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The representation expenses have the as main objective to improve or support the business image with a commercial purpose before clients, suppliers and any agent that is likely to benefit the company.
These expenses are limited at the fiscal level since not all expenses incurred based on this concept can be deducted.
The representation expenses serve as support to the commercial work of any business, they can deal from hotel stays to corporate gifts. The added value of these usually marks a differential component against the competition, since when buying the same product or service with a similar price and quality, the only thing that remains to be enhanced is the confidence and brand image that is possessed. That is where representation expenses play a fundamental role in decanting the sale on one side or the other.
Types of representation expenses
As previously mentioned, not all expenses that a company considers to be representative can be used for a tax deduction. In this section, we will differentiate which expenses can be considered as a representation against the treasury and which not, based on the Corporation Tax Law.
Expenses that we cannot deduct fiscally:
- Remuneration of own funds.
- The operations with the so-called tax havens.
- Criminal or administrative fines and penalties.
Expenses that we can deduct fiscally:
- Public relations.
- Expenses correlated with income.
- Direct or indirect promotion of services and / or products.
- Uses and customs are made with respect to company personnel.
Practical examples of representation expenses
Here are several examples to identify what expenses could be deducted or not:
- Example of public relations: a foreign investor wants to invest in our company, and tells us that he is passionate about Spanish culture and what he is interested in. If we pay for your hotel stay, we invite you to a football game or we give you a business gift, it is likely that you will have a better memory of our company than if we had omitted any sign of hospitality. Always measuring that the expenses justify a significant return.
- Example of uses and customs: our vehicle factory staff has performed very well this year and there has been a good relationship between the productivity and the cost-effectiveness. Consequently, we want to continue giving the employees with the traditional Christmas basket. Continuing with this custom reinforces the image and rewards the best ambassadors of the company itself, the employees.
- Example of gaming and donations: there is a scenario in which the sale of our company to an investor will take place, and we choose to take you to the nearest casino and make donations simultaneously. In this case, it is quite clear in the face of the law that they are not expenses that can be deducted even if the accounting of the company itself appears as representation expenses.
In short, you have to be cautious about representation expenses, since we can technically put in this particular “sack” virtually any expense. However, when we can deduct these expenses fiscally, the range is reduced to practically the expenses that do have a certain logic.