Italy: New Stability Law extends range of tax-exempt benefits

Italy’s 2016 Stability Law supports the uptake of private welfare measures by extending the types of tax-exempt benefits offered by employers to include those agreed through collective bargaining. 

Social partners have welcomed the new provisions that incentivise company-based welfare uptake, although there has been criticism of the accompanying reduction in resources earmarked for public welfare. The new measures encourage initiatives to improve satisfaction at work and employees’ quality of life. However, it is more likely that they will be introduced in workplaces where there are worker representatives, hence triggering inequalities in access to such benefits based on company size, business sector, and geographical location.


The 2016 Stability Law (Act No. 208/2015) introduced two measures to support the uptake of welfare measures through collective bargaining at company level. These are:

  • recast legal provisions covering deductions from employees’ taxable income to reflect the value of services provided by employers;
  • reintroducing tax relief on performance-related pay, incentivising its implementation through welfare services.

Main provisions

Modifications to income tax deductions

According to current legislation, the value of services or goods provided by employers to their employees or their relatives can be deducted from the latter’s taxable income if it complies with the Consolidated Act on Income Taxation (Act No. 917/1986). This act sets out the categories eligible for tax deduction:

  • complementary health and social security contributions;
  • meals provided through canteen services or meal vouchers;
  • collective transport services;
  • ‘socially useful’ services;
  • educational services for family members;
  • fringe benefits;
  • company shares. 

The tax exemption usually applies under specific conditions, and is linked to further incentives that apply to corporate taxes. Hence, the framework is quite detailed and complex.

However, the amendments introduced by the Stability Law are designed to simplify the system and generally give decentralised collective bargaining a more pivotal role through three key modifications. The main changes affect ‘socially useful’ services. The law defines them as those offering educational, recreational, healthcare and social assistance, or having a religious purpose. Up to now, their deduction from employees’ taxable income has been allowed only if:

  1. The services are offered to all employees in a company or particular unit of a company.
  2. They are offered by the employer, therefore excluding those resulting from collective agreements.
  3. They do not entail any kind of cash payment to employees.

Based on the amendments introduced by the 2016 Stability Law, these criteria now include services resulting from collective agreements and those paid for by means of vouchers.

Another significant modification is related to educational services for family members. Previously, provision for an employee’s family members applied only to attendance at a nursery school or summer camp, or to pay for scholarships; the exemption now applies to all educational services for family members, as well as to care services for elderly or dependent relatives.

It is worth noting that the only condition for the tax relief to be valid is that a service is offered to all company employees or a particular unit of a company. The Consolidated Act on Income Taxation already allows for payment in cash and for the introduction of educational and care services through collective bargaining.

The 2016 Stability Law also promotes the adoption of welfare schemes as an alternative form of reward, by linking them with the tax relief granted for performance-related pay.

Link between welfare measures and tax relief on performance-related pay

In line with earlier measures granting tax relief on performance-related pay, and exclusively relating to company or local-level collective bargaining in 2011–2014, the 2016 Stability Law reintroduced a 10% substitutive income tax on variable rewards adopted in the private sector, and granted to employees on the basis of measurable increases in productivity, profitability, quality, efficiency, and innovation, whose compliance with legislation will be supervised by the Tax Authority. The act specifies that performance-related pay can also be provided in the form of welfare services. In this case, it is wholly exempt from taxation, a measure that incentivises welfare services compared with monetary payments. The maximum amount subject to the relief is equal to €2,000 for income not exceeding €50,000. However, the amount is increased to €2,500 if the company agrees on modalities of workers’ participation in the work organisation. 

Views of the social partners

Generally speaking, the new measures have been positively welcomed by the social partners. The General Confederation of Italian Industry (Confindustria), the main employers’ organisation, hopes that the measures will encourage decentralised collective bargaining, while supporting work–life balance and innovative forms of rewards. Moreover, Confindustria advocates a greater streamlining of the tax exemptions on goods or services provided by employers to their staff.

Trade unions welcome the reintroduction of performance-related pay. However, they ask for tax relief to be extended to public sector employees, complaining that not enough resources have been earmarked for wage increases in this sector after an eight-year pay freeze. As for the above-mentioned measures promoting private welfare, while unions are in favour of the greater role assigned to collective bargaining, the main union confederation, the Italian General Confederation of Work (CGIL), highlights the risk of a shift from public to private welfare, particularly since the 2016 Stability Law has introduced further cuts to resources earmarked for public healthcare services.


The new provisions leave room for a wider deployment of so-called ‘cafeteria-style benefits’ by:

  • extending the range of benefits eligible for income tax relief;
  • promoting the role of collective bargaining in the definition of welfare schemes;
  • promoting simple payment tools, such as vouchers.

Nevertheless, there are two main concerns. The first issue concerns equality. The tax relief described above places a financial burden on the state budget and, therefore, on all taxpayers. Its benefits, however, are likely to be biased towards workplaces that have worker representatives, hence triggering inequalities based on factors such as company size, business sector, and geographical area. 

The second issue is more specific: the promotion of welfare services by means of their link to performance-related pay. Up to now, performance-related pay has not been very appealing, especially for small and medium-sized enterprises. The idea of sharing company results, possibly according to employee productivity, may not be attractive either to employers, who might fear a consequent loss of part of their potential profits, or to employees, who might be unwilling to bear wage losses when performance is poor. 

Although tax relief on performance-related pay has been mainly intended to tackle the low productivity of Italian companies, the provision of welfare services may be, in itself, a tool for increasing productivity by leveraging employees’ satisfaction with their work, rather than on quantitative indicators claiming to assess their performance.


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