Cost of living allowances: key considerations for companies

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In most cases, your employees' daily movements are regular and their salaries are predictable and set monthly. However, when this is not the case and they have to make sporadic trips or trips that cannot be foreseen in terms of salary compensation, you can compensate them through travel allowances .

What are travel expenses?
Travel expenses are monetary amounts granted by employers to their employees as compensation for the costs they have incurred due to travel on behalf of the entity , within or outside the country, when these are not already included in their monthly remuneration.

Although they are considered separately from monthly salaries, cost-of-living allowances are processed on pay slips and are part of the monthly remuneration statement.

It is important to bear in mind that, for the employer to be able to hong kong whatsapp number database these amounts, workers must present their invoices with the employer's tax identification number, otherwise they will not be accepted for tax purposes.

The cost of living allowances may include transportation expenses, whether or not in your own car, accommodation or food .

Legislation applicable to travel expenses
For the private sector, there is no legislation regulating the amounts to be paid in terms of daily allowances, which means that their allocation is free. However, such legislation exists for the public sector, namely Decree -Law No. 106/98, of 24/04 , amended by Decree-Law 137/2010, of 28/12, and is considered a reference by most employers.

Regardless of the amount that the employer decides to pay, the amounts stipulated in the aforementioned legislation are always taken into account for the incidence of TSU (single social tax) and IRS (personal income tax) withholdings on the employee: up to the reference values, allowances are exempt from this taxation.

Also in terms of legislation, it is worth considering the IRC Code, which stipulates when the employer may be taxed for IRC (corporate income tax) on allowances granted to its employees, in particular articles 23, 23-A and 88:

expenses for travel expenses are deductible for the purposes of determining taxable profit if they are invoiced to customers;
if they are not invoiced to customers, they are deductible if the employer has, for each payment, a map through which it is possible to control the movements;
expenses for travel expenses not invoiced to customers are subject to autonomous taxation, insofar as there is no IRS taxation in the sphere of the worker.
Reference values ​​for cost of living allowances for 2024
As mentioned, the amounts to be allocated by private companies as travel expenses are freely defined, but those stipulated for the public sector are often used as a reference, in addition to these defining the limits of tax exemptions for workers.

The values ​​for the per diem allowances were stipulated in Executive Order 1553-D/2008, of 31/12, and were subsequently reduced when the aforementioned Decree-Law no. 137/2010 came into force. With the entry into force of Law no. 82/2023, of 29/12, which approved the State Budget for 2024 , this reduction was revoked and the reference values ​​updated. The values ​​in force in 2024, by type of expenditure, are as follows.

Food expenses
The reference values ​​for expenses incurred on food as a result of employees travelling to work for the employer follow the same rules as the daily meal allowance. In other words, the amounts paid are exempt from Social Security contributions and IRS withholdings up to the following limits:

€6/day, if payment is made in cash or similar;
€9.60/day, if payment is made by card or meal voucher.
Travel expenses
The reference values ​​for allowances for travel expenses vary according to the transport methods used by workers.

For the payment of expenses for travel in the employee's own car, a value is set per kilometer traveled, already designed to cover fuel and toll expenses. This also applies to public transport, but in the case of vehicle rental, the value is already calculated per kilometer and per employee.

For 2024, the reference values ​​are as follows:

in your own car, €0.40/km;
on public transport, €0.12/km;
in a non-automobile motor vehicle, €0.16/km;
in a rented vehicle with 1 worker, €0.38/km;
in a rented vehicle with 2 workers, €0.16/km for each worker;
in a rented vehicle with 3 or more workers, €0.12/km for each.
Accommodation expenses
In the case of accommodation expenses, the amount of the allowance varies depending on the number of days of absence from work, whether the trip is within the national territory or abroad and the employee's position.

If the trip is within the country, including the mainland and the islands, the reference values ​​for travel expenses, updated for 2024, are:

for most workers, €62.75/day;
for administrators, managers and senior staff, €69.19/day.
If the trip is abroad, the reference values ​​increase, becoming:

for most workers, €148.91/day;
for administrators, managers and senior staff, €167.07/day.
How does the taxation of travel expenses work?
Taxation of cost of living allowances can occur both at the employer's and employee's level, following different rules for both.

Taxation in the sphere of the worker
In the case of workers, allowances may be taxed for personal income tax purposes, through withholding tax, and subject to the incidence of TSU when their value exceeds the stipulated reference values.
In this case, taxation is carried out as follows: up to the point of reaching those values, the amounts paid as allowances are exempt, with the respective tax and contribution rates being applied only to the part that exceeds them.

When made available to workers as category A income, these must, like the rest, be included in the monthly remuneration statement, and it must be highlighted which are subject to withholding and contributions and which are exempt.