With effect from 1 March 2021, an amendment to the Labour Code entered into force with direct effect on most employers and their employees. Within the scope of the employer obligation to provide catering to workers in the organisation, employees are now given the choice between meal vouchers (cards) and a financial contribution for meals.

This blog offers better understanding of the ambiguities that have arisen in connection with this legislative amendment (including answers to questions related to the taxation of the financial contribution for meals and the terms of its payment).

Methodology Guidance of the Financial Directorate of the Slovak Republic on employee catering allowance and its taxation

The Financial Directorate of the Slovak Republic has issued a Guidance concerning the new legislative amendment where it explains the issue of employee catering provision in a more complex detail. From 1 March 2021 onwards, the following is exempt from tax:

• the value of meals provided by the employer to the employee for consumption in the workplace within the scope of catering provided through other entities (non-monetary form) and
• the financial contribution for meals (monetary form) provided pursuant to Section 152 of the Labour Code.

Since there is no reference to a special regulation on non-monetary form of catering provided to employees (i.e. in the form of meal vouchers, electronic meal vouchers) in the ITA[1], the value of the catering is not limited. The tax exemption for employees can be applied in full, but the exemption can be used only if meals are provided during working hours, i.e. not for consumption outside the workplace, such as during company parties, etc.

As an alternative to meal vouchers, the employee can choose a financial contribution for meals. This is exempt from income tax only if it was provided in accordance with Section 152 of the Labour Code. This means that the amount of the financial contribution must be:

• at least EUR 2.11 (55% of EUR 3.83 - the minimum value of a meal voucher for 2021)
• maximum EUR 2.81 (55% of EUR 5.10 - the value of meal allowance provided on a business trip lasting 5-12 hours according to the Meal Allowance Order).

Any financial contribution provided by an employer in excess of the limit stipulated by law (Section 152 of the Labour Code), which is not financed from the social fund, shall be deemed taxable income of an employee which is therefore subject to tax from dependent activity as an employee benefit.

When providing a financial contribution for employee catering, the rule applies that an employee cannot be favoured or disadvantaged compared to employees who are provided catering in non-monetary form. This means that the amount (of the contribution) must always be based on the value of the meal voucher that would be provided to the employee, or possibly that continues to be provided to those employees who did not opt for a financial contribution for meals.

On the part of the employer, the expenses for providing meals to employees are a recognized tax expense according to Section 19 (2) (c) item 5 of the ITA only if the catering is provided to the employee under the terms laid down in the Labour Code. If the financial contribution for meals provided by the employer exceeds the statutory amount, it represents a tax expenditure of the employer according to Section 19 (1) of the ITA, where it is subject to income tax from dependent activity on the part of the employee. Recognition of employee benefits under tax expenses is conditional on the fact that they have been agreed in the employment contract, collective agreement or in an internal regulation of the employer and subject to tax for the taxpayer as income from dependent activity. It should be noted that the value of catering provided by the employer in non-monetary form exceeding the scope of the Labour Code cannot be recognized as a tax expense, not even in accordance with Section 19 (1) of the ITA, as it was not subject to tax as an employee benefit.

In the event that the employer contributes to the provision of employee meals from the social fund, the creation of the social fund itself shall represent a tax expenditure of the employer as laid down in the Act on the Social Fund. Subsequent drawing of funds from the social fund for the employee meal allowance shall not represent a tax expense of the employer.

Beware of retroactive payment of contributions (as the expenses will not be tax deductible)

The Methodological Guidance also points out that if the employer provides allowance for employee meals (either in cash or non-monetary form) retroactively for past period (i.e. for already elapsed days or months), in such a case the statutory obligation to provide meals for employees arising from the Labour Code is not fulfilled. It is considered that if the employer provides employee meals through a legal entity or natural person who is authorized to arrange catering services and provides meal vouchers to employees retroactively, the contributions provided will not be recognized as tax expenses. Similarly, in the case of a financial contribution paid retroactively, the employer cannot apply tax exemption to this part of the contribution which shall represent taxable income for the employee. Where this contribution represents taxable income of the employee as per internal regulation of the employer, it can be considered as a tax expense of the employer in accordance with Section 19 (1) of the ITA.

Our recommendation

When choosing between a meal voucher and a financial contribution, we recommend that employers and employees also consider the effects of different taxation (especially, if the employer provides a higher meal allowance exceeding the social fund). In the case of providing a higher meal contribution in cash, the supplementary amount (exceeding the statutory amount) is subject to personal income tax. At the same time, it is necessary for the employer to ensure that both meal vouchers and the financial contribution are provided to employees in advance, at the latest on the day of providing meals. Otherwise, it will classify as taxable income for the employee.

At the time of publication of this article, a draft amendment to the Labour Code was published by a group of coalition MPs, The amendment aimed to eliminate the inequality in taxation of different forms of employee catering, in particular the meal vouchers, by allowing the employer to provide contribution to employee meals amounting to 100% of the amount of meal allowance (instead of the original 55%) on a business trip lasting 5 to 12 hours. In order to simplify the administrative burden on employers, the draft also proposes to allow employers to provide meal vouchers and a financial contribution ex-post (i.e. afterwards), just like wages are paid; this could be done by the end of the following calendar month at the latest, unless an advance is agreed in the collective agreement or employment contract. However, this MP draft amendment has yet to be approved by the parliament, which, according to available information, plans to discuss it in September 2021.