With a deed bearing a certified date
The indemnity is subject to separate taxation, at a rate set according to the applicable rules.
Companies · Corporate bodies
Director pay and TFM (end-of-mandate indemnity)
A director's pay has to be resolved by the shareholders, not simply decided. And the trattamento di fine mandato (TFM, the end-of-mandate indemnity), unless it has a certified date earlier than the start of the appointment, loses the benefit that makes it worthwhile: deductibility on an accruals basis.
01 · The resolution
How a director's pay is set
A director's pay is not an internal management matter: it requires a shareholders' resolution that sets it, or a provision in the articles of association.
- The shareholders' resolution is what gives the director the right to be paid: without it, the payment can be challenged.
- It must state the amount or an objective criterion for working it out.
- A director who is also a shareholder should abstain from the vote on their own pay.
- Pay can be fixed, variable or a mix of the two, with a share of profits.
- Without a resolution, the payment is exposed to being added back to taxable income as non-deductible.
- The resolution must be minuted and kept together with the company books.
Pay made without a resolution is the most frequent objection raised against closely held companies: the tax office denies the company the deduction, while the amount stays taxed in the hands of the director. It is the worst of both worlds, and a set of minutes avoids it.
02 · The two sides
How a director's pay is taxed
The pay is income treated in the same way as employment income, unless the director receives it in the course of their own profession.
- The extended cash principle applies: pay settled by twelve January is allocated to the previous year.
- The company applies the withholding tax and issues the Certificazione Unica (the annual income statement).
- Contributions to the Gestione Separata (the INPS fund for directors and freelancers; INPS is the Italian social security institute) are split between the company and the director.
- A director already enrolled in another pension fund pays the reduced rate.
- If the appointment falls within the scope of the profession the director practises, the pay is self-employment income, with an invoice.
| For the company | For the director | |
|---|---|---|
| Nature | Cost deductible on a cash basis | Income treated as employment income |
| Timing | Deductible in the year of payment, under the extended cash principle | Taxed in the year it is received |
| Withholding tax | To be applied as sostituto d'imposta (withholding agent) | Credited against tax in the return |
| Contributions | The company's share paid to the Gestione Separata | The director's share, deducted from the payslip |
| If a professional | Cost deductible on an accruals basis | Self-employment income, with an invoice |
03 · End of mandate
What the end-of-mandate indemnity (TFM) is
It is an indemnity that builds up during the appointment and is paid when it ends. Its function is similar to the TFR (severance pay) for employees, but its nature is contractual.
The provision
It must be provided for by a shareholders' resolution or by the articles of association, stating the amount or the method of calculation.
The provision in the accounts
Each year the company sets aside the portion accrued, which builds up a fund in the financial statements.
Deductibility
The yearly provision is deductible on an accruals basis only if the right to the TFM results from a deed with a certified date earlier than the start of the appointment.
Payment
When the appointment ends, the indemnity is paid out and taxed in the hands of the director.
The certified date: what counts
The point on which the benefit is lost.
- Minutes of the shareholders' meeting registered with the Agenzia delle Entrate (the Italian Revenue Agency)
- A notarial or authenticated deed
- Sending by PEC (Italian certified email) with a time stamp
- Minutes kept in the shareholders' register, with no external certified date, are not enough
04 · The benefit
Why the certified date changes everything
It is the difference between deducting every year and deducting only at the end, and over a long appointment the financial effect is significant.
- With a certified date earlier than the start of the appointment: the yearly provision is deductible on an accruals basis.
- Without a certified date: the TFM is deductible only in the year in which it is actually paid.
- Deduction on an accruals basis reduces taxable income every year, spreading the benefit.
- Deduction on a cash basis concentrates everything in a single year, often the one in which the director leaves.
- The provision without a certified date is still recorded in the financial statements, but it has no tax effect until payment.
- An insurance policy covering the TFM has its own treatment, which needs to be assessed.
The resolution with a certified date must be adopted before the director takes office, or at the same time as the appointment. Resolving the TFM once the appointment is under way does not recover the benefit for the period already elapsed: that part will remain deductible only on a cash basis.
05 · On payment
How the TFM is taxed when paid out
The tax treatment for the director depends on the form of the resolution that provides for it.
Without a deed bearing a certified date
It is added to total income for the year in which it is received, with ordinary taxation.
The practical difference
Separate taxation prevents the indemnity, once added to the year's income, from pushing the marginal rate up to the highest bands.
Withholding tax
The company applies withholding tax under the applicable regime and certifies the payment.
Waiving it
A director who is also a shareholder and waives the TFM falls under specific rules, with effects on the cost of the shareholding.
The insurance policy
If the TFM is covered by an insurance policy, the payment to the beneficiary follows its own rules, which need checking.
06 · The checklist
How to set up director pay and TFM correctly
There are only a few steps, but they must be taken in the right order and before the appointment begins.
- Appointment resolution that sets the pay at the same time.
- TFM resolution stating the amount or the criterion, adopted before or at the same time as the appointment.
- Certified date: registration of the minutes or another suitable method.
- Yearly provision in the financial statements, disclosed in the notes to the financial statements.
- Withholding tax and contributions handled monthly, with payment and certification.
- Consistency between resolution, financial statements, payslips and tax returns: it is the first thing checked in an audit.
Director pay is one of the items most closely examined in closely held companies, because it is at once a deductible cost for the company and income for someone close to it. Consistent paperwork is not a formality: it is what makes the position defensible.
Frequently asked
The questions that keep coming up
Can I pay myself without a resolution?
In practice yes, but the payment is open to challenge: without a shareholders' resolution or a provision in the articles, there is no legal basis for it, and the company risks having the deduction denied.
The worst outcome is that the pay stays taxed for the director but is non-deductible for the company. A set of minutes avoids all of this.
What is a certified date and how do you get one?
It is proof that the document existed on a given date, and it can be relied on against third parties. You get it by registering the minutes with the Agenzia delle Entrate, with a notarial or authenticated deed, or by sending the document by PEC with a time stamp.
Minutes simply copied into the company book have no certified date: this is the point on which accruals-basis deductibility of the TFM is lost.
My appointment has already started. Can I still resolve the TFM?
You can, but the benefit of accruals-basis deduction applies only to the period after the resolution with a certified date: the part accrued earlier will remain deductible only on a cash basis.
So it is still worth doing, but the sooner you act, the more it is worth. For new appointments it should be provided for at the same time as the appointment.
Are contributions due on a director's pay?
Yes, to the INPS Gestione Separata, with the amount split between company and director according to the set percentages. The company pays the contributions and deducts the share borne by the director.
Anyone already enrolled in another compulsory pension fund, or who is a pensioner, applies the reduced rate provided for those cases.
Let's talk
Without a certified date, the TFM is deductible only when it is paid
It is the detail the whole arrangement depends on, and it has to be sorted out before the appointment. Not afterwards.