Efficient expense management is a necessary administrative task for companies and a factor in their financial success. It is about reimbursing business expenses while complying with regulatory requirements and maintaining tight budget control. Digital solutions—such as corporate cards and expense management software—can provide valuable support and simplify the expense management process.
This article provides a comprehensive overview of the basics, requirements, and tips to ensure your expense reporting is efficient and compliant.
What’s in this article?
- What are expenses?
- What is expense management, and why is it important?
- How do expense calculations and settlements work?
- Legal requirements and tax benefits of expense reports
- Efficient expense management with corporate cards
- Typical expense management errors and solutions
What are expenses?
Expenses are costs incurred by employees. They are incurred at the employee’s regular place of work or during business trips and are reimbursed by the employer. Reimbursement is intended to ensure employees are not financially disadvantaged by business expenses.
There are several types of expenses, including:
Travel and incidental expenses: These include, among other things, costs for train, bus, and air tickets, taxi rides, fuel, and parking and toll fees for private vehicles (see Section 9, Paragraph 4a of the German Income Tax Act [EStG]).
Accommodation costs: This includes expenses for lodging, such as hotels, guesthouses, vacation homes, or hostels.
Meal expenses: The additional cost of purchasing food and beverages during a business trip is covered by meal allowances. They are granted in the form of statutory per diems, which vary according to the length of the absence.
What is expense management, and why is it important?
Expense reporting is the process by which employees document and submit expenses to the company for reimbursement. Expense reporting is a key component of corporate expense management and ensures all expenses reimbursed by the employer are accurately recorded and paid. A well-organized expense report has several benefits for companies:
Financial transparency and control: Organizations can better understand where and how resources are being used. This allows them to optimize their budget planning. Employees also know how much money they can spend, for what purposes, and when they need to get approval.
Legal and tax compliance: Proper documentation and accounting of expenses is important for compliance. Companies must ensure expenses are recorded correctly to comply with tax regulations. Accounting errors can lead to tax penalties and legal problems. In addition, the correct application of statutory lump sums can minimize a company’s tax burden.
Increased efficiency: Digital expense reporting solutions can automate the audit and reimbursement process. This speeds processing and reduces errors and administrative overhead.
Employee satisfaction: When employees know they can get reimbursed quickly and easily, it builds trust in the company. This contributes to employee retention and a positive corporate culture. Conversely, a lengthy or inaccurate expense report can have a negative impact on employee satisfaction and motivation.
How do expense calculations and settlements work?
There are basically two ways to reimburse expenses. One is to reimburse expenses by submitting receipts and bills. In this case, employees substantiate their actual expenses on a case-by-case basis. This method requires the accounting department to closely examine the submitted documents and is usually a complex process.
On the other hand, expenses can be reimbursed on a flat-rate basis. In this case, employees receive a fixed amount regardless of the actual expenses. The per diems are regulated by law and vary depending on the type and duration of the trip. Lump-sum reimbursement simplifies and speeds up the reimbursement process by eliminating the need for individual receipts.
While lodging expenses are reimbursed on a lump-sum basis or on the basis of actual costs incurred, meals are reimbursed on a flat-rate basis. These are set annually by the Federal Ministry of Finance (BMF) and apply to all German companies. For additional meals, a distinction is made between a small and a large expense allowance.
The small expense allowance applies to business trips within Germany lasting 8–24 hours. It is €14 (as of 2024). The large expense allowance for business trips lasting more than 24 hours is €28 per calendar day. When traveling abroad, different flat rates are set for each country and sometimes for individual cities. It is important to note that per diems are limited to a three-month period. This means if employees stay in the same place for more than three months on business trips, they are not entitled to an expense allowance.
Legal requirements and tax benefits of expense reports
The government imposes some legal requirements for expense claims. Companies should be aware of these requirements in order to avoid legal risks and to benefit from tax advantages.
One of the most important is the documentation requirement. All expense claims must be supported by documentation such as invoices, receipts, or tickets. Exceptions are made only for lump-sum reimbursements as defined by law. The “principles for the proper management and storage of books, records, and documents in electronic form” (GoBD) also apply here. This means all documents must be archived for 10 years.
As a general rule, an expense claim is only valid for tax purposes if it is actually a business expense. Personal expenses are not reimbursable. Therefore, there must be a clear distinction between personal and business expenses.
Employees are also required by law to submit their expense reports within a reasonable period of time. The statute of limitations is three years, according to Section 195 of the German Civil Code (BGB). In practice, however, employers often set the filing deadline. For example, an employment contract might specify this deadline for employees. These provisions can override the statutory limitation period. However, the time limit set by the company cannot be less than three months. If the expense report is not submitted on time, the claim for reimbursement of the expenses incurred is forfeited.
If the reimbursement of expenses is not regulated in a valid employment contract, the reimbursement claim is governed by Sections 670 and 675 of the BGB. Employees are generally entitled to reimbursement of necessary expenses incurred in the interest of the company.
Tax implications
Companies can claim reimbursed expenses as a business expense for tax purposes. This reduces the taxable profit and the company’s tax burden.
According to Section 3, No. 16 of the EStG, travel expenses are not taxable. This means the company reimburses the net amount to employees, which is tax-free. The prerequisite for this is that the employees have already paid the costs in advance with their taxed income. Nevertheless, it is advisable to attach the expense reports to the tax return. Statutory allowances for expenses not reimbursed by the company can be claimed in the tax return.
If the employer does not reimburse the expenses, the employee can claim the expenses directly through income tax. In this case, the expenses are declared as professional expenses. Expenses that have already been reimbursed by the company cannot be added to income from employment.
Efficient expense management with corporate cards
Reimbursing travel expenses incurred in advance is not the only way to manage expenses. With the help of corporate cards, employees have the opportunity to pay for business expenses directly, without having to advance private funds and apply for a refund later. These can include, for example, physical or virtual credit cards as well as debit cards. The latter are credited with a fixed amount so users can only spend up to the amount available. Corporate cards are increasingly becoming a key component of effective expense management, primarily because they significantly reduce the administrative burden.
A major benefit of corporate cards is the automated collection of data. Transactions are captured in real time and integrated with corporate billing systems. This automation speeds invoice processing and increases the accuracy of allocating expenses to specific projects, departments, or employees. The visibility companies gain as a result enables better cost control and more accurate budget planning.
Corporate cards also promote compliance with internal policies. They can be configured to be used only at certain businesses or for certain types of expenses. This protects against unauthorized expenses and ensures expense reports comply with established corporate policies. This type of control can be especially beneficial for larger organizations and when managing project budgets.
Another benefit is the time corporate cards save employees and the accounting department. Employees no longer need to collect and manually submit receipts. The accounting department benefits from the automated recording and allocation of expenses. Virtual corporate cards have the added advantage that they cannot be lost and can be quickly adapted to changing needs.
Stripe Issuing helps streamline your expense reporting with custom card programs, whether physical or virtual. Issuing allows you to create, manage, and scale a commercial, customizable card program. With over 100 million cards issued, Issuing is the preferred service provider for banking-as-a-service (BaaS) infrastructures, software platforms, and enterprises.
Typical expense management errors and solutions
Expense management is a complex process for many organizations and can lead to errors. This can result in financial penalties, additional administrative burdens, and compliance issues. Modern solutions can help minimize these typical errors and simplify the expense process.
Errors in documentation
Inadequate documentation of expenses is a common problem. Employees might forget to collect receipts or submit them late. This can lead to delays in expense reporting and cause problems with tax deductibility.
This is where corporate cards in combination with modern accounting software can help. Real-time data can be imported directly into the software for processing. Many programs also offer the ability to link transactions directly to digital receipts, which greatly simplifies documentation.
Unclear expenses
Companies often find it difficult to keep track of expenses. Corporate cards offer an advantage because they can be assigned to individual employees, departments, or projects. This makes it possible to track exactly what expenses are being incurred in which area.
Failure to comply with guidelines
A typical problem is noncompliance with internal expense reporting policies. Employees might report expenses that are not approved or reimbursable, which can lead to compliance violations.
For example, payment cards can be configured to promote compliance with corporate policies. Accounting software can also be equipped with compliance rules. These automatically check expenses and report discrepancies before they are included in the invoice.
Time-intensive manual processes
Manual processing of expense reports results in long processing times and administrative burden for employees and the accounting department.
The use of corporate cards significantly reduces manual effort and speeds up the reimbursement process. Transactions are automatically recorded and sent to accounting, where they can be directly allocated to the correct expense.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.