Company events: Stricter tax rules from 2026

02/23/2026
Reading time 2 Minutes

Stricter requirements for the flat-rate payroll tax treatment of company events will apply from 2026. Companies should review their events, as higher tax and social security costs may arise.

According to a ruling of the German Federal Fiscal Court (BFH) dated March 27, 2024 (VI R 5/22), employment income granted to employees on the occasion of a company event could, until the end of 2025, be taxed at a flat rate of 25 % pursuant to Art. 40 (2) no. 2 of the German Income Tax Act (EStG). This applied even if the event was not open to all members of a business or a business unit.

The requirement that all members of a business or business unit must be eligible to participate was relevant only for the granting of the tax-free allowance of EUR 110 per employee for up to two events per year.

The legislator has now put an end to this arrangement with the Annual Tax Act 2025 and has again restricted the possibility of flat-rate taxation as from the 2026 assessment period.

The previous administrative practice regarding flat-rate taxation has been codified by the introduction of Art. 19 (1) sentence 1 no. 1a EStG. In addition, the definition of the term “company event” within the meaning of Art. 40 (2) sentence 1 no. 2 EStG has been correspondingly expanded.

As of January 1, 2026, employers may apply the 25 % flat-rate payroll tax to benefits granted in connection with company events only if participation in the event is open to all members of a business or business unit. Only in such cases will the exemption from social security contributions apply as well.

For employers, this tightening of the rules may result in significantly higher costs if an event no longer qualifies as a company event and is therefore subject to individual taxation or to flat-rate taxation at 30 %. In such cases, social security contributions will also become payable.

We therefore recommend that all employers review, prior to organizing any events/team events/hospitality functions from 2026 onwards, whether the event qualifies as a company event within the meaning of Art. 40 (2) sentence 1 no. 2 EStG.

If you have any questions or require further clarification, please do not hesitate to contact us.