1 December 2025

Company representation costs – distinguish from advertising costs

Corporate Representation Costs

According to the definition outlined in Article 15, Section 1 of the CIT Act, an expense is considered a tax-deductible cost if it is not enumerated in the list of exclusions in Article 16, Section 1 of the CIT Act and exhibits the following characteristics:

• It is definitely incurred,
• Its purpose is to generate revenue, or to maintain or secure a source of revenue,
• It should be related to the taxpayer’s business activity,
• It should be properly documented,
• It cannot be reimbursed in any form.

The problem arises when the expense, despite meeting the following characteristics, is considered a representation cost. This is related to the fact that, under Article 16, Section 1, Item 28 of the CIT Act, expenses incurred for representation, in particular catering services, the purchase of food and beverages, including alcoholic beverages, are not considered tax-deductible costs.

Entertainment expenses primarily refer to activities aimed at creating the desired image in front of business partners (potential or current) – in particular by creating a positive and professional image of the taxpayer or their business, and fostering positive customer relationships.

Examples of expenses considered to be representation costs include the cost of a meeting with a client at a restaurant, or the cost of purchasing gifts or alcohol for clients. If the nature of these expenses indicates solely the need to build the company’s image or impress the client, such an expense may be treated by the tax authorities as representation expenses.

Entertainment and Advertising

Advertising is defined as activities undertaken to persuade a customer to purchase a service or product. Advertising can take various forms – from television and radio ads, through billboards and leaflets, to even gifts or accessories bearing the company logo.

It’s important to note that advertising expenses are generally considered tax-deductible costs, unlike representation costs. Advertising expenses are intended to generate or acquire revenue, not to create a certain image among clients, as is the case with representation costs.

The exception here is expensive items. In such cases, expensive gifts, which are generally advertising-related and can have a positive impact on the client’s perception, are also considered representation costs. Unfortunately, there is no single criterion – the price limit for a given product (expense) will be considered expensive, changing the classification of the expense from advertising to representation.

In light of the above, each expense should be analyzed in terms of its price in relation to the accepted and generally known prices of similar products. To ensure that such an expense doesn’t differ in price from other products, it may be difficult to include it in the tax-deductible costs.