CONVERSION OF SUPPORT DECREE: DOUBLING OF THE EXEMPTION THRESHOLD FOR FRINGE BENEFITS ALSO FOR 2021
During the conversion into law of the Support Decree (Decree-Law No. 41/2021), a new Article 6-quinquies was inserted, which provides, also for the tax period 2021, the increase from € 258.23 to € 516.46 (thus doubling) of the value of goods sold and services provided by the company to employees which does not contribute to the formation of taxable income. This is the exemption limit, set by paragraph 3, Article 51 of the Consolidated Income Tax Act, which applies to the so-called fringe benefits granted to employees for incentive and loyalty purposes.
Law no. 69 of 21 May 2021, converting Decree-Law no. 41/2021 (the so-called Support Decree), was published in Ordinary Supplement no. 21 to the Official Gazette no. 120 of 21 May 2021.
Among the changes introduced by the conversion of the Support Decree into law, with regard to the determination of employee income, there is the inclusion of the new Article 6-quinquies, which provides for the extension, also for the tax period 2021, of the increase from € 258.23 to € 516.46 (thus, the doubling) of the value of goods sold and services provided by the company to employees, which does not contribute to the formation of taxable income.
The above-mentioned measure was provided for, for the tax period 2020, by the August Decree (Article 112, Decree-Law No. 104/2020 – see AP Update No. 472/2020) and now, upon conversion into law of the Support Decree, its validity is extended also for the tax year 2021. The exemption limit of €258.23, increased to €516.46 also for 2021, is established by paragraph 3, Article 51 of the TUIR and applies to the so-called fringe benefits granted to employees for incentive and loyalty purposes. By way of example, they fall under paragraph 3, Article 51 of the TUIR and, therefore, are subject to the exemption limit of € 516.46 with reference to the year 2021:
- Purchase vouchers and fuel vouchers;
- goods in kind produced by the company,
- mixed-use cars, rented, used or borrowed accommodation and company loans,
- the use of specific assets owned by the company such as company telephones, PCs, tablets, printers or other company electronic devices,
- non-professional insurance policies, etc.
N.B. If the value of the fringe benefit exceeds the exemption limit, it contributes entirely to taxable income.
When taxing the employee’s income, the withholding agent must apply the withholding in the pay period in which the exemption threshold is exceeded, and if it is clear that the value, taking into account the entire tax period, will in total exceed this amount, it must apply the withholding from the first pay period.
EFFECTS ON THE WORK OF EMPLOYERS/TAX WITHHOLDERS
The increase of the exemption limit to € 516.46 during the year by the Substitute Decree and, in any case, valid for the whole of 2021, inevitably has effects on the work of employers/tax substitutes. More specifically:
- For employees who ceased working in the months preceding the entry into force of Law no. 69/2021 converting Law Decree no. 41/2021 (which took place on 22 May 2021), and to whom, with reference to any fringe benefits, the exemption limit of € 258.23 was applied, it is deemed appropriate to specify this circumstance in the form of a free annotation in the Single Tax Certificate which will be issued to them. In the event that the total value of the fringe benefits does not exceed the new threshold of € 516.46, the higher tax withheld and paid can be refunded to the employee by the new employer/tax withholding agent making the one-off adjustment or in the tax return;
- for existing employees, the exemption limit must be adjusted in a timely manner and the higher tax withheld must be refunded where this is necessary as a result of the overall value of the recognised fringe benefits.
LDP Payroll remains at your disposal for any further clarifications.