Canteen VAT should be settled when lunch is partly paid by the employer

When employees pay a favourable price for lunch at the workplace, special rules apply for the calculation of sales VAT ("canteen VAT"). Currently the Danish Tax Agency has special focus on this, and 25,000 Danish companies have received a letter notifying of the rules. As such, we expect the Danish Tax Agency to be less forgiving in the future when companies do not calculate and pay canteen VAT.

Is your company subject to the canteen VAT scheme?

A lot of companies are unaware that they are subject to the canteen VAT scheme, because they do not consider their lunch arrangement to be a canteen. However, in terms of VAT, a canteen includes a wide range of lunch arrangements, including:

• Actual canteen with own or external staff who buy and prepare the food,
• the company's purchase of ready-made food, which is merely unpacked and set up in the lunchroom,
• the company's purchase of rye bread or sandwich bread with cold cuts for self-service by employees during the lunch break,
• canteen shared by several companies.

If your lunch arrangement constitutes a canteen, and your employees pay a favourable price (below the purchase/production price) for the lunch, you are obliged to calculate and pay canteen VAT, as the company – in terms of VAT – sells lunch to its employees. Employees often pay for their lunch through a salary reduction, and this only emphasizes that the lunch arrangement constitutes a canteen subject to the canteen VAT scheme.

In return, VAT on expenses for the lunch arrangement can be fully recovered.

Calculation of canteen VAT

As a general rule, sales VAT is calculated based on the sales price. However, a company and its employees are considered parties of interest, and therefore sales VAT cannot be calculated based on the price paid by employees. As such, salary reductions cannot form the basis for calculation of sales VAT. Instead, sales VAT must be calculated based on the “normal value”, which constitutes the purchase or production price of the lunch.

The normal value can be calculated by an actual calculation of the company's expenses for purchasing and/or manufacturing lunch. However, performing an actual calculation can very quickly turn into a complex task, as indirect costs such as wages, depreciation on machinery and premises expenses must be included in the normal value. In addition, certain expenses that do not relate to the actual preparation of the food (e.g., operation and cleaning of the lunchroom) must be regulated.

The Danish Tax Agency is aware of the fact that an actual calculation can very quickly turn into an administrative burden. As such, two administratively simplified schemes have been created to replace an actual calculation.

Simplified scheme 1 – own canteen

A company that operates its own canteen can use Simplified scheme 1. With this scheme, normal value is calculated in accordance with the below example.

Simplified scheme 2 – external canteen operator

A company with its own canteen facilities, which does not manage the operation of the canteen itself, but has the service delivered by an external canteen operator, can use Simplified scheme 2. With this scheme, normal value is calculated according to the procedure below.

Not all arrangements fit in a box - let us help

Company canteens and lunch arrangements come in many different variables. As such, not all arrangements fit into the boxes of the Danish Tax Agency, and even the simplified schemes can be difficult to apply in practice.

We are of course available for a discussion of your lunch arrangement and calculation of canteen VAT.