In recent years, running a business from home has become increasingly popular, as it allows for savings on office space rent and related expenses. However, many entrepreneurs may wonder which expenses can be accounted for within the home office and how they should be documented. In this article, we will discuss the main aspects related to expense reimbursement and taxation within the home office.
Reimbursement of utility expenses for a home office
An entrepreneur working from home can offset part of their current housing-related expenses through their company. This may include payment for internet, landline phone, electricity, and other utility services. It's important to plan in advance which types of expenses should be reimbursed and to what extent. Please note that VAT cannot be refunded on these expenses.
Determining the share of space used for business purposes
To determine which part of an apartment or house is used for business, it is necessary to evaluate the share of space used for economic purposes. For example, if there is a three-room apartment, one room of which is set up as an office, let's say, the total area of the apartment is 40 m2, and the space used as an office is 10 m2, then on average a quarter of the expenses can be justified as company expenses.
The recommendation from the Estonian Tax Authority is 30%.
To reimburse utility expenses, it is necessary to properly prepare the documents. The company can either pay the corresponding share of expenses directly at its own expense or compensate the apartment owner. It is advisable to draw up an agreement between the apartment owner and the company, specifying which expenses will be reimbursed and to what extent.
Compensation for apartment rent
If the company only reimburses partial expenses (invoices), it is not considered taxable income for an individual, and the company does not have to pay anything to the tax office. However, if rent is charged in addition to reimbursing expenses for the premises, the company must withhold income tax from the rental payment and pay it to the government.
A company subject to VAT must take into account that VAT can only be refunded for invoices issued in the company's name. A reimbursement claim submitted by a business as a private individual, to which invoices/receipts issued in the name of a natural person are attached, is suitable as an expense document, but the company will not receive a VAT refund for the purchase.
Running a business from a home office can be a profitable and convenient solution for many entrepreneurs. However, it is essential to carefully examine issues related to expense reimbursement and taxation to avoid potential mistakes and problems with tax authorities. It is crucial to thoroughly consider which types of expenses should be reimbursed and to what extent, as well as to properly prepare all documents confirming the expenses and their connection to the business.