Representation Expenses, New Rules Introduced by the 2025 Budget Law

The 2025 Budget Law (Article 1, paragraphs 81–83) introduces stricter requirements for the deductibility of representation expenses, including gift expenses, starting January 1, 2025. These changes affect both corporate income tax (IRES) and regional tax on productive activities (IRAP). However, the rules regarding deductibility for self-employed income remain unchanged, as only Article 108, paragraph 2 of the TUIR (Italian Tax Code) has been amended, leaving Article 54 unaffected.

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Definitions

Representation expenses include costs incurred for goods or services that meet the following criteria:

• Provided free of charge;
• Made for promotional or public relations purposes;
• Reasonably expected to generate economic benefits for the business or align with industry practices.

Gift expenses, by contrast, refer to goods provided without requiring payment or consideration from the recipient.

Key Distinctions Between Business and Self-Employment Income

For Business Income (Corporate Entities):

Gifts provided to clients generally qualify as representation expenses under Article 108, paragraph 2 of the TUIR.

Expenses for freely distributed goods:

• Fully deductible if the value per item does not exceed €50;
• If the value exceeds €50, the expenses qualify as representation expenses and are deductible within the limits set by Article 108, paragraph 2 of the TUIR.

For Self-Employment Income:

Gift expenses are deductible as representation expenses within the limit of 1% of total compensation earned. Unlike corporate entities, goods distributed freely that cost less than €50 are not fully deductible but count toward the 1% threshold.

 

Mandatory Payment Traceability from 2025

Starting January 1, 2025, representation and gift expenses will be deductible only if paid via:

• Bank or postal transfer, or
• Other payment methods listed under Article 23 of Legislative Decree 241/1997 (e.g., debit cards, credit cards, prepaid cards, bank drafts, and cashier’s checks).

Deduction Criteria for Affected Expenses:

1. Traceable payment method;
2. Existing quantitative limits set forth in Article 108, paragraph 2 of the TUIR.

Broader Application to Other Expenses

The traceability requirement also extends to:

• Meal and lodging expenses;
• Detailed reimbursements for travel and transport expenses incurred via non-linear public transport services (e.g., taxis and NCC).

Impact on Self-Employed Individuals:

For self-employed taxpayers, expenses for hotel services, food and beverage provision, travel, and transport (via non-linear public services) will only be deductible if:

• Billed in detail to the client; or
• Reimbursed analytically for travel undertaken by employees or autonomous workers, and paid using traceable methods.

This is in addition to the deductibility rules already set out in Article 54, paragraphs 5 and 6 of the TUIR.

Impact on Corporate Entities:

The same traceability requirement applies to corporate entities for deducting:

• Meal and lodging expenses;
• Detailed reimbursements for travel and transport expenses related to employee or autonomous worker travel.

Existing limitations under Article 95, paragraphs 1–3 of the TUIR continue to apply.

Expenses Affected by the New Rules

The following expenses are subject to the 2025 amendments:

• Representation expenses;
• Gift expenses;
• Meal and lodging expenses;
• Travel and transport expenses.

Affected Articles in the TUIR:

1. Article 51: Pertains to meal, lodging, travel, and transport expenses for employee transfers and assignments;
2. Article 54: Covers deductibility rules for self-employment income regarding hotel services, food and beverage, travel, transport, and reimbursements for the same;
3. Article 95: Relates to deductibility of employee and autonomous worker travel expenses for businesses;
4. Article 108: Governs deductibility of representation expenses.

 

Conclusions

The new regulatory framework will have a significant impact on employers and self-employed individuals. To comply with the requirements, businesses and individuals must revise their organizational models for work-related travel and ensure all relevant expenses are traceable as defined under Article 23 of Legislative Decree 241/1997. This compliance is crucial for deducting such costs from business or self-employment income.