Deducting Entertainment Expenses: 70% Deduction, Input Tax, Receipt

When is a meal considered a business expense?

A business meal is considered business-related if the meal is held for business purposes. You invite customers, business partners, or potential clients. The law refers to the hosting of individuals for business purposes (Section 4(5), Sentence 1, No. 2 of the Income Tax Act (EStG)).

The occasion must be clearly identifiable: contract negotiations, a bidding round, or a project wrap-up. A gathering among friends where work is discussed in passing is part of everyday life. These expenses do not reduce profits (Section 12(1) of the Income Tax Act), even if they benefit one’s profession. The tax office determines where the line is drawn in individual cases based on the circumstances; for exceptions, see the source (R 4.10 EStR).

How much of the entertainment expenses are deductible?

70% of reasonable and documented expenses. The remaining 30% may not reduce profits. Expenses that are no longer considered reasonable according to generally accepted standards are not included.

The deduction applies to the entire bill, including the portion attributable to you and your participating employees. So if you go out to eat with a client and two of your own employees, you deduct the entire amount—not just the client’s share.

Is the input tax on food and beverage services fully deductible?

Yes, provided the expenses are reasonable and substantiated. Section 15(1a) of the German Value-Added Tax Act (UStG) excludes input tax deductions for expenses that are not deductible under Section 4(5) of the German Income Tax Act (EStG). However, it excludes entertainment expenses from this rule (Section 15(1a), second sentence, of the German Value-Added Tax Act (UStG)). The 30% that does not reduce profit therefore does not affect the input tax.

Two rules apply: There is no input tax credit for expenses that are not reasonable. And input tax that is subsequently non-deductible is also forfeited as a business expense. In contrast, procedural errors in documenting business expenses do not automatically result in the loss of input tax: Anyone who fails to keep separate records loses the business expense deduction, not the input tax on reasonable expenses.

A prerequisite is an invoice in accordance with § 14 of the German Value-Added Tax Act (UStG). For total amounts up to €250, a small-amount invoice containing the minimum information specified in § 33 of the German Value-Added Tax Implementation Regulation (UStDV) is sufficient: the business owner’s name and address, date of issuance, type and scope of the service, total amount (including payment and tax), and the tax rate. To be deductible as a business expense, it must also include a detailed description of the service and the date of the entertainment (see below).

Effective January 1, 2026, a 7% VAT applies to restaurant and catering services, with the exception of the sale of beverages (Section 12(2)(15) of the VAT Act [UStG], Tax Amendment Act of 2025). As a result, receipts often show two tax rates. For dining services in 2025, a 19% tax rate applies to food and beverages.

What should be included on a business entertainment receipt?

The location, date, participants, and occasion of the entertainment, as well as the amount of the expenses, must be recorded in writing. If the meal took place at a restaurant, it is sufficient to provide details regarding the occasion and participants, and the receipt must be attached (Section 4(5), first sentence, No. 2 of the Income Tax Act (EStG)). You must prepare this self-certification promptly and sign it.

As a general rule, you should list each participant by name. Only if this is not reasonable—for example, during a plant tour by a large group—is it sufficient to state the number of participants and use a descriptive collective term. The occasion must clearly indicate a connection to a business transaction or business relationship; “business dinner” alone is not sufficient for this purpose.

In addition, there is the requirement for separate record-keeping: Entertainment expenses must be recorded individually and separately from other business expenses, for example, in a separate accounting account. If this is not done, the deduction is not allowed (Section 4(7) of the Income Tax Act).

A proper invoice that lists you as the recipient of the service serves as proof of the host's name. A handwritten note is neither necessary nor permitted; the name must appear on the invoice.

In the service description, “food and beverages” and the total amount are not sufficient, nor are letters, numbers, or symbols—such as those required for VAT purposes. Descriptions such as “Menu 1,” “Daily Special 2,” or “Lunch Buffet,” as well as abbreviations that are self-explanatory, are acceptable, however. For the date of service, a reference such as “Date of service corresponds to invoice date” is sufficient; handwritten additions or a date stamp are not sufficient.

Tips are considered entertainment expenses if they are of minor significance in relation to the total price. They are therefore subject to the same 70% limit as meals, not the full deduction; the same applies to coat check fees. You must provide proof yourself: Have the tip listed on the bill or have the recipient acknowledge it on the bill.

Everything can be done digitally. The invoice may be received digitally or scanned; the supporting document may be created digitally and signed or approved electronically; however, the information may not be changed retroactively without documentation. The supporting document and the invoice must correspond; a reference is sufficient, including via an electronic link. If a supporting document cannot be assigned to an invoice, the deduction will be denied. The details are set forth in the BMF letter dated November 19, 2025 (source below).

What are the rules regarding gifts to business partners and employees?

Gifts to individuals who are not employees do not reduce profits. The exception: The total acquisition or production costs of the items a recipient receives during the fiscal year must not exceed €50 (Section 4(5), sentence 1, no. 1 of the Income Tax Act (EStG)). This is a threshold: At €50.01, the deduction for all gifts to that recipient is forfeited. If the input tax is deductible, the net amount applies (Section 9b of the German Income Tax Act (EStG)). If you cannot deduct it—for example, as a small business owner—you use the same €50 gross amount. The €50 threshold applies for the first time to fiscal years beginning after December 31, 2023.

If the threshold is exceeded, the input tax is also not deductible (Section 15(1a), first sentence, of the German Value-Added Tax Act (UStG)). However, the threshold for input tax applies per calendar year, and this includes monetary gifts and other benefits in kind, such as admission tickets. If it is not yet clear at the time of purchase that you will be giving the item as a gift, you may initially deduct the input tax and then adjust it upon transfer if the limit is subsequently exceeded. Gifts must also be recorded individually and separately (Section 4(7) of the Income Tax Act (EStG)).

The only expenses that are considered to be for general business purposes—rather than for specific business transactions—are those related to entertaining your own employees, such as at a company party. These expenses are fully deductible; the 70% rule does not apply. At company parties, it’s perfectly acceptable to also provide refreshments for family members or individuals who help organize the event.

By contrast, entertaining employees of companies affiliated under corporate law and similar individuals is business-related and falls under the 70% rule.