Optimize Your TFR: Maximize Tax Benefits and Improve Financial Efficiency

The Severance Indemnity (TFR – Trattamento di Fine Rapporto) is a key component of the Italian compensation system, significantly impacting corporate financial management. For companies with over €5 million in turnover, proper TFR planning not only optimizes the tax burden but also enhances cash flow management and reduces social security costs.

TFR Management: choices and opportunities

Since 2007, employees can decide how to allocate their TFR. If they do not make a choice within six months of hiring, the TFR is automatically allocated to the industry pension fund under an opt-out mechanism. TFR can either remain within the company or be transferred to the INPS Treasury Fund, where it is revalued annually at a rate of 1.5% plus 75% of inflation. Alternatively, employees can transfer their TFR to a pension fund, benefiting from additional voluntary contributions and tax advantages.

Tax benefits for companies 

A well-structured TFR allocation provides significant tax advantages:

• Tax deductibility:
  • Companies with fewer than 50 employees: 6% deduction of the TFR paid.
  • Companies with at least 50 employees: 4% deduction.
• Contribution exemptions:
  • Exemption from the 0.20% of total wages contribution to the INPS Guarantee Fund.
  • Reduction of 0.28% on INPS social security contributions.
  • Only the 10% solidarity contribution applies.
• Elimination of the revaluation obligation:
  • No financial burden for the annual revaluation of TFR set aside in the company.
  • Greater predictability of financial flows and reduced debt exposure risk.

Corporate savings: practical examples 

A company with 10 employees, with an average annual TFR of €30,000, can achieve an immediate tax saving of 6%, equivalent to €1,800. In addition, contribution savings amount to 0.48% of the total wages (0.20% exemption from the INPS Guarantee Fund and 0.28% reduction on social security contributions). Assuming a total wage bill of €400,000, the contribution saving is €1,920. The total annual tax and contribution advantage, therefore, amounts to €3,720.

A company with 50 employees, with an average annual TFR of €150,000, can benefit from a tax deduction of 4%, or €6,000. The contribution saving, calculated at 0.48% on an assumed total wage bill of €2 million, amounts to €9,600. The total annual savings for the company is €15,600.

Tax benefits for employees

TFR left in the company is subject to ordinary IRPEF taxation, ranging from 23% to 43%. However, if paid into a pension fund, it benefits from a reduced tax rate of 15%, which can drop to 9% depending on the number of contribution years. Additionally, voluntary contributions are deductible up to €5,164.57 per year, and investment returns within the pension fund are taxed at 20% instead of 26% (reduced to 12.5% for government bond investments).

Employees can request TFR advances for specific needs:

• Medical expenses: up to 75% of the accumulated amount.
• Purchase or renovation of a first home: up to 75%.
• Other personal needs: up to 30%.

The final benefit can be disbursed entirely as a lump sum, as an annuity, or as a combination of both, depending on the employee’s choice and pension fund regulations.

Regulatory evolution and future prospects

The TFR regulatory framework is constantly evolving. Among the possible reforms planned for 2025:

• Automatic transfer of TFR to pension funds.
• Introduction of a new six-month opt-out period for employees who do not make an explicit choice.
• Partial obligation to allocate TFR to pension funds for new hires.

Integration of complementary pensions in the calculation for early retirement eligibility.

Enrollment procedure for companies

• Companies with fewer than 50 employees can choose to either retain TFR within the company or allocate it to a pension fund.
• Companies with at least 50 employees are required to pay TFR into the INPS Treasury Fund or a pension fund.

Conclusions and opportunities for your company

Allocating TFR to complementary pension schemes represents a strategic opportunity to improve corporate financial management and optimize the tax burden. The imminent regulatory changes make this option even more advantageous.

Do you want to optimize your company’s TFR? Book a free consultation with our experts and discover how to reduce company costs and maximize tax savings.

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Frequently Asked Questions

Is TFR left in the company more beneficial than TFR allocated to a pension fund?
It depends on the company’s tax and financial situation and the employee’s needs. However, payment to pension funds guarantees a lower tax rate and better retirement planning.

What are the financial impacts for companies with at least 50 employees?
Companies with over 50 employees are required to pay TFR into the INPS Treasury Fund or pension funds, obtaining tax benefits and contribution exemptions.

What tools can assist in managing TFR?
The use of financial management software and expert tax consultancy allows for optimized TFR planning and continuous monitoring of its economic impact on the company.

Regulatory Sources

• Legislative Decree 252/2005 (Complementary Pension Reform)
• Article 105 of the TUIR (Italian Consolidated Income Tax Act)
• Law 296/2006, Art. 1, paragraphs 755-766 (INPS Treasury Fund)