Update on Italian Tax Changes
The 2025 Italian Budget Law introduces significant tax reforms affecting businesses in Italy. Below are the key provisions that companies should be aware of:
Increased Corporate Tax Deduction for New Hires (2025-2027)
To encourage employment, companies can benefit from a 20% increase in tax deductions for new full-time hires if overall personnel costs rise compared to the previous year. This applies to all forms of businesses, including corporations, partnerships, and sole proprietorships.
Eligibility requirements:
- Companies must have operated for a full tax year before applying.
- Businesses in liquidation or under judicial administration are excluded.
- The total number of full-time employees at the end of the tax period must exceed the average number from the previous year.
- The actual cost of new full-time hires.
- The overall increase in personnel costs from the profit and loss statement compared to the previous year.
Special Categories: A further 10% deduction (totalling 30%) applies for hiring individuals from protected categories, such as disabled workers, women victims of violence, and young individuals under 30 who qualify for employment incentives.
Trackable Payments for Deductibility of Business Expenses
Starting January 1, 2025, certain business expenses are deductible only if paid via traceable methods (bank transfers, credit/debit cards, or digital payments). This applies to:
- Meals and accommodation costs.
- Travel and transport expenses, including taxi and rental car services.
- Entertainment expenses.
Impact on Employees: Reimbursements for work-related travel expenses will only be tax-exempt if the employee makes payments using traceable methods. If an employee pays in cash:
- The reimbursement becomes taxable income.
- The company loses its tax deduction eligibility.
Exemptions: Payments for plane, train, and scheduled public transport services remain deductible regardless of the payment method.
Reduction in Legal Interest Rate
From January 1, 2025, the legal interest rate is reduced from 2.5% to 2% annually. This affects the calculation of late payment interest, including active repentance penalties.
Conclusion
To achieve the tax benefits and remain compliant businesses should look to adapt to these tax changes by adjusting hiring strategies, ensuring compliance with expense tracking requirements, and recalculating interest-related liabilities.
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