In general, travel allowances are provided to executives of limited liability companies in the same regime as for employees, i.e. according to the provisions of § 151 and subsequent Act No. 262/2006 Coll., Labor Code, as amended (hereinafter referred to as the "Labor Code") ). Travel expenses within the meaning of § 152 of the Labor Code include, among other things, expenses incurred during a business trip, temporary assignment or employment in an employment relationship. The nature of the claim and its tax consequences must be ascertained from several regulations and interpreted in a broader context. Below we provide a line of procedure for the possible negotiation of reimbursement of executive expenses in connection with the performance of a function for a business corporation.
Primarily, it is necessary to focus on the regulation in the Labor Code, which broadly defines individual expenses related to the performance of work, which the employer is obliged to provide. Reimbursement of expenses according to § 151 of the Labor Code is always provided to employees if these expenses are incurred in connection with the performance of work, under the conditions and to the extent set by law. In the case of travel expenses, it is a natural basic assumption that they were incurred as a result of the performance of work outside the agreed place of work performance or possibly outside the agreed regular workplace of the employee. Furthermore, the law regulates the conditions for providing compensation for transfer, temporary assignment or performance of work by an employee abroad.
The legal concept of travel allowances itself is quite fundamental, which distinguishes between employees in the so-called business sphere, or private sector, and an employee of the employer referred to in § 109, paragraph 3 of the Labor Code, i.e. the so-called non-business sphere. The employer, which is mentioned in the provisions of § 109, paragraph 3, can provide the employee with reimbursement of expenses in the scope and amount only to the extent determined by the Labor Code and cannot deviate from the legal regulation. We mention this fact in particular with regard to the fact that the limits given by law are important for employees and employers in the business sector from the point of view of tax optimization. Reimbursement of expenses only to the extent established by law for employers referred to in § 109, paragraph 3, are exempt from income tax on the part of the employee and are not included in the assessment bases for health and social insurance premiums. For the employer, these compensations are then a tax-deductible expense according to § 24 paragraph 2 letter zh) of Act No. 586/1992 Coll., on income taxes, as amended (hereinafter referred to as "Tax Act"). The non-business employer can, of course, also provide other or higher compensations, but they must take into account that they are already subject to tax levies and employee insurance levies, or they are subject to tax and are included in the assessment base for calculating insurance premiums.
Reimbursements for travel expenses can be provided by the company not only to employees, but also to members of their bodies, i.e. typically to members of statutory bodies, provided that there is contractual anchoring. The rights and obligations between a business corporation and a member of the statutory body, including claims arising from expenses in connection with the performance of the function, are negotiated in the contract on the performance of the function[1] according to § 59 et seq. Act No. 90/2012 Coll., Act on Business Companies and Cooperatives (Act on Business Corporations), as amended by Act No. 458/2016 Coll. Nothing prevents the parties to this contract from agreeing in writing on the provision of reimbursement of expenses, as provided by the employer to employees in an employment relationship according to the Labor Code. However, the tax regulations are quite fundamental for the determination of reimbursement of expenses, where it is stipulated in § 6 paragraph 2 of the ZDP that these incomes of members of statutory bodies are considered income from dependent activities and are also exempt from tax if they are negotiated in the scope and amount according to the Labor Code. Members of statutory bodies are therefore considered employees when calculating travel allowances.
Members of statutory bodies are entitled, if contractually stipulated, to travel and meal allowances after 5 hours of work travel, as well as the right to foreign meal allowances after 1 hour spent abroad (provided that they have not incurred entitlement to domestic meal allowance, in which case entitlement to foreign meal allowance arises only after 5 hours spent abroad according to § 170, paragraph 3 of the Labor Code). For a business corporation, the reimbursements provided are tax-deductible expenses. Regarding the provision of travel allowances in excess of the limit set by the Labor Code, in this agreed over-limit amount, whether the corporation provides them to employees or members of statutory bodies, they are not exempt from tax, on the contrary, they are subject to both income tax and levy on social and health insurance.
It should be noted that according to § 6 para. 7 letter a) ZDP for members of statutory bodies are not considered and are not subject to tax "reimbursement of travel expenses provided in connection with the performance of an activity from which income from a dependent activity flows, up to the amount established or permitted by a special legal regulation for the employer's employees, which is specified in § 109, paragraph 3 of the Labor Code, as well as the value of free meals provided by the employer on work trips". A necessary condition for members of statutory bodies is therefore the fact that they receive income from "dependent activities", as specified by ZDP and at the same time it is expenses incurred during a business trip. This is clearly supplemented by the Instruction of the General Financial Directorate D-6, which stipulates that "journeys of members of the statutory bodies carried out in connection with the performance of this function are also considered to be business trips, if the relevant meetings take place in a place other than the headquarters of the company (cooperative). The journeys of executives as statutory bodies are also assessed in a similar way", as stipulated in the section devoted to § 24, paragraph 2 of the ZDP under point 32. Accordingly, the instruction of the General Financial Directorate D-22 (point 31) adds that work trips are considered to be trips of members of statutory bodies that are carried out in connection with in the performance of their functions, provided that the relevant meetings take place in a place other than the registered office of the business corporation.
A problem with reimbursement of travel allowances to members of statutory bodies can be a situation where members of statutory bodies commute from their place of residence to the headquarters of the company, when more exposed positions may involve commuting from abroad. Such trips are not considered work trips by the regulations. A journey to the company headquarters from the place of residence or accommodation of the members of the statutory bodies is not considered a business trip, just as it is according to the Labor Code. In the instruction of the Ministry of Finance of the Czech Republic D-22 in point 31, it is directly stated that "business trips of executives are not trips to the company headquarters. If the travel allowances were still paid, it would not be business trips in accordance with the law. This would be a non-taxable expense for the company and taxable income on the part of the executive".
In order to ensure that travel allowances, including food allowances and reimbursement of accommodation expenses, provided to members of statutory bodies are not subject to tax, it is therefore necessary to ensure that these are really work, so-called business trips, and not trips to the place of residence or, where appropriate, where the executive is accommodated. In the same way, the right to the provision of food allowance abroad is assessed according to § 170, paragraph 3 of the Labor Code, when the principle must be observed that it is really a business trip of members of the statutory bodies and not, for example, a trip abroad for the purpose of returning home.
In our opinion, the commuting situation can be solved for a temporary period by using § 177 of the Labor Code, which can be negotiated between the parties to the employment relationship or determined by the employer by internal regulation. This compensation covers the employee's accommodation and travel expenses in connection with employment, when the employee's workplace or agreed place of work is far from his place of residence. This institute covers long-distance commuting for employment, which cannot be considered a business trip under the above provisions. Reimbursement of expenses upon hiring thus complements the system of reimbursement of expenses and allows the employer to cover the journey between the employee's home and the place of work in this only case. It is no exception that, especially for non-standard specific positions, employers hire experts with whom many rights and obligations are negotiated above the standard of a normal employment relationship. However, in the case of compensation of expenses agreed in this way, the employer is bound by the limits according to § 165 of the Labor Code, i.e. the maximum amount and their scope, as well as the determination of the maximum duration of the provision of this compensation, which is 4 years from the beginning of the employment relationship. We believe that this provision of the Labor Code can also be applied analogously to members of the company's statutory bodies, when negotiating a contract for the performance of a function containing an agreement on travel allowances, there is nothing to prevent the provision of reimbursement of expenses according to § 177 of the Labor Code.
Source: epravo
