Tax-free expense reimbursements: the news for freelance in Italy

Expense reimbursements of freelancers

Freelancers may incur expenses in the performance of their assignments, such as:

• Travel expenses (plane, train, fuel, highway tolls, parking, cab, etc.);
• Room and board expenses (hotels, restaurants, etc.).

All these expenses are deductible for freelancers, if they are in their name and if incurred in the course of their business, in the manner and percentages of deduction provided by Presidential Decree No. 917 of December 22, 1986 (Tuir).

The following are examples of deductibility of expenses paid by professionals for business-related travel:

• Travel expense deduction such as plane, train, cab, etc.: 100% of the amount deductible;
• Fuel deduction: 20% of the amount deductible;
• Hotel and restaurant expense deduction: 75% of the amount deductible.

If you need support in opening and managing your VAT number in Italy, take a look at our freelance services.

In the previous regulatory provision, all of the above expenses could be deducted at 100% in lieu of the aforementioned deductibility percentages, if the expenses had been incurred in the performance of a professional assignment and re-charged analytically to the client, . The same amount, billed and collected by the client was therefore considered taxable income.

Therefore, until December 31, 2024, for all freelancers, the expense reimbursements claimed and received by the client were required to be:

• Included in the invoice;
• Considered income and therefore taxed and subject to VAT and withholding tax in the same way as professional fees.

Find out everything you need to know about opening a VAT number in Italy.

Flat-rate scheme and reimbursement of expenses incurred on behalf of the client

With particular regard to professionals under the flat-rate scheme, the former regulations had quite a few disadvantages from a tax perspective.

In fact, taxpayers under the flat-rate scheme found themselves having to:

• Include these expenses in the invoice and subject them to tax in the same way applied to professional fees;
• Not being able to deduct the same expenses because they are subject to a flat-rate scheme that does not provide for analytical deductibility of costs;
• Finding less capacity with respect to the statutory turnover limit for application of the flat-rate scheme. In fact, the concurrence of these expenses in the overall total of fees brought a faster attainment of the limit imposed for the maintenance of the benefit (€85,000).

News 2025: tax-free expense reimbursements

Article 5 of Legislative Decree No. 192/2024 introduced significant changes to the tax treatment of expense reimbursements for professionals. The changes, contained in new Article 54(2)(b) and Article 54-ter(1) of the Consolidated Income Tax Act (TUIR), redefine the framework of income taxability of certain types of reimbursements.

Specifically, the decree stipulates that:

reimbursements received for all expenses incurred by the freelancer in the performance of an assignment do not contribute to the formation of taxable income, provided that these are charged analytically to the client (i.e., these are expenses incurred in the client’s own name and on behalf of the client).

Affected expenses include the following:

• Travel;
• Transportation;
• Room and board,

incurred by the professional during the performance of the assignment.

These expenses, in order to fall under the exclusion regime, must be in the name of the professional and not the client.

The billing of professionals’ expense reimbursements: the new rules

Tax treatment of expense reimbursements until 2024

Until December 31, 2024, the tax treatment of expenses incurred by the professional on behalf of the principal was as follows.

The expenses incurred by freelancers in their own name but on behalf of the client were recorded in the freelancer’s accounts, allowing the full cost to be deducted and, if an invoice was issued, the VAT to be deducted.

However, the reimbursement of these expenses, obtained through analytical chargeback to the client, was considered as compensation for the professional and, consequently, it was taxed as income.

The billing of expense reimbursements until December 31, 2024

From the perspective of billing the client, until 2024, this reimbursement was treated in the same way as other compensation and was therefore subject to:

• VAT;
• Irpef withholding tax of 20%;
• Social security contribution from the professional fund or to the separate INPS management.

Example of professional invoice until December 31, 2024

A freelancer, assigned to carry out a project, incur travel expenses of €1,000, in his name, on behalf of the client. He issues an invoice to the client with an analytical chargeback of these expenses.

Until December 31, 2024:

• The expense of €1,000 is deductible from the professional’s income, and the VAT (22%) included in the travel ticket is deductible;
• However, the €1,000 refund billed to the client is taxed as income, subject to VAT (22%), withholding tax (20%) and social security contributions.

Tax treatment of expense reimbursements from January 1, 2025

With the 2025 tax reform, the treatment of expense reimbursements changes both in terms of their income taxability and deductibility.

According to Article 54, paragraph 2 of the TUIR, these expenses do not contribute to the formation of self-employment income. However, Article 54-ter, paragraph 1 of the TUIR states that these expenses are not deductible from the income of the professional who incurs them.

This reform makes expenses incurred in the self-employed person’s own name and on behalf of the client, subsequently reimbursed by the client, irrelevant for the purpose of determining the self-employed person’s income.

In addition, chargebacks for expenses related to the common use of property have been subject to the same treatment since 2024.

The billing of expense reimbursements from January 1, 2025

From the perspective of billing the client, as of January 1, 2025, these refunds will therefore no longer be subject to:

• Withholding tax irpef 20%;
• Social security contribution from the professional fund or to the separate INPS management.

However, they will continue to be subject to

• VAT

since Article 15 of Presidential Decree 633/1972 provides for VAT exemption only for sums advanced in the name and on behalf of the customer, duly documented.

Example of professional invoice from January 01, 2025

A professional incurs hotel expenses of €1,000, made out in his name, while performing an assignment for a client. In 2025, he issues an invoice to the client with an analytical chargeback of the expenses.

Expenses of €1,000:

• They will not be taxed as income because they do not contribute to taxable income and will not be subject to social security contributions.

Therefore, they will be treated as follows in the invoice:

• They will not be deductible from the freelancer’s income;
• The chargeback of €1,000 expenses will still be subject to VAT, as it is made out to the professional and not directly to the client.

N.B.: If the client makes payment in 2025 for an invoice issued in 2024, the 20% withholding tax will not apply.

EXCEPTION: The conditions for deductibility of unreimbursed expenses

Expenses may be deducted if the professional encounters difficulties in obtaining reimbursement of the amounts advanced. The reformed Article 54 states that deductibility is allowed in the following cases:

• After one year from billing, if reimbursement has not taken place, for amounts up to €2,500 (the amount includes fees related to the services for which the anticipated expenses were incurred);
• Prescription of the claim, i.e., when the right to collect is extinguished;
• Unsuccessful outcome of an enforcement action, i.e., when an individual enforcement procedure fails to recover the debt;
• Initiation of insolvency proceedings;
• Equivalent procedures abroad, as long as the country ensures adequate exchange of information.

Example:

A professional invoices the client for services of €1,200 plus an expense reimbursement of €1,000 in January 2025. After one year, in January 2026, the client has still not paid and the professional has not recovered the debt. Since the amount is less than €2,500 and 12 months have passed since the billing, the professional will be able to deduct the amount of expenses incurred from his or her taxable income.

Flat rate scheme: the benefits of tax reform 2025

From 2025, self-employed workers under the flat-rate scheme also benefit from the new rule that reimbursements for expenses advanced on behalf of the principal are no longer considered taxable income.

For taxpayers under the flat-tax regime, this reform is particularly beneficial for two reasons:

• Since reimbursements no longer have to be included as compensation, the taxable base on which to calculate taxable income is reduced. Since expenses were not deductible for flat-earners even previously anyway, the reform removes only part of the tax burden;
• Since they are no longer treated as compensation, expense reimbursements do not count toward the €85,000 total compensation limit required to remain in the scheme.

Example:

A self-employed flat-rate worker advances expenses of €1,000 on behalf of a principal and recharges this amount on the invoice. Before 2025, the €1,000 was included in the calculation of taxable income. From 2025, however, this amount does not count as income, reducing the base on which flat-rate taxes are applied.

VAT treatment of reimbursements: expense reimbursements excluding VAT art. 15

With regard to treatment for VAT purposes, Article 15 of Presidential Decree 633/72, in point 3, states

Amounts due as repayment of advances made in the name and on behalf of the counterparty, provided that they are regularly documented, shall not contribute to the tax base.

Given the changes brought about by the 2025 tax reform, it is indeed important to highlight the different tax treatment of expenses incurred by a professional on behalf of a client, particularly for VAT purposes.

This type of anticipated expenses differs from those dealt with so far in that, while the former are incurred only “on behalf” of the client while they are in the name of the professional, those under Article 15 of Presidential Decree 633/72 are both “in the name” and “on behalf” of the client.

In this case, the supporting documents for the expense are not in the name of the professional, who therefore, even previously, could not take them as a deduction from income.

For these expenses, the chargeback on the invoice was never considered taxable income and therefore was never subject to either withholding tax or VAT.

The modes of issuance in this case are and remain as follows.

Example of invoice with expenses advanced in the name and on behalf of the client art.15

A professional, commissioned to carry out a project, incurs expenses of €1,000 on behalf of the client. He therefore issues an invoice with an analytical chargeback of these expenses.