflet. Benefits up to an amount of CHF 2'300 are considered insignificant. It should be noted that this amount is not an allowance but a threshold, exceeding which the entire amount of employee discounts becomes taxable.

2. Goods for personal use

The goods or services obtained must then be intended for personal use, i.e., for non-commercial purposes. For example, if an employee purchases goods as part of a self-employed activity or for resale to third parties, different regulations apply.

3. Evaluation of the benefit

In the wage statement, a distinction is made between assessable and non-assessable fringe benefits. While assessable benefits have to be shown in terms of amounts, non-assessable benefits are only indicated by their type. As far as an evaluation is possible, benefits are to be stated at market value. Frequently, the question of the extent of effort employees need to put into an evaluation causes discussions. In practice, a variety of different opinions are represented in this regard.

4. Issuance at cost price

The employer is allowed to sell products and services at no less than the cost price. If this value is undercut, it represents a monetary benefit to the employees, which is subject to withholding tax and leads to profit adjustment.

5. Close persons

Additionally, persons close to the employee may also benefit from the discounts. In a number of tax offices, the benefit in this case represents a direct benefit to the respective person and thus taxable income for the corresponding employee.

6. Not on the exception list

Certain benefits to employees are not required to be declared. Before filling out the wage statement, therefore, one should check in the guide of the Swiss Tax Conference whether a benefit needs to be declared at all.

Source: WEKA article "Employee discount: What does it mean for employers?" from July 5, 2021, retrieved from <https://www.weka.ch/themen/steuern/juristische-personen/steueroptimierungen/article/personalrabatt-was-bedeutet-er-fuer-die-arbeitgeber/> on September 22, 2021.

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