Directors' End-of-Mandate Pay: Deferred and Deductible

What is end-of-mandate pay?

It is an allowance the company grants the director when the appointment ends, like severance pay (TFR) for an employee. But TFR is required by law and the TFM (trattamento di fine mandato) is not: it exists only if the shareholders decide on it, and in the amount they decide. For the director it is deferred pay: part of it stays in the company and arrives at the end of the term, all at once.

The law covers it on the tax side, in two articles of the Consolidated Income Tax Act (TUIR):

• article 17, paragraph 1, letter c) applies separate taxation to the TFM, if the right to the allowance results from a deed with a certified date earlier than the start of the relationship;
• article 105, paragraph 4 lets the company deduct the accruals year by year, as it does with its employees' TFR.

Above €1,000,000 separate taxation does not apply: the excess is added to the year's other income (Decree-Law 201/2011, art. 24, paragraph 31).

What changes with the new 2027 consolidated act?

The article numbers change, not the rules. From 1 January 2027 the 1986 TUIR is replaced by the new consolidated income tax act (Legislative Decree 117/2026), which reorders the provisions without changing their content:

Why can the company deduct the TFM every year?

Because the law puts the TFM accrual on the same footing as the TFR accrual. Directors' pay is deducted in the year it is paid (TUIR, art. 95, paragraph 5); accruals to the TFM provision, by contrast, are deducted in the year they accrue, even if payment comes ten years later (art. 105, paragraph 4).

There is a condition, and the Italian Revenue Agency (Agenzia delle Entrate) has read it strictly since 2008. In resolution 211/E of 22 May 2008 it made clear that article 105's reference to article 17 applies only to TFMs that result from a deed with a certified date earlier than the start of the relationship. Without that deed, the cost is deducted only in the year the allowance is paid.

The Court of Cassation has added a second requirement: the deed must also state the amount, or how to calculate it (orders 26431/2018 and 16354/2025). A resolution that says only "the director is entitled to a TFM" is not enough.

For the regional business tax (IRAP), in a limited company neither the director's pay nor the TFM is deductible (Legislative Decree 446/1997, art. 11, paragraph 1, letter b, no. 3): IRAP does not change, whichever route you choose.

TFM or extra pay: how much does the director keep?

Take a limited company (SRL) with a sole director paid €60,000 a year. The company decides to accrue a TFM equal to the pay divided by 13.5, the same proportion as employees' TFR (Civil Code, art. 2120): 60,000 ÷ 13.5 = €4,444.44 a year. After ten years in office, the TFM is worth €44,444.

For simplicity we assume the director's total income, on which personal income tax (IRPEF) is paid, is €60,000 in every year, and we use the 2026 IRPEF brackets: 23% up to €28,000, 33% up to €50,000, 43% above (TUIR, art. 11).

The method, in three steps:

1. Extra pay. The €4,444 a year is added to an income already above €50,000, so all of it pays the 43% marginal rate.
2. TFM with a correct resolution. The rate is the average rate on half the income of the two previous years (TUIR, art. 21): half of €120,000 is €60,000. IRPEF on €60,000 is 6,440 + 7,260 + 4,300 = €18,000, or 30% of the income. That 30% applies to the whole €44,444.
3. TFM with a flawed resolution. Without a certified date there is no separate taxation: the €44,444 is added to the income of the year it is paid and also pays 43%.

The difference is €5,778 in favour of the TFM, before the local surcharges, which are calculated only on total income and not on separately taxed income (Legislative Decree 446/1997, art. 50). We deal with INPS social security contributions separately: at these amounts they are the same on all three routes.

Two things the table shows that are often forgotten. First: for the company the IRES saving is the same, because pay is deductible too. The TFM's advantage for the business is not a tax one, it is liquidity: the money stays in the company for ten years. Second: a resolution without a certified date cancels the director's advantage and pushes the company's deduction back to the last year.

How much is separate taxation worth, income by income?

The advantage is the gap between the marginal rate and the average rate. It does not always grow with income: it peaks just above €50,000, where the marginal rate jumps to 43% and the average rate is still low.

The average rate is gross IRPEF by bracket divided by income, without tax credits; for the IRPEF saved we assume the €10,000 taken as pay stays in the same bracket. Below €28,000 of income the two rates are both 23% and the advantage disappears. In that case the Revenue Agency, when it recalculates the tax, applies ordinary taxation if it is more favourable (TUIR, art. 17, paragraph 3).

Myth 1: "The TFM is only for large companies"

No. The law sets no turnover or headcount thresholds: all it takes is a company that pays its director, even a small SRL where the sole director is also the shareholder and decides how to be paid.

Size matters for another reason: the amount must be reasonable in relation to the company's economic reality, its size and its profits (Court of Cassation, order 18026/2025). A TFM out of proportion to what the business produces is the first one the Revenue Agency challenges.

Myth 2: "Booking it in the accounts is enough"

This is the most expensive mistake. A "TFM provision" line in the accounts creates neither the right to the allowance nor its deductibility. You need a shareholders' resolution (or a clause in the articles of association), the amount or how to calculate it, and a certified date earlier than the start of the term.

Without a certified date the company deducts only when it pays and the director loses separate taxation: for the director the TFM is worth the same as pay. If the resolution exists but does not state the amount, the Court of Cassation still applies the cash principle (order 16354/2025).

Watch out too for the appointment resolution that grants the TFM in the same meeting. In order 19445 of 10 July 2023 the Court of Cassation held that in that case the deed is not earlier than the start of the relationship. That is why many professionals make the term run from the director's acceptance, notified after the resolution has already acquired a certified date.

Myth 3: "The TFM is calculated like the TFR"

Employees' TFR has a statutory formula: annual pay divided by 13.5 (Civil Code, art. 2120). For the TFM the law sets neither a formula nor a ceiling, and the Court of Cassation has made clear that article 2120 does not apply to directors (order 16354/2025).

The 1/13.5 remains a convenient benchmark, and it is the one in our example, but you can choose a different percentage of pay or a fixed sum. There are two limits: reasonableness in relation to the company, and the €1,000,000 ceiling above which separate taxation does not apply.

What about INPS contributions on the TFM?

The director's TFM is subject to contributions to the INPS separate scheme (gestione separata), like pay, but they are paid when the TFM is paid out. In 2026 the rate for directors not enrolled in another scheme is 35.03%, two thirds borne by the company and one third by the director (INPS circular 8/2026).

On €44,444 of TFM contributions come to about €15,569, the same as would be paid on pay. Things change with large TFMs: contributions are paid up to an annual ceiling, €122,295 in 2026, and the part above the ceiling pays none, but it does not raise the pension either.

How do you set the TFM money aside?

The TFM provision is a debt of the company: at the end of the term it must be paid all at once, whether the year is good or not. That is why many companies actually set the money aside, often in a policy held by the company. Three things to know:

1. The policy is not what gives the deduction. The accrual to the TFM provision is deducted; the premium is an investment that stays among the company's assets.
2. The return is business income. For a company every gain, from whatever source, is business income (TUIR, art. 81) and pays corporate income tax (IRES) at 24% (art. 77).
3. Costs matter. Compare loadings, management costs, capital guarantees and early surrender penalties. Past returns do not guarantee future ones.

Whether the beneficiary is the company or the director changes the accounting and the protection of the money: it is a choice to make with your accountant, before signing.

What must the resolution say?

This is the list we use when a company asks us to set up a TFM. The wording of the resolution is drafted by the accountant or the notary; the list makes sure nothing is forgotten.

1. Who: the director's name and role (sole director, board member, chair).
2. The right: that the director is entitled to end-of-mandate pay.
3. How much: the annual amount or how to calculate it (for example "gross annual pay divided by 13.5" or "10% of pay"). Without this, the year-by-year deduction is lost.
4. When it accrues and when it is paid: at the end of the term, and what happens on resignation, removal or renewal.
5. How it is funded: whether the company sets the money aside in a policy or in another way.
6. The certified date, before the term starts: through registration with the Revenue Agency, a certified email (PEC) to the director, a notarised extract from the decisions book, or a registered letter sent as a folded sheet without an envelope.
7. Renewal: at each new term, a new certified-date resolution before it starts, if the amount or conditions change.

For employees TFR is compulsory, and the choice is between leaving it in the company or sending it to a pension fund: we cover this in Keeping Staff: Bonuses, Welfare and TFR in a Pension Fund. Another cost with tax rules of its own is the car: Company Car: Lease or Buy?.

Glossary

• End-of-mandate pay (TFM, trattamento di fine mandato): the allowance the company grants the director at the end of the appointment, if the shareholders resolve on it.
• Certified date (data certa): the date of a document that no one can dispute, because it is fixed by a public office, a notary or a system such as certified email (PEC).
• Accrual-basis deduction: the cost reduces taxable income in the year it accrues, even if payment comes later.
• Cash-basis deduction: the cost reduces taxable income only in the year it is paid.
• Separate taxation (tassazione separata): income that is not added to the year's other income and pays its own rate, calculated on the average income of the two previous years.
• Marginal rate: the IRPEF rate of the highest bracket reached; it is what each extra euro of income pays.
• Average rate: total IRPEF divided by income.
• INPS separate scheme (gestione separata): the social security scheme for directors, collaborators and professionals without a scheme of their own.

Sources

• TUIR, Presidential Decree 917/1986, in force until 31/12/2026: art. 11 (2026 IRPEF brackets), art. 17, para. 1, letter c) and para. 3, art. 21, art. 77, art. 81, art. 95, para. 5, art. 105, para. 4 (in Italian).
• Legislative Decree 117 of 19 June 2026, new consolidated income tax act, applicable from 1/1/2027: arts. 19, 23, 104, 114 (in Italian).
• Law 199 of 30 December 2025 (2026 Budget Law): second IRPEF bracket rate at 33% (in Italian).
• Decree-Law 201 of 6 December 2011, art. 24, paragraph 31, €1,000,000 ceiling (in Italian).
• Legislative Decree 446 of 15 December 1997, art. 11, para. 1, letter b), no. 3 (IRAP) and art. 50, para. 2, regional surcharge on total income (in Italian).
• Civil Code, art. 2120, TFR, divisor 13.5 (in Italian).
• Revenue Agency, resolution 211/E of 22 May 2008 (in Italian).
• Court of Cassation, orders 26431/2018, 19445/2023 (10 July 2023), 16354/2025 (17 June 2025), 18026/2025 (in Italian).
• INPS, circular 8 of 3 February 2026, rates, minimum and ceiling of the separate scheme for 2026 (in Italian).