The Italian government has approved substantial changes to the taxation system for company cars as part of its 2025 budget plan, aiming to promote environmentally friendly vehicles. The new regulations, which are almost set to be finalized with only a Senate approval required by the end of the year, will impose significantly higher taxes on gasoline and diesel vehicles, penalizing their use among employees who receive such cars as fringe benefits.
Currently, those who receive company cars for both work and personal use experience tax increases since these vehicles are considered fringe benefits—essentially treated as additional income. This method has long been linked to CO2 emissions, with tax rates ranging from 25% to 60% of the cost per kilometer depending on the vehicle's emissions level. Under the new rules, effective January 1, 2025, a dramatic shift will occur: employees will face heightened tax rates for traditional vehicles and lowered rates for electric and hybrid ones.
Specifically, employees who use company cars powered by gasoline and diesel will now see the taxable percentage rise to 50% of the cost per kilometer. Conversely, electric vehicles will incur only 10%, and plug-in hybrids will see 20% assessed against the same cost. This is expected to significantly affect many employees who drive vehicles with emissions falling between 61 and 160 grams of CO2 per kilometer, as their tax rate will jump from 30% to 50%.
The implication of these adjustments is clear: anticipating higher taxable income due to the increased tax percentages could result in employees' annual tax bills skyrocketing. For example, if the cost per kilometer for a vehicle is set at €0.50 and the standard annual distance of 15,000 kilometers is assumed, the total cost becomes €7,500. Under the current framework, if the company car falls within the 61-160 gram emission category, employees would report €2,250 as additional income, increasing their income tax liability. With the new structure, they would now report €3,750—an additional €125 charge per month incurred due to taxation.
Critics of this measure, particularly from Aniasa—Italy's association representing the automotive services sector—are sounding alarms. They predict not only decreased purchases of company vehicles but also potential industry turmoil, estimating at least 30% fewer long-term rental cars could be registered, translating to around 60,000 cars reduced from the market. With this shift, 20% less is anticipated for corporate acquisitions, adding up to approximately 15,000 fewer cars sold. Such declines will likely lead to lower tax revenues for both the national government and local municipalities, potentially amounting to as much as €125 million lost by 2025.
"With such elevated costs, many employees might choose to abandon the idea of using company cars altogether or resort to cheaper alternatives," said representatives from Aniasa, underscoring the immediate financial burden this legislative change will place on the working population. The regulations could inadvertently turn previously attractive fringe benefits such as company cars, especially traditional combustion-engine vehicles, from incentives to substantial financial liabilities.
The government, realizing the persistent economic pressures of the automotive market, has justified these changes as part of its broader environmental goals. They seek to encourage greener vehicle options to help tackle climate change and transition toward sustainable energy systems. By instituting these tax increases, policymakers aim to drive corporate behavior closer to eco-friendly practices, ideally leading to the proliferation of electric and hybrid vehicles among companies.
The importance of this transition aligns with existing European Union policies incentivizing clean energy and sustainable transportation. Companies have often used company cars as perks to attract talent; with increasing operational costs due to these new tax policies, many may rethink their vehicle strategies. The upcoming revisions to the corporate mobility framework, reflecting on these new taxes, may compel businesses toward compensation arrangements such as mileage reimbursement instead of providing vehicles.
This fiscal maneuver, as outlined by various reports, will also apply retroactively to vehicles ordered before the law takes effect, meaning those hoping to evade increased taxes until 2025 could find themselves affected. The forwarding of the 2024 purchases—now entangled within this taxation reform—illustrates how extensively the legislation impacts corporate planning.
Many are maintaining hope for potential alterations to these regulations as the deadline looms closer. The forthcoming scheduled Senate session will serve as the final deliberative process, and industry professionals are urging stakeholders to reconsider the growing impact these regulations may have not only on the automotive sector but also on worker mobility across the nation.
With this major tax reform targeting company cars, it remains to be seen how effectively the Italian government can balance fiscal responsibility with its environmental obligation, ensuring sustainability without hindering economic vigor.
