Which bonuses qualify?

The special regimes set out in paragraphs 182-190 of Article 1 of the Italian Stability Law 2016 (Law 208/2015 and subsequent amendments and supplements, the ‘Law’) only apply to performance-related bonuses:

• up to EUR 3,000 gross;
• paid to employees whose income from employment in the year preceding that in which the bonus is paid is less than EUR 80,000.

The favourable tax regime

The Law provides that qualifying performance-related bonuses are subject to a tax rate of 10%, instead of the normal personal income tax (‘IRPEF’) rate, which varies proportionately from 23% to 43%.

The favourable tax regime will apply if the performance-related bonuses:

• are paid in execution of a company-level or territorial collective agreement, signed by the unions or employee representatives;
• relate to measurable increases in productivity, profitability, quality, efficiency and innovation in the company.

The favourable social security contributions regime

In addition to the favourable tax regime described above, the Law also provides for a reduction in social security contributions due on a portion of the bonus not exceeding EUR 800. This reduction is granted if the collective agreements on the basis of which the bonuses are paid provide for employee participation in the organisation of work, through a specific plan.

If this condition is met, the Law makes the following provisions for the qualifying portion of the bonus:

• reduction of 20 percentage points in the employer’s social security contributions (generally, approximately 24%);
• the employee will not be liable for any social security contributions (generally, these are approximately 9.5%).

Bonuses taken as benefits in kind: tax exemption and no social security contributions

In addition to the above, the Law has specific provisions relating to collective agreements under which employees can choose to have cash bonuses completely or partially converted into certain benefits in kind within specific limits, depending on the type of benefit in kind chosen. These benefits in kind may include, by way of example, reimbursements of educational expenses and season tickets for public transport, but also shares in the company in which the employee works.

If the employee chooses to take their bonus in the form of such benefits in kind, the Law provides as follows in relation to the whole value of the converted bonus:

• no tax is payable by the employee;
• no social security contributions are owed by the employees;
• no social security contributions are owed by the employers.