Entertaining or marketing expenses?

When organizing different events, it is a good idea to check in advance whether the event in question is, by nature, entertaining or marketing. The purpose of entertaining as a part of managing your business is to promote your business and creating, keeping and improving customer relations. This can be done through different feats of hospitality or other forms of consideration. However, similar expenses directed at entertaining employees are classified as private expenses and as such, they are not tax-deductible expenses.

Marketing and entertaining events differ from each other in their taxation treatment and by their general features. A marketing event can be, by nature, an advertising event into which customers have free entrance, and the attendees are not from a certain, pre-determined crowd or customer segment. Another form such an event is to host a product marketing event for a certain target customer group, and to invite representatives from companies within the target group. Entertaining events, however, are by nature closed events in which the attendees are personally pre-determined and invited. The event can include e.g. showcasing new products or some other entertainment in addition to free networking.

When evaluating the tax effect of the hosted event, the purpose and nature of the event must be considered first. If the event is hosted purely for entertaining purposes, its expenses are tax-deductible up to 50 %. If marketing is the true purpose of the event, its expenses must be examined further to find out, which expenses are tax-deductible and which are not.

Evaluating the tax effect of the hosted event

In 2014, entertaining expenses became non tax-deductible expenses, but the change was reverted in 2015. Thus 50 % of all entertaining expenses are deductible in 2015 and 2016. The Finnish Tax Administration has published instructions in more detail, which are based on rulings from the Finnish Supreme Administrative Court, especially with the tax treatment of invitation only –events. For more information (in Finnish), please visit the Finnish Tax Administration’s site.

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