Budget Law 2025: new regulations for employers and workers

Pursuant to Article 81 of the Italian Constitution, the government in force is required to enact annually a law, commonly called budget law. It is a budget-type accounting document, in which the government informs Parliament of the public expenditure and revenue expected for the following year in accordance with the laws in force (it differs from the final statement, which is instead an accounting document listing the revenue and expenditure that have been realised in the financial year to which the budget refers).

Therefore, close to the end of each year, in Italy we all take time to study the latest news from the government. The Budget Law 2025 - i.e. Law No. 207/2024, which was published in the Official Gazette on 31 December 2024 and entered into force on 01 January 2025 - introduced significant regulatory changes that will certainly affect every company and worker during the year that has just begun.

Following is a review of the most discussed elements.

Car fringe benefit for both private and company use

Among the fringe benefits most frequently awarded to employees, cars certainly stand out. Current provisions distinguish among: 

• car given for business use only;
• car given for private use only;
• car given for both private and business use.

It is precisely this last type that the 2025 Budjet Law has affected. In Paragraph 48 we find in fact a revision of Article 51, Paragraph 4(a) of the Consolidated Income Tax Act, concerning precisely the rules for determining the value of a car granted for promiscuous use as a fringe benefit.

To be more specific, for newly registered cars, motorbikes and mopeds, granted for private and business use on the basis of contracts entered into on or after 1 January 2025, the relevant fringe benefit is quantified as 50% of the amount corresponding to a conventional annual mileage of 15,000 kilometres, for the ACI kilometric cost, net of any amounts withheld from the employee. The percentage decreases to:

- 10% for vehicles with purely battery-electric drive;

- 20% for plug-in hybrid electric vehicles.

With reference to vehicles registered and assigned as from 1 July 2020 and until 31 December 2024, the fringe benefit continues to be determined on the basis of the conventional annual mileage of 15,000 km multiplied by the ACI kilometric cost, with the application of different percentages defined according to the level of carbon dioxide emissions. These percetages are in detail:

• 25% for vehicles with CO2 emission values not exceeding 60 g/km;
• 30% for vehicles with CO2 emission values exceeding 60 g/km and up to 160 g/km;
• 50% for vehicles with CO2 emission values exceeding 160 g/km and up to 190 g/km;
• 60% for vehicles with CO2 emission values exceeding 190 g/km.

What will happen to motor vehicles granted after January 2025 but registered before that date remains to be seen.

In the case of any vehicles registered and assigned before 1 July 2020, for the purposes of calculating the fringe benefit, the previous rules of a single percentage of 30% (regardless of the level of emissions) continues to apply.

Transfer expenses exempt/deductable only if recorded

Paragraphs 81 to 83 redefine the exemption and deductibility of travel expenses incurred by employees, without prejudice to the general rules on the tax treatment of travel outside the municipality or within the municipality of paragraph 5, Article 51 of the Consolidated Income Tax Act.

In particular, it is provided that, as from the 2025 tax year, analytical reimbursements of expenses for board, lodging, travel and transport by means of non-scheduled public transport services (e.g. taxi service) incurred by the employee for business trips will not contribute to forming income provided that the payments of such expenses are made using traceable payment methods.

In the event of payment of these expenses with cash, the reimbursements in question will so be subject to taxes (and contributions). An exception is made for expenses relating to transport by scheduled public bus services for which reimbursement may continue to be made in cash without affecting the relevant exemption for the purposes of determining the employee's taxable income.

A further measure concerns Article 95 of the TUIR. More specifically, the new para.3-bis provides for the deductibility, within the prescribed limits (Paras. 1, 2, and 3, Art. 95 of the Consolidated Income Tax Act), if payments for the following expenses are made using traceable methods:

• accommodation and meals as well as travel and transport costs by means of non-scheduled public transport services (i.e. taxi service and rental service with driver) as well as
• analytical reimbursements for the same expenses incurred for employee travel

Deduction of productivity bonus

Paragraph 383 of the new Budget Law confirms, for the years 2025, 2026 and 2027, the rate of the substitute tax at the rate of 5% instead of 10% as provided for in the regulation for bonuses and tax-free amounts.

Hence, the temporary reduction from 10 per cent to 5 per cent of the substitute tax rate for IRPEF and the related regional and municipal surcharges applies, as for the year 2024.

Can benefit from the favorable tax regime (so-called detaxation provided for by Article 1, paragraphs

182 to 189, Law No. 208/2015 and DM 25 March 2016):

• variable bonuses, the payment of which is linked to measurable and verifiable increases in productivity, profitability, quality, efficiency and innovation;
• amounts paid in profit sharing form, paid under deposited collective, territorial or company agreements.

The annual limit on the amount that can be taxed continues to be set at €3,000, just as the limit on the employee's income produced by the employee in the previous tax period is confirmed at €80,000 in order to qualify for the tax relief scheme.

Extension of deductible cost increase in case of new employments

Paragraphs 399 and 400 of Article 1 of the Budget Law 2025 amend the provisions contained in Article 4 of Legislative Decree no. 216/2023, providing for an extension of the maxi deduction envisaged in favour of companies and self-employed workers for new recruitments of employees with permanent employment contracts for the tax period following the one in progress as of 31 December 2024 and for the two following ones (i.e., for entities with a financial year corresponding to the calendar year, the tax periods ending on 31 December 2025, 31 December 2026 and 31 December 2027).

The tax benefit consists of an increase in the personnel cost allowed as a deduction, equal to:

• 20% of the cost related to the increase in employment, in relation to new hires with an open-ended employment contract. This effectively brings the labour cost to 120% of its original value;
• 30% of the cost relating to the increase in employment, in the presence of new permanent hires falling within the categories of workers deserving greater protection under Annex I to Legislative Decree 216/2023. The deduction of labour costs is thus 130%.

Paragraph 2 of Article 70 defines the criteria for determining the advances due, providing:

• in subparagraph (a), that, for the tax period following the one in progress on 31 December 2025 and for the following two (for solar entities, tax periods in progress on 31 December 2026, 31 December 2027, 31 December 2028), the tax for the preceding year that would have been determined without the application of the increased deduction of personnel costs is to be taken into account;
• in subparagraph (b), that the increased deduction of personnel costs is also not to be taken into account in determining the advance payments due for the tax period following the one in progress on 31 December 2024 and for the two subsequent tax periods (for solar entities, tax periods in progress on 31 December 2025, 31 December 2026, and 31 December 2027).

Contribution exemption for companies placed in southern italy

The new tax exemption, which replaces the relief measure known as ‘Decontribuzione Sud’ (pursuant to Article 27,

Law Decree no. 104/2020, extended until 2029 by Article 1, paragraphs 161-168, Law no. 178/2020), is granted with

different requirements depending on the type of beneficiary company. In detail:

• micro, small and medium-sized enterprises, i.e. those with no more than 250 employees (Annex I to EU Regulation No 651/2014), provided that the de minimis limits set out in EU Regulation No 2831/2023, implementing Articles 107 and 108 of the TFEU, are complied with;
• enterprises that do not fall within the notion of ‘micro, small and medium-sized enterprises’, provided that the employer demonstrates, as at 31 December of each year, an increase in the number of open-ended employment relationships compared to the previous year.

The latter is only granted after approval by the European Commission and therefore, until then, this exemption is to be considered suspended.

Excluded from access to the incentive measure in any case are

agricultural and domestic employers and:

• apprenticeship employment relationships;
• economic public entities;
• independent social housing institutes transformed into public economic entities;
• entities transformed into share capital companies even if their capital is entirely public;
• former public welfare and charitable institutions converted into associations or foundations 

• under private law;
• special companies, including consortia, referred to in Legislative Decree No. 267/2000;
• to land reclamation consortiums and industrial consortiums;
• moral and ecclesiastical bodies.

The exemption is provided for in the measures set out below, without prejudice to the rate at which pension benefits are calculated, the new relief consists in the exemption from the payment of social security contributions, excluding premiums and contributions due to INAIL:

• for year 2025, in the amount of 25% of the total social security contributions for a maximum amount of EUR 145 on a monthly basis for 12 months, for each worker hired on an indefinite-term basis as at 31 December 2024;
• for year 2026, in the amount of 20% of the total social security contributions for a maximum amount of EUR 125 on a monthly basis for 12 months, for each worker hired on an indefinite-term basis as at 31 December 2025;
• for year 2027, in the amount of 20% of the total social security contributions for a maximum amount of EUR 125 on a monthly basis for 12 months, for each worker hired on an indefinite-term basis as at 31 December 2026;
• for year 2028, in the amount of 20% of the total social security contributions for a maximum amount of EUR 100 on a monthly basis for 12 months, for each worker hired on an indefinite-term basis as at 31 December 2027;
• for year 2029, in the amount of 15% of the total social security contributions for a maximum amount of EUR 75 on a monthly basis for 12 months, for each worker hired on an indefinite-term basis as at 31 December 2028;

The appropriate clarifications by INPS are awaited in any case.

Other requirements. Exemption under analysis:

• cannot be used in conjunction with the incentives recognised by the regulations in force for self-employment and the hiring of young people under 35 years of age, as well as for hiring in the Special Economic Zone for Southern Italt or of women in disadvantaged conditions (pursuant to Articles 21, 22, 23 and 24, DL n. 60/2024);
• is not due in cases provided for by the general regulations on incentives (Art. 31, Legislative Decree 150/2015);
• is granted subject to possession of the DURC and compliance with labour and social legislation (art. 1, par. 1175, Law no. 296/2006), as well as on the employment obligations of disabled persons (art. 3, Law no. 68/1999).