Firm Guides · Company cars, business trips and expenses

Company cars, business trips and business expenses: what is deductible and what is VAT-recoverable

Every year, when closing the financial statements and filing the income tax return, the same questions come up (how much of the cost of a car can be deducted, whether a lunch with a client is a deductible expense, whether a mileage reimbursement paid to an employee is taxable), and the answer is never a simple yes or no, because around these items there is a system of percentage limits, cost ceilings and formal conditions that coexists with the general principle of business relevance (inerenza).

This guide reconstructs the rules on deductibility for income tax purposes and VAT recoverability (detraibilità dell’IVA) for the most common items: vehicles, business trips, meals and accommodation, entertainment expenses (spese di rappresentanza), gifts, telecommunications, training. The objective is to avoid tax adjustments during an audit and, at the same time, not leave legitimate deductions on the table.

Note: the ACI tables are drawn up each year by 30 November and published by 31 December, with effect from the following tax period; the limit of non-taxability of goods and services provided to employees is raised by way of derogation until tax period 2027 and then reverts to the ordinary amount. The amounts reported here are those in force for tax period 2026 and should be re-checked after each Budget Law.

The foundation of everything: the principle of business relevance (inerenza)

Before any percentage comes inerenza. An expense is deductible only if it relates to the activity that generates revenues. The Corte di Cassazione (Italian Supreme Court) has clarified that inerenza is a qualitative assessment, not a quantitative one: the test is not whether the expense is proportionate to turnover, but whether it is attributable to the company’s economic plan. However, manifest uneconomic conduct remains a strong indication of lack of inerenza. Since 12 August 2026, that statement has had an express statutory basis: art. 24, paragraph 1, of Legislative Decree no. 148 of 7 August 2026 provides that, for income tax and IRAP purposes, a divergence between the agreed consideration and the market value of the goods or services exchanged may constitute a symptomatic indicator of the existence of a higher positive component, or of a lack of inerenza in a negative component, only where further items of circumstantial evidence, assessed also together with that divergence, are “serious, precise and consistent” (gravi, precisi e concordanti) or, in any event, where the divergence is “manifest and material” (manifesta e rilevante). Outside cases of manifest and material divergence, therefore, a departure from market value cannot in itself amount to such an indicator and is not sufficient to support an adjustment: it must be corroborated by further circumstantial evidence that is serious, precise and consistent. This strengthens the taxpayer’s position.

Alongside inerenza, the other requirements are the accrual principle (competenza) (the expense is allocated to the financial year in which the service is completed; professionals follow the cash basis principle) and certainty and determinability (certezza e determinabilità). For VAT purposes the prerequisite is the expense’s connection (afferenza) to transactions that give rise to the right of deduction.

Motor vehicles: deductibility for income tax purposes

The rules are set out in art. 164 of the TUIR (Italian Income Tax Code), which classifies vehicles into three families.

Vehicles used exclusively as business tools (beni strumentali) or for public service: 100%

Full deductibility, with no cap, for vehicles that are used exclusively as business tools (driving schools, rental, transport) and for those used for public service (taxis and chauffeur-driven hire cars, NCC). Note: exclusive use as a business tool is interpreted restrictively. The real estate agent’s car, although indispensable in practice, is not a business tool in the legal sense.

Vehicles for mixed business and private use: 20% with cap

This is the most common case: deductibility at 20% of the costs and, for depreciation and lease instalments, relevant cost within maximum caps:

• €18,075.99 for passenger cars and motor caravans;
• €4,131.66 for motorcycles;
• €2,065.83 for mopeds.

The 20% applies to all costs (depreciation, fuel, insurance, car tax, maintenance, tolls, tyres); the cap applies only to depreciation or to lease instalments. For professionals the deduction is allowed for one vehicle only (one per member in professional associations).

Commercial agents and representatives: 80%

Deductibility at 80% with the cap increased to 25,822.84 euro, justified by the intensive use of the vehicle.

Vehicles granted for mixed use to employees: 70%

If the vehicle is granted for mixed use to the employee for most of the tax period (over 183 days), the company deducts 70% of the costs without a cap. This is the most tax-efficient solution. Conditions to be met:

• assignment evidenced by reliable documentation bearing a legally certain date (data certa) prior to the assignment;
• private use effective, not merely formal;
• for the employee, a taxable fringe benefit arises, determined under Article 51, paragraph 4, letter a), TUIR, in the wording substituted by art. 2, paragraph 1, of Legislative Decree no. 148 of 7 August 2026: 50 per cent is taken of the amount corresponding to a conventional mileage of 15,000 kilometres, calculated on the per-kilometre running cost derived from the ACI tables, net of any amounts withheld from the employee, including those relating to accessories and fittings; the percentage falls to 20 per cent for plug-in hybrid electric vehicles and to 10 per cent for battery vehicles with exclusively electric traction. The value so determined is increased by 50 per cent after 31 December of the fifth year following that of first registration, and by 5 per cent where there are accessories or fittings not valued in the ACI tables and not purchased directly by the worker. The new rules apply from tax period 2026 and also to vehicles granted for mixed use in 2025 that do not fall among those referred to in art. 1, paragraph 48-bis, of Law no. 207 of 30 December 2024 (art. 2, paragraphs 4 and 5, of Legislative Decree no. 148 of 2026); for vehicles granted for mixed use from 1 July 2020 to 31 December 2024 and for those ordered by 31 December 2024 and granted in 2025, the rules in force at 31 December 2024 continue to apply, until 31 December of the fifth year following first registration, with an increase of 50 per cent from that date;
• if the employee pays a consideration, this is deducted from the fringe benefit and must be invoiced with VAT.

Example. Plug-in hybrid electric car first registered in 2026, granted for mixed use from 2026, ACI per-kilometre cost of 0.60 euro per kilometre, nothing withheld from the employee. Annual fringe benefit: 15,000 × 0.60 = 9,000.00 euro of conventional mileage, of which 20 per cent is taken, that is 1,800.00 euro. Where there are accessories not valued in the tables and not purchased by the worker, the value rises by 5 per cent, to 1,890.00 euro. The same vehicle, if first registered in 2020, bears from 1 January 2026 the increase of 50 per cent, because 31 December of the fifth year following first registration falls on 31 December 2025: 1,800.00 × 1.5 = 2,700.00 euro.

Cars assigned to directors

This case is often overlooked: the company deducts the costs in full up to the amount of the taxed fringe benefit; the excess follows the ordinary rules (20% with cap). The 70% does not apply, as it is reserved for employees.

Leasing and long-term rental

• Leasing: lease instalments are deductible in the ratio between the cap (18,075.99 euro) and the lessor’s cost, provided that the period not shorter than the depreciation period (48 months for passenger cars), even if the contract is shorter.
• Long-term rental: annual cap on fees of 3,615.20 euro for passenger cars, 774.69 euro for motorcycles, 413.17 euro for mopeds; 5,164.57 euro for agents and representatives.

In full-service rental, the cap applies only to the pure rental component, provided that the contract or invoice separately highlights the ancillary services. Failing that, the limit absorbs the entire fee: it is one of the most frequent adjustments during a tax audit.

VAT deductibility on vehicles

• 40% for vehicles not used exclusively in the business;
• 100% for vehicles used exclusively in the business or forming the object of the taxpayer’s own business, and for agents and representatives;
• 100% for vehicles granted to employees in return for an invoiced consideration at least equal to the normal ACI value.

Fuels: traceability is a condition for deductibility

Rule to know by heart: cost deductibility and VAT deductibility on fuels are conditional upon payment by traceable means (credit, debit, prepaid cards, fuel vouchers). Cash prevents both the deduction and the VAT deduction (detrazione IVA), even with a proper invoice. For VAT taxpayers (soggetti IVA) an electronic invoice (fattura elettronica) is required: the fuel log (scheda carburante) has been superseded.

Business trips and expense reimbursements

The treatment depends on the reimbursement system (sistema di rimborso), which must be chosen consistently for the entire trip: the three methods are not freely combined within the same assignment.

Itemized reimbursement (rimborso analitico)

The company reimburses documented expenses. For the employee, no part of the reimbursement is taxable if the business trip is outside the municipality; reimbursements for non-documentable expenses are exempt up to 15.49 euro per day in Italy and 25.82 euro abroad. For the business, meals and lodging outside the municipality are deductible within 180.76 euro per day in Italy and 258.23 euro abroad.

Flat-rate reimbursement

Fixed daily amount, non-taxable up to 46.48 euro (Italy) and 77.47 euro (abroad). The thresholds are reduced by one third (30.99 / 51.65) if the employer provides either meals or lodging, and by two thirds (15.49 / 25.82) if both are provided. For the company it is fully deductible as a personnel expense.

Mileage reimbursement for use of own car

The reimbursement based on ACI rates does not count as taxable income if the business trip is outside the municipality and is documented (date, destination, reason, km, vehicle). For the company, the deduction is limited to the running cost of vehicles up to 17 fiscal horsepower (petrol) or 20 (diesel).

Obligation to ensure traceability of payments

This is the new rule with the greatest operational impact. The expenses for board and lodging, the related itemised reimbursement and transport by taxi or NCC incurred within the territory of the State are deductible only if paid using traceable means of payment. The requirement applies on two levels: deductibility for the business and non-inclusion in taxable income of the reimbursement for the employee.

Expenses incurred abroad and scheduled public transport (train, plane, bus) are excluded from the obligation. Practical consequence: the company card is now the reference tool. If the employee pays in advance, they must attach to the expense report proof of electronic payment, not just the tax document.

Meals and accommodation: the 75% rule

Outside business trips, the expenses for hotel services and the supply of food and beverages are deductible at 75%. For professionals an additional cap of 2% of the fees received applies: first the 75% reduction, then the comparison with the ceiling.

The following remain fully deductible: meals and accommodation for business trips outside the municipality (within the daily limits); the expenses charged item-by-item to the client; canteens and meal vouchers within the thresholds.

For VAT purposes, hotels and restaurants are 100% deductible if documented by invoice. With only the receipt, the deduction is not allowed: the VAT becomes a cost and is subject to the 75% limit.

Entertainment expenses (spese di rappresentanza)

These are free of charge supplies of goods and services for promotional or public relations purposes. Deductibility is proportionate to revenues from the core business:

For professionals the limit is 1% of fees. If the expense consists of food or accommodation, first 75% applies and then the cap: double limitation, often forgotten. From the 2025 tax year, representation expenses (spese di rappresentanza) of businesses are deductible, also for IRAP purposes, only if paid by bank or postal transfer or by the other traceable means provided for by article 23 of Legislative Decree 241/1997 (article 108, paragraph 2, last sentence, TUIR, added by article 1, paragraph 81, of Law 207/2024). VAT is not deductible, except for goods with a unit cost not exceeding 50 euros.

The costs of landline and mobile hospitality for clients, including potential clients, at trade fairs and exhibitions or during visits to the premises are not entertainment expenses and remain fully deductible; they must be documented with the guest list and the purpose.

Gifts

• Up to 50 euros per unit: cost fully deductible, VAT deductible.
• Over €50 per unit: the cost falls under business entertainment expenses (spese di rappresentanza); the VAT is non-deductible.
• Gifts to employees: cost deductible as an employee benefit expense (personnel costs), VAT always non-deductible; for the employee, the value of the goods supplied and of the services provided does not form part of income within the ordinary limit of 258.23 euro per year under Article 51, paragraph 3, TUIR, raised by way of derogation, for tax periods 2025, 2026 and 2027, to 1,000 euro and to 2,000 euro for workers with dependent children within the meaning of Article 12, paragraph 2, TUIR (art. 1, paragraphs 390 and 391, of Law no. 207 of 30 December 2024). The increased limit of 2,000 euro applies only if the worker declares to the employer that he or she is entitled to it, stating the tax code (codice fiscale) of the children; exceeding the limit makes the whole value taxable, not only the excess.

For Christmas hampers, the value to be compared with the threshold is the overall value of the hamper, not that of the individual items.

Telephony and training

The costs of landline and mobile telephony are deductible at 80%. For VAT purposes there is no flat-rate percentage: the deduction follows the actual use and in practice 50% is applied for mixed-use utilities.

For businesses, staff training is fully deductible. For professionals, the expenses for master’s programmes, courses, seminars and conferences, including the related travel and accommodation expenses, are fully deductible up to 10,000 euro per year, and neither the 75% limitation nor the 2% cap applies to them.

Summary table

Two numerical examples

Example 1: company car of an SRL for mixed use

Purchase at 40,000 euros + VAT 22% (8,800 euros), mixed company use, 25% depreciation reduced by half in the first fiscal year.

• VAT (IVA): deductible at 40% = €3,520; the non-deductible portion (5,280) increases the tax cost to €45,280.
• Tax cap: relevant cost limited to 18,075.99 euro.
• First-year depreciation: 18,075.99 × 25% × 50% = 2,259.50 euro.
• Deductible portion: 2,259.50 × 20% = 451.90 euro.

Against an outlay of €48,800, the deduction for the first tax year is about €452. With assignment to the employee (70% with no cap) depreciation would be 45,280 × 25% × 50% = €5,660, deductible at 70% = 3,962 euro. This is why the vehicle’s intended use should be planned before the purchase.

Example 2: business trip with mixed reimbursement

2-day business trip: hotel reimbursed on a receipts basis (180 euro with company card), daily allowance of 35 euro, 60 euro of lunches with debit card, 40 euro of taxi in cash.

• Allowance: here both lodging and meals are reimbursed on an itemised basis, so the reduction is two-thirds and the threshold drops to 15.49 euro/day (Article 51, paragraph 5, TUIR). 35.00 − 15.49 = 19.51 euro/day is subject to tax, i.e. 39.02 euro over the two days, with the corresponding withholding tax and social security contributions.
• Hotel: traceable and within the limit, fully deductible; VAT deductible with invoice.
• Lunches: traceable, reimbursement deductible and non-taxable.
• Taxi in cash: cost non-deductible and reimbursement taxable for the employee.

Two lessons. The first: an apparently marginal detail (40 euros in cash) produces a double negative effect. The second, less intuitive: the choice to also reimburse lunches, apparently favorable to the employee, raises the taxed portion of the allowance from 8.02 to 39.02 euros. A mixed reimbursement must be structured, not left to chance.

Documentation and best practices

• Structured expense report: date, place, purpose, name, analytical breakdown, attachments, signature and manager’s approval.
• Keep proof of traceable payment, not only the tax document.
• Company cards used generally for business trips: they eliminate from the outset the risk of non-deductibility.
• Car assignment letter with a legally certain date prior to the start, vehicle and duration; keep the fringe benefit calculation.
• Full-service rental: require separate evidence of the rental component.
• Dedicated chart of accounts: separate accounts for entertainment expenses, meals and lodging, gifts above and below 50 euros, car expenses by type.

Common mistakes

1. Fully deducting the car because “it’s needed for work”: exclusive use as a business tool has a precise technical meaning.
2. Applying the cap also to running costs: it applies only to depreciation and lease/rental instalments.
3. Assigning the company car without documentation bearing a legally certain date, thereby losing the 70%.
4. Assigning it for less than 183 days: you fall back into the capped 20% regime.
5. Paying for fuel in cash: non-deductible cost and non-recoverable VAT.
6. Reimbursing in cash taxis, restaurants and hotels in Italy: double damage.
7. Forgetting the double limitation on business entertainment expenses for food and lodging.
8. Claiming VAT on gifts over 50 euros.
9. Not asking for the invoice at the restaurant or hotel when the amount justifies recovering the VAT.
10. Deducting lease instalments over less than 48 months for passenger cars.

Conclusions

Company cars, business trips and business expenses are among the areas with the highest incidence of adjustments during tax audits, but also among the few where proactive planning produces immediate results. The choices that matter are made before: how to allocate a vehicle, whether to buy it or lease/rent it, which reimbursement system to adopt, which payment instruments to use. In practice, every business payment should be traceable by default, and assignments and purposes should be documented.

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