What can you buy for business and what should you not buy?

One of the most common questions asked by business owners is very simple: can this be purchased for the company?

Phone, computer, car, fuel, coffee, furniture, lunch with a client, travel, clothing, gifts for employees - in everyday life, the line between business and private expenses does not always seem clear.

Short answer: a company may purchase anything that is related to the company's business activities and can be supported by documents.

However, in practice, it is not just the invoice that matters. It is also important whether the expense makes economic sense for the specific company's operations.

Main principle

For an expense to be attributable to a business, it must be related to the business's operations.

This means that the company must be able to explain:

• why this purchase was necessary;

• how it is used in the company's operations;

• whether the documents are correctly drawn up;

• whether the purchase is not primarily for private use.

  
  

If the purchase cannot be justified by ensuring the operation of the company, it may be considered a non-business expense. Such expenses may create additional corporate income tax risk.

Examples of expenses that are generally justified

The company can purchase goods and services that are directly necessary for the company's operations.

For example:

• computer, monitor, printer, telephone;

• accounting, warehouse, CRM or project management programs;

• office furniture and equipment;

• internet, telephone communications, website maintenance;

• professional services — accounting, legal advice, marketing, IT;

• work tools and equipment;

• goods for resale;

• production materials;

• bank commissions and payment processing services;

• labor protection products;

• training, if it is related to the company's operations.

  
  

In such cases, it is important that the invoice is issued to the company and that the purchase has a clear connection to the company's operations.

Phone and computer

A telephone and a computer are among the most common purchases for a company.

If the business owner or employee uses them for work purposes, such a purchase is usually justified. However, proportionality must also be assessed.

For example, if an IT consultant purchases a powerful computer for work, it is usually understandable. If a small business without employees purchases several expensive phones, questions may arise about their use.

Practical recommendations:

• issue an invoice to the company;

• pay for the purchase from the company's bank account;

• save the invoice and payment document;

• Make sure that the purchase is proportionate to the size of the company's operations.

Car, fuel and repairs

Car expenses are one of the riskiest topics, as cars are often used for both business and private purposes.

A company may have reasonable expenses for:

• car rental or leasing;

• fuel;

• for repairs;

• insurance;

• technical inspection;

• parking spaces;

• car wash.

  
  

However, it should be assessed whether the car is really used only for company purposes. If the car is also used privately, then additional company car tax would have to be paid.

Similarly, there is a limit of 75,000 + VAT for the purchase of passenger cars. Therefore, it is recommended to pay special attention to car expenses and consult an accountant before making major purchases.

Coffee, water, food and alcohol

Drinking water for employees in the office is considered a business expense.

The purchase of coffee, tea, snacks and other food products should be assessed according to the purpose of their use. If the business activity of the company is related to catering, food provision, tastings, organization of events or other activities in which the purchase of food products is necessary for the provision of a service or the sale of goods, such expenses will be business expenses.

If coffee, tea or similar products are purchased for the needs of employees, they are not considered business expenses, unless such benefits are provided for in a collective agreement. If the collective agreement provides for employee catering, motivation or welfare measures and the conditions set out in the law are met, such expenses may be assessed as expenses for personnel sustainability measures, subject to the applicable limits for sustainability expenses of 5% of the total gross wages of the previous year.

If coffee, tea, water, snacks or other products are provided to clients, business partners or meeting participants, such expenses are generally considered entertainment expenses, subject to the applicable entertainment expenses limit of 5% of the previous year's gross salary.

The purchase of alcohol should be assessed with particular caution. If alcohol is purchased for representation purposes, for example, to receive clients or business partners, it may be assessed as a representation expense if the purpose of the event, the participants and the connection to the company's business activities are clear. On the other hand, the purchase of alcohol for consumption or without a clear business justification poses a high risk that such expenses will be considered as expenses not related to business activities.

In any case, the purpose, proportionality and documentary justification of the expenditure should be assessed. Regular or substantial purchases of food and alcohol without clear justification may pose a risk of being considered as private consumption or non-business expenses.

Lunches, restaurants and meetings with clients

You have to be careful here. If a company representative is meeting with a client or business partner, a restaurant or coffee outing may be related to the company's business. However, it is important to understand the purpose of the transaction.

It is recommended to indicate on the receipt or internal note:

• with whom the meeting took place;

• what was the purpose of the meeting;

• how it relates to the company's operations.

  
  

Without such justification, a restaurant expense may appear to be private consumption.

Clothing

Clothing is also a complicated topic. Casual clothing usually cannot be simply purchased for a company just because a person wears it to work. A suit, dress, shoes or coat can usually also be used privately, so such expenses can be risky.

Exceptions may be cases where the clothing is directly necessary for the performance of work, for example:

• workwear in production;

• protective clothing;

• uniform;

• clothing with a company brand if it is used for advertising or work.

Travel and business trips

Travel expenses can be business expenses if the trip is related to business operations.

For example:

• meeting with the client;

• visiting an exhibition or conference;

• working on a project abroad;

• Visit of cooperation partners.

  
  

It is important to keep documents and justify the purpose of the trip. If the trip is partly private, you should assess which part of the costs can be attributed to the company.

For example, a plane ticket to a conference may be a reasonable expense, but the cost of traveling for family members will not be a business expense.

Gifts for employees and customers

Gifts can be a business expense, but they need to be weighed against their tax consequences.

A distinction must be made between:

• gifts for employees;

• gifts for customers;

• entertainment expenses;

• promotional items;

• gifts of a private nature.

  
  

For example, small gifts with a company logo to clients may be related to advertising or representation. On the other hand, an expensive gift to a specific person may have tax consequences.

The gift limit for employees is 100 EUR per person per year.

In turn, representation expenses also include expenses for low-value items (up to 20 EUR) that contain the merchant's brand and are distributed with the aim of promoting the merchant.

Qualifying expenses if a company gives representational items to clients:

Gifts with logo value EUR	Does the person who received the gift get identified?	Taxation
< 20	Does not identify	Neither personal income tax nor corporate income tax is applicable. For a company - representation expenses
> 20	The natural person is identified	Personal income tax applies. For a company – operating expenses
	The legal entity is identified	Corporate income tax is not applicable. For the company - representation expenses
	Does not identify	Corporate income tax applies. For a company – expenses not related to economic activities

Expenses that often pose a risk

The following expenses should be assessed with particular care:

• grocery shopping at the supermarket;

• clothing and footwear;

• sporting goods;

• household appliances;

• travel;

• restaurants;

• gifts;

• apartment or house expenses;

• fuel without a clear justification for using the car;

• luxury goods;

• expenses for family members.

  
  

This does not mean that such expenses can never be justified. But they need a clear connection to the company's operations.

What is and what is not entertainment expenses?

Representation expenses are expenses related to the creation and maintenance of the company's prestige and image, as well as receiving customers, cooperation partners or potential customers. They are usually not directly aimed at selling a specific product or service, but more at the company's recognition, reputation and maintaining business relations. It should also be taken into account that only 40% of VAT can be deducted from representation expenses, otherwise the VAT amount must be included in the representation costs.

Representation expenses can include, for example, receiving clients or business partners, coffee, water, snacks or a meal during a business meeting, as well as gifts or items with the company name or logo, if they primarily serve to create the company's image.

If the item only has the company name or logo on it, such as a pen with the “Confidentum” logo, such expenses are usually more in line with representation expenses.

On the other hand, if a specific product, service, promotion, price, offer or invitation to purchase is indicated on an item, advertising material or publication, such expenditure is usually more consistent with advertising expenditure. For example, a pen or booklet with the text “Confidentum — accounting services”, “annual report preparation” or “salary calculation for companies” is already aimed at promoting specific services, therefore such an expenditure can be classified as advertising expenditure.

In practice, the purpose and content of the publication should be evaluated. If the main purpose is to build the company's prestige and relationships, it is more consistent with representation. If the main purpose is to promote goods or services and stimulate demand, it is more consistent with advertising.

An invoice alone is not enough.

A common mistake is to think that if the invoice is for a company, then everything is fine.

It is not.

The invoice is just one of the documents. You still need to be able to justify why the expense was necessary for the business to operate.

For example, if a company buys a television, it may be a legitimate expense for a conference room or client presentations. But it may also be a private expense if the television is actually in the owner's residence and not used for business purposes.

How a company can protect itself

To minimize risks, it is recommended to follow some practical principles.

First, purchases must be proportionate to the company's operations and turnover.

Secondly, invoices must be properly issued to the company.

Thirdly, it is advisable to prepare a brief justification for unclear expenses - for example, a note to the document, an act/order, or at least an email to the accountant.

Fourth, private expenses should not be mixed with business expenses. If a business account is regularly used for private purchases, accounting becomes more complicated and tax risks increase.

Short test before purchase

Before you buy anything from a company, ask yourself five questions:

1. Is this purchase necessary for the business?

2. Can I explain how it is used?

3. Will the invoice be issued to the company?

4. Is the purchase not primarily for private use?

5. Is the purchase proportionate to the company's size?

If the answer to any of these questions is unclear, it is best to ask an accountant before making a purchase.

Conclusion

A company may purchase anything that is related to the company's business activities, is reasonably justified, and documented.

The main question is not just “is there an invoice?”, but “is this expense really necessary for the company?”.

If the expense has a clear business purpose, proper documentation, and reasonable justification, it is usually much safer. If the expense looks more like private consumption, it can create additional tax risks.

If you are unsure whether a particular purchase can be attributed to the company, it is safer to ask before making the purchase than to correct the situation afterwards.