Company events from 2026 – is your business still going in the right direction?

Company events starting from 2026 – is your business still going in the right direction?

Following the Federal Fiscal Court judgement of 27 March 2024 (VI R 5/22), until the end of 2025 flat-rate taxation at 25 per cent could be charged on benefits granted in connection with company events under section 40(2) sentence 1 no. 2 of the German Income Tax Act (GITA) – even when the event was not open to all employees. The condition that taking part should be open to all employees was relevant only to apply the tax-free allowance of 110 euros for each employee for up to two events a year.

According to the Federal Ministry of Finance Circular of 14 October 2015, a company event is an event put on by a company with a corporate nature. They particularly include staff outings, Christmas parties and long-service celebrations. It does not matter whether the event is organised by the employer, the works council or the staff council, as long as it is work-related. The condition is that the group of participants predominantly consists of company employees and those accompanying them, and any agency workers or group employees.

But under the Tax Amendment Act 2025, the legislature has restricted the option of applying the flat rate of 25 percent, starting from the 2026 calendar year. From 1 January 2026, flat-rate taxation under section 40(2) sentence 1 no. 2 GITA will only be permitted if the event is open to all the employees of a business or business unit. Only then does exemption from social security contributions apply.

If these conditions are not met, tax may be charged under section 37b of the Act or based on the participating employees’ individual ELStAM data (electronic wage tax deduction data), e.g. by a net-to-gross calculation. This usually leads to significant additional costs for the employer. Here are the most crucial practical implications: 

Practical implications for company events from 2026

Tax benefit no longer available for exclusive events
From 2026, if events are not open to all employees, it will no longer be possible to treat exclusive events, such as management off-sites, executives’ conferences and department events, as company events for tax purposes at the benefited flat rate of 25 per cent tax.

Increased work in classifying and documenting
In future, companies will carefully have to check whether an event fulfils the criteria to be a company event. This will result in significantly more work in checking and keeping documentation. Incorrect classifications may lead to substantial additional tax and social security contributions, so it is strongly recommended to assess each event for tax in good time.

More administration necessary if section 37b GITA is applied
If an event is not recognised as a company event for tax, it may in many cases be taxed at a flat rate under section 37b GITA, provided the employer has exercised this option properly. However, applying section 37b involves much more administrative work.

Higher costs from social security requirement
For events that from 2026 no longer fall under section 40(2) sentence 1 no. 2 GITA, social security contributions will be payable in addition to the tax liability. This will lead to a noticeable increase in costs, as both the employer’s and the employee’s payments must be taken into account. Particularly in the case of high-cost events, this is likely to result in significant additional expenditure.

Additional tax burden in practice – a simplified example

Note: If the employer opts to apply taxation under section 37b, all the benefits must be allocated to the participants individually and included in their monthly payslip. The requirement to pay social security makes the financial implications of this considerable.

The following simplified illustration shows the financial implications for employers:  

Implications for income tax are not included in this illustration.

With the tax benefit under section 40(2) sentence 1 no. 2 being discontinued and the resulting social security requirement, the overall burden on employers will increase significantly from 2026 – particularly for events involving high-value benefits.

Roadmap for 2026 – setting the right course now

The new regulations in force from 2026 mean that many events that until now were benefited will in future have to meet significantly tighter tax and social security requirements. Exclusive events in particular, such as executives’ conferences, are expected to become considerably more expensive and require checking more thoroughly, as well as clearly documented tax classification.

Incorrect classifications resulting from internal assessments are not only costly, but have also become more likely due to the new legal requirements. Please also always bear in mind the implications for VAT.

Early planning is therefore essential – companies should now strategically review the format of their events, internal coordination processes and tax planning for 2026 to avoid unexpected financial burdens and make the most of the available flexibility. Please also note the latest court decisions of the Federal Fiscal Court on farewell events.

Practical note: Now is the time to review the events you have planned for 2026. We’ll be glad to support you with identifying risks, developing tax‑efficient alternatives and designing your processes to be compliant. Get in touch – we’ll bring your company events safely onto the right course.

Authors: Hannes Zug, Jasmin Ochsmann and Tim Schlifelner