The role of a company director occupies a central position in the life of a business. Even when the shareholders remain the true owners of the company, it is the director who, in practice, takes management decisions, represents the company externally, organises its activities and is accountable for the choices made.
For an entrepreneur, gaining a thorough understanding of this role is essential for at least three reasons:
The topics covered will be as follows:
1. The role of the director: role and function
The director is the person responsible for managing the company. In simple terms, they are the person who takes the operational decisions necessary for the running of the business: they sign contracts, organise operations, and manage relations with customers, suppliers, banks, employees and public authorities.
A distinction must be made between:
These two roles may be the same person, as in many small and medium-sized enterprises the shareholder is also the director. However, from a legal perspective, the roles remain distinct: being a shareholder does not automatically confer the power to manage, just as being a director does not necessarily imply being a shareholder. For this reason, a director’s remuneration should not be regarded as a mere ‘withdrawal’ of money from the company, but as payment for a formally assigned role.
2. Shareholders’ meeting resolution and authority to determine remuneration
One of the first issues to be addressed concerns who decides the director’s remuneration.
Generally speaking, remuneration is determined by the general meeting at the time of appointment or by a subsequent resolution.
In the case of directors with specific duties or delegated powers, specific rules laid down by law, the articles of association and the company’s structure may apply.
Proper formalisation is important because a missing or unclear resolution may give rise to problems regarding:
3. Criteria for determining remuneration
A director’s remuneration can take various forms. There is no single model applicable to all companies, as the structure of the remuneration depends on the size of the company, the sector, the complexity of management, the role actually performed by the director and the responsibilities assumed.
3.1 Fixed remuneration
Fixed remuneration is a predetermined sum, paid at regular intervals, usually monthly or annually.
3.2 Variable remuneration
Variable remuneration is a portion of the remuneration linked to the achievement of specific results, for example:
This approach tends to align the director’s interests with those of the company, as their earnings increase as the company’s results improve.
3.3 End-of-term indemnity
The end-of-term indemnity is an optional, additional payment made to the director at the end of their term of office.
In simple terms, it can be compared to a final payment made upon the termination of the relationship, similar to the severance pay received by employees.
In order to benefit from the tax deductibility of the provisions and the separate taxation of the director, the entitlement to the indemnity must be established in advance by a document with a certified date prior to the start of the term of office.
3.4 Fringe benefits
Fringe benefits are payments in kind, i.e. non-monetary goods or services, in addition to normal remuneration.
They may consist, for example, of:
These benefits are not ‘free’ from a legal and tax perspective: they are, to all intents and purposes, part of the remuneration and may affect the tax and social security contribution base.
4. The principle of appropriate remuneration
One of the most sensitive issues concerns appropriateness, that is, the reasonableness of the remuneration.
Appropriateness refers to the consistency between the remuneration awarded and a series of factors, including:
In practical terms, remuneration should be neither unreasonably symbolic nor excessive in relation to the company’s structure and actual capabilities.
The principle of appropriateness is important in various respects:
There is no standard figure applicable to all companies. Appropriateness is assessed on a case-by-case basis. What appears reasonable for a large company may not be so for a small family-run business.
Unpaid appointment and liability
The appointment as a company director is presumed to be for remuneration. This means that, unless otherwise provided, the director is entitled to receive remuneration for the work carried out.
If no remuneration is agreed, this may be determined by the court on the basis of the work carried out and the circumstances of the case.
However, the director may waive the right to remuneration. For the waiver to be valid, it must be provided for in a specific provision of the articles of association stipulating that the position is held on a voluntary basis.
It is important to note that holding the position on a voluntary basis does not reduce the obligations and liabilities arising from the office of director.
5. Managing directors, special roles and concurrent roles
5.1 Special roles
When a director is assigned special roles, they are given additional duties beyond their ordinary ones. Examples include:
In such cases, it is normal for the remuneration to be higher than that payable to a director without operational powers, as the tasks, level of responsibility and commitment required are greater.
5.2 Concurrent employment
One of the most controversial issues concerns the possibility of the same person simultaneously being:
Employment presupposes that the worker carries out their duties as an employee and under the direction of the employer. In essence, the employee receives instructions, is integrated into the company’s organisation and is subject to the employer’s managerial, organisational and disciplinary authority.
The problem arises because a director, by definition, is one of the individuals who expresses the company’s will and directs its activities. It is therefore not always easy to conceive of a situation where a person could be both ‘boss’ and ‘employee’ of the same company at the same time.
Such dual roles are deemed possible only under strict conditions, in particular when:
It is not sufficient merely to formally enter into an employment contract: there must be a genuine situation of subordination.
There are many court rulings that have addressed this issue; the main risk is that, in the event of incompatibility, the employment relationship may be disallowed, with all the consequences this entails in terms of tax and social security (INPS).
5.3 Combining with self-employment
In theory, it is easier to combine the role of director with self-employment, that is, with work carried out without any relationship of subordination and with organisational autonomy. The professional or consultant freely organises their own work and provides a specific service.
It may, in fact, be the case that the director also carries out a separate service, such as consultancy or technical work; for this to be the case, the activity:
Here too, substance is of paramount importance. If the self-employed activity actually coincides with the typical duties of a director, the risk of challenges increases.
1. Classification of income
From a tax perspective, directors’ remuneration is subject to specific rules. Generally speaking, remuneration received by directors is classified as income treated as equivalent to that from employment, pursuant to Article 50, paragraph 1, letter c-bis, of the TUIR. This means that, although directors do not receive a salary as employees, their remuneration is treated for tax purposes in a manner similar to income from employment.
This assimilation has very significant practical implications, as it affects:
It is important to understand that this classification is purely for tax purposes and does not transform the director into an employee.
If, on the other hand, the director is a self-employed professional who issues invoices, their remuneration – and therefore their income – must be treated and declared as income from self-employment.
2. Taxation: IRPEF and surcharges
The director’s remuneration is, as a general rule, subject to:
The remuneration is added to any other personal income the director may have and contributes to the calculation of the total tax liability.
3. Deductibility for the company
A crucial issue for the company concerns the deductibility of the director’s remuneration.
The remuneration is recognised in the financial statements on an accrual basis, but for tax purposes it becomes deductible as an expense only at the time of actual payment (the so-called cash basis). Payments made by 12 January are still treated for tax purposes as having been made in the previous year (extended cash basis principle).
This principle does not apply in the case of directors who are self-employed professionals, in which case the exact date of payment is what counts.
A fundamental requirement for tax deductibility is that the remuneration must have been formally approved by the general meeting, and must be relevant, reasonable and properly documented.
4. Withholding tax and obligations of the withholding agent
A company paying remuneration to a director generally acts as a withholding agent and must therefore deduct tax at source from the remuneration paid (except in exceptional cases strictly provided for by law) and fulfil the associated reporting obligations.
1. INPS Classification
A director’s remuneration is relevant not only for civil law and tax purposes, but also for social security purposes.
Generally speaking, where a director is not registered with any other compulsory social security scheme for that income, the INPS Separate Scheme applies.
The INPS Separate Scheme is a social security fund established to collect contributions from certain categories of workers who do not fall within the traditional schemes for employees, craftspeople or traders.
Company directors frequently fall within this category precisely because their remuneration is not treated as remuneration from employment.
Enrolment, where required, entails:
2. Contribution rate and allocation
Contributions due to the Separate Scheme are calculated by applying a contribution rate to the taxable remuneration.
The contribution rate may vary depending on the director’s individual circumstances (e.g. if they are retired or have other cover)
In practice, the contribution is normally shared between:
This division does not negate the central role of the company, which remains the party responsible for making the payments. It is essential for the business owner to bear in mind that the actual cost of the director is not limited to the gross remuneration approved, but also includes the contribution liabilities borne by the company.
3. INAIL cover
A further aspect concerns any obligation to take out insurance with INAIL (the National Institute for Insurance against Accidents at Work).
For directors, the obligation and the associated cost depend on the specific nature of the duties performed and the associated risk involved.
A director who attends only the annual meeting of the board of directors to sign off on the financial statements may be exempt from INAIL registration, as this activity does not entail any particular risks.
Conversely, a director who normally carries out office-based duties is subject to the insurance obligation, for example, for risks associated with the use of electronic devices (such as a PC) or travelling by car.
If a director visits construction sites, factories or shops to carry out supervisory duties, a different INAIL rate applies in view of the increased risk of accident. Should they be directly involved in the production process, the risk increases further and an even higher rate is applied.
4. Self-employed director with a VAT number
A special case concerns a director who also carries out self-employed professional work.
It may be the case, for example, that the director has a VAT number and is already registered with a professional pension scheme or with the artisans’ or traders’ pension scheme because they carry out other activities at the same time.
If the role of director forms part of the professional activity carried out under a VAT registration, the remuneration must be invoiced to the company and is treated as self-employment income.
The self-employed professional who issues an invoice to the company for their director’s remuneration is responsible for paying their own direct and indirect taxes and social security contributions. The applicable rate for the contributions to be paid varies depending on the relevant social security fund to which they belong.
A self-employed director may add a percentage to the invoice issued to the client company to cover their social security contributions (usually between 2% and 5%, depending on the relevant social security fund).
1. Tax residence: definition and significance
Where a director does not reside permanently in Italy or has tax links with another country, it is necessary to ascertain where they are considered to be tax resident. Tax residence does not depend solely on registered residence or citizenship, but on meeting the requirements laid down by tax legislation.
The distinction between resident and non-resident is crucial because it affects:
2. Territoriality of income
The general rule is that remuneration paid to a director of an Italian company is deemed to be derived in Italy, regardless of where the work is physically carried out.
The practical consequences are significant:
3. Double taxation conventions
Double taxation conventions are agreements between states aimed at preventing the same income from being fully taxed twice, once in the source state and once in the state of residence.
Generally speaking, directors must pay tax in the country of the company that paid their remuneration. Subsequently, they must also pay tax in their country of residence, usually whilst benefiting from a tax credit for amounts already paid or withheld in the source country; in other cases, a tax exemption mechanism applies in the country of residence.
From a practical point of view, it is not sufficient simply to check that a treaty exists; one must analyse in detail the specific provisions of the treaty between Italy and the foreign country concerned.
4. Specific obligations for non-residents
The payment of remuneration by a resident company to a non-resident director entails a series of specific obligations on the part of the Italian company.
4.1 Italian tax code
The non-resident director must hold an Italian tax code.
The tax code is necessary for the proper management of the relationship for tax return and social security purposes, as well as for the director’s registration as such in the Companies Register.
4.2 Withholding tax
The Italian company must verify whether the remuneration is subject to withholding tax and, if so, at what rate. A 30% tax deduction is normally applied.
4.3 Social security contributions
According to the INPS (Circular 164/2004), income from coordinated and continuous collaboration – including that of company directors received by non-residents – is considered taxable for social security contribution purposes if the activity is carried out in Italy or, in any case, if the client is Italian, unless otherwise provided for by bilateral social security conventions and/or agreements. Where the director is covered by compulsory social security abroad and holds specific certification (e.g. a foreign Form A1), the contribution may be paid centrally in their country of residence.
4.4 Overseas reporting obligations
The non-resident director must also take into account any obligations in their country of residence. Remuneration received in Italy may also need to be declared abroad, albeit with the subsequent application of double taxation relief mechanisms.
Proper management of documentation is a prerequisite for the correct application of tax treatment at an international level.
The role of a company director represents a point where company law, taxation, social security and, in cross-border cases, international tax and social security law intersect.
A director’s remuneration is the area where these disciplines intersect and sometimes overlap. An unclear resolution, inappropriate remuneration, an incorrectly documented payment or the haphazard management of withholding tax can give rise to problems and disputes that go far beyond simple bookkeeping.
It is therefore essential for the entrepreneur to ensure:
Below is a brief checklist setting out the main points to bear in mind and the requirements to be met.