More and more employers are using in-kind employee welfare benefits as an opportunity both for the business and the employees. These are goods and services provided by the employer to employees on top of their normal salary to support their purchasing power and to improve quality of their private and family life. These benefits are attractive because the value of the goods and services is often not included in employees’ income for tax and social contribution purposes. Recently in Italy a new rule has been issued that may further encourage employers to introduce an employee welfare benefits plan or to update their existing one.
In general, employee welfare benefit plans in Italy have to apply to all employees or to broad categories of employees in order to qualify for the tax and social security exemption. Indeed, due to the strict rules governing such plans, it usually is not possible either to provide for individual payments or to give employees significant amounts in goods and services other than those expressly allowed by Italian law, which have social assistance purposes (e.g. childcare contributions). These benefits are not always the right instrument to compensate for a reduction in income, for example in the case of redundancy payments.
However, the Italian income tax code contains an exception allowing employers to award employees, even on an individual basis, goods or services of any kind without taxing their value up to a certain amount. This provision was recently amended by the so called ‘Decreto Agosto’, a piece of legislation introduced to address the Covid-19 emergency. The amendment temporarily increases the tax and social contribution exemption for goods and services that employers may provide to employees without restriction from EUR 258.23 to EUR 516.46. This means that only for 2020, the annual non-taxable cap on goods and services in kind provided to employees (either individually or collectively) has been doubled.
The new cap frees employers from the restrictions that have sometimes limited employers in supporting their employees during the emergency period, since now employers will be able to offer their employees goods or services that are completely fungible (e.g. shopping vouchers or fuel vouchers), thus optimising the allocation of the company’s budget from a tax and social contribution perspective.
The new rule can be an advantage both for employers that have already implemented an employee welfare benefit plan and those that intend to implement one. However, it should be noted that the new cap will be applicable only for 2020, and according to the text of the provision only to goods or services received by employees in 2020.
Insights
Employee benefits get a temporary tax boost in Italy
More and more employers are using in-kind employee welfare benefits as an opportunity both for the business and the employees. These are goods and services provided by the employer to employees on top of their normal salary to support their purchasing power and to improve quality of their private and family life. These benefits are attractive because the value of the goods and services is often not included in employees’ income for tax and social contribution purposes. Recently in Italy a new rule has been issued that may further encourage employers to introduce an employee welfare benefits plan or to update their existing one.
In general, employee welfare benefit plans in Italy have to apply to all employees or to broad categories of employees in order to qualify for the tax and social security exemption. Indeed, due to the strict rules governing such plans, it usually is not possible either to provide for individual payments or to give employees significant amounts in goods and services other than those expressly allowed by Italian law, which have social assistance purposes (e.g. childcare contributions). These benefits are not always the right instrument to compensate for a reduction in income, for example in the case of redundancy payments.
However, the Italian income tax code contains an exception allowing employers to award employees, even on an individual basis, goods or services of any kind without taxing their value up to a certain amount. This provision was recently amended by the so called ‘Decreto Agosto’, a piece of legislation introduced to address the Covid-19 emergency. The amendment temporarily increases the tax and social contribution exemption for goods and services that employers may provide to employees without restriction from EUR 258.23 to EUR 516.46. This means that only for 2020, the annual non-taxable cap on goods and services in kind provided to employees (either individually or collectively) has been doubled.
The new cap frees employers from the restrictions that have sometimes limited employers in supporting their employees during the emergency period, since now employers will be able to offer their employees goods or services that are completely fungible (e.g. shopping vouchers or fuel vouchers), thus optimising the allocation of the company’s budget from a tax and social contribution perspective.
The new rule can be an advantage both for employers that have already implemented an employee welfare benefit plan and those that intend to implement one. However, it should be noted that the new cap will be applicable only for 2020, and according to the text of the provision only to goods or services received by employees in 2020.
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