Dividend or director's fee: how the two ways of paying an SRL partner are taxed

Giulia and Paolo each own half of an IT consultancy set up as an SRL, an Italian limited company, and they are its only directors. The company expects 120,000 € of taxable income in 2026 before paying them anything. Their question to the accountant never changes: a director's fee or dividends? The answer depends on how each route passes through two different taxes.

Two taxpayers, two taxes

An SRL is a taxpayer separate from its partners. It pays IRES, the corporate income tax, on its own taxable income at the standard rate of 24 percent, and only what remains after that tax can become a dividend. The partner is an individual paying IRPEF, the personal income tax, or a flat levy on some kinds of income.

The two ways of rewarding a partner meet these taxes in a different order. A director's fee is a cost for the company: it shrinks the base for corporate tax and is taxed only in the hands of the person receiving it. A dividend hands out profit already taxed, so it bears corporate tax first and the partner's levy second.

That difference in order has a practical side. For the fee, what matters most is the tax position of the person receiving it; for the dividend, almost only the company's. Two partners with very different personal incomes can find opposite answers inside the same SRL, which is one reason the choice is made person by person.

This course follows one precise case: a resident SRL subject to corporate tax, and a resident individual partner holding the stake personally rather than as part of a business of his own. It leaves aside corporate partners, non-resident partners, companies that opted for tax transparency and special regimes. In those cases the rules change.

It also leaves aside IRAP, the company's second tax, the regional levy on productive activities. Its rules on deducting directors' fees follow their own logic, need checking separately and can alter the outcome of the comparison. The reasoning here stays with corporate tax and the partner's levy, the two elements that the choice between fee and dividend really moves.

The director's fee in the company's income

Paragraph 5 of Article 95 of the consolidated income tax code, the TUIR, provides that fees due to directors of companies subject to corporate tax are deductible in the financial year in which they are paid. The test is cash, not accrual: what counts is the payment date, not the date of the resolution or of the accounts concerned.

The practical effect is common and often overlooked. A fee approved for 2026 but paid in January 2027 does not reduce the company's 2026 taxable income; it is deducted in 2027. Anyone who wants the fee to lighten the current year's tax must pay it before the financial year closes, withholding the related tax and paying it over.

The same paragraph carries a rule for fees granted as a share of profits, including those due to promoters and founding partners: they are deductible even when not charged to the profit and loss account. Small companies seldom use this form, but it is a reminder that the label attached to a payment does not settle how it is taxed.

On the company's side, each euro of fee paid within the year saves 24 cents of corporate tax, provided there is taxable income to reduce. A dividend has no such effect. It comes out of the profit left after tax, and for the company it is not a cost but the allocation of a result already taxed.

The cash rule works both ways. A fee relating to 2025 but paid during 2026 is deducted in 2026, even though the 2025 accounts had already booked it as an expense. The tax return then needs two adjustments, one in each year, to bring taxable income back in line with the accounting result.

The fee in the director's own income

For the person receiving it, a director's fee is as a rule income treated like employment income. Letter c-bis of paragraph 1 of Article 50 of the TUIR says so, covering sums and benefits received in connection with the office of director, statutory auditor or auditor of companies, associations and other bodies.

That treatment has an important limit. It does not apply when acting as director falls within the art or profession the taxpayer practises, the classic case being an accountant who sits on a client's board. The fee then becomes self-employment income and follows the professional's own rules rather than those for income akin to employment.

Treated like employment income, the fee joins the person's other income and is taxed under progressive IRPEF. For 2026 there are three brackets: 23 percent up to 28,000 euros, 33 percent between 28,000 and 50,000 euros, and 43 percent above that. Regional and municipal surcharges come on top.

The company paying the fee acts as a withholding agent. Article 24 of Presidential Decree 600 of 1973 requires it, at the moment of payment, to withhold IRPEF on account from the taxable part of the fee. If the cash paid is not enough to cover the withholding, the director must hand the missing amount over to the company.

That withholding is an advance, not the final tax. Final IRPEF is worked out on the person's total income for the year, in which the fee sits alongside salaries, pensions, property income and anything else, and the tax already withheld is credited against it. This is the point that most clearly separates the fee from the dividend.

The company certifies to the director the fee paid and the tax withheld, and pays that tax through the F24 form just as it does for employees' wages. ActioFin's course on withholding agents describes those duties, from certification to the annual return; here it is enough to know that they come with every fee.

A fee may also attract social security contributions, typically those of the INPS separate scheme, with one share borne by the company and one by the director. INPS updates the rates and the split every year in a circular. This course does not quantify them: they have to be read in that year's circular before any comparison is made.

A director who also works in the business may have contribution duties of his own, whatever form his pay takes, for instance as a craftsman or trader. Such situations need checking with INPS case by case; the course does not go into them and puts no figures on them.

The dividend in the partner's income

The dividend takes a shorter road. Article 27 of Presidential Decree 600 of 1973 requires a company paying profits to a resident individual to withhold 26 percent as a final tax. Once that withholding has been taken, the partner owes nothing more on that profit, and the dividend is not added to the income taxed under IRPEF.

Under the text in force, the 26 percent withholding applies in the same way to qualifying and non-qualifying holdings. The first sentence of paragraph 1 of Article 47, which used to bring part of the profits from qualifying holdings into total income, was deleted by Law 205 of 2017.

No withholding applies when the partner declares that the profits relate to a business he runs himself; they then form part of business income and follow its rules. That is a different situation from a partner holding the stake personally, the only one this course examines and the most common in small companies.

Profits handed out in kind are taxed as well. Their taxable value is the normal value of the assets, and since the company has no cash from which to withhold, the partner must pay it the matching amount in order to receive the assets. Transferring a company asset to a partner is therefore no way to escape the levy.

The moment that matters is payment. The withholding applies to profits paid in any form, so it is triggered when the company pays, not when the shareholders' meeting approves the distribution. A resolution passed in May and paid in November gives rise to the withholding in November, which the company then pays over as withholding agent.

For the partner, then, the dividend is simple: the tax is taken at source and the company pays it over. Because it is not added to his other income, it does not push up his marginal rate. That feature matters most to people already earning a lot from work or pensions, and in the second module it becomes decisive.

Profits or capital reserves: what counts as distributed

Not everything an SRL pays back to its partners is a dividend. Paragraph 5 of Article 47 excludes from profits the sums paid out of reserves built from share premiums, partners' non-repayable or capital contributions and tax-exempt revaluation balances. Such sums are not taxed as profits, but they reduce the tax cost of the stake.

To rule out convenient choices, paragraph 1 of the same article sets a presumption. Whatever the shareholders resolve, the year's profit and the profit reserves not set aside under tax suspension are deemed distributed first. Only once they are exhausted can a distribution draw, for tax purposes, on capital reserves.

An example makes the presumption concrete. An SRL holding 30,000 euros of retained profits and 50,000 euros of partners' capital contributions pays out 40,000 euros. For tax purposes the 30,000 euros of profits are deemed paid first, and bear the withholding; only the remaining 10,000 euros come from the capital reserve, which lowers the cost of the stake.

When the company genuinely returns capital reserves, the partner should tell it the tax-recognised cost of his holding. Without that information, paragraph 1-bis of Article 27 provides that the withholding applies to the entire amount received, exactly as if it were a profit.

Withdrawal, exclusion, reduction of surplus capital and liquidation can also produce a profit. Paragraph 7 of Article 47 treats as profit the part of the sums received that exceeds the price paid to buy or subscribe the cancelled shares. An individual partner suffers the same withholding on that excess as on a dividend.