Taxes

Taxes is a very large and detailed theme as it contains different taxes for different legal entities and situations. The main taxes in Italy will be covered in this section. For more detailed explanations of different taxes for different legal entities and situations, please refer to:

The Italian Government – Agenzia Entrate.
European Union – Life and business in the EU.
– PricewaterhouseCoopers Report, ‘What About Italy?’ ‘Chapter 3, 5, 6, 7, 8, 9, 10, 11, 12, 13, 26, 27 & 28’.Click here to download the Report.

– Deloitte Report, Taxation and Investment in Italy. Click here to download the Report.

Corporate Taxes In Italy:

Italian corporate entities and non-resident companies, only on Italian source income, are subject to a corporate income tax , Ires, and to a regional production tax, Irap.

Ires

Corporate entities, such as capital companies, trusts, mutual companies, are subject in Italy to a 24% corporate income tax (Ires).Non-resident companies are taxed only on Italian-source income. The income earned by companies not resident in Italy for tax purposes through a permanent establishment is considered as Italian source income and is therefore subject to Ires.

Irap – Regional production tax

The regional production tax (Irap) is a local tax on productive activities realized within a regional territory. The standard rate is 3.9%, but higher Irap rates are, for example, applicable to banks and financial institutions (4.65%) and insurance companies (5.90%).

Main Annual Tax Returns by Italian Companies and Branches of Foreign Enterprises:

i. Corporate Income Tax (IRES) Return;

ii. Regional Production Tax (IRAP) Return;

iii. VAT Return;

iv. List of transactions for VAT purposes (“Spresometro”);

v. Certification of Taxable Income (Certificatione Unica – CU);

vi. Withholding Tax Agent Returns;

vii. Consolidated Corporate Income Tax Return (CNM);

viii. Country-by-country (CbC) Reporting.

 

Sole traders, Individual entrepreneurs and Partnerships Taxes In Italy:

Sole traders, individual entrepreneurs and partnerships can, optionally, adopt  Iri, the tax on entrepreneurial income.

Iri

The tax on entrepreneurial income is an optional tax on both business incomes and self-employment incomes, introduced by Stability Law 2017.

This tax is applicable to incomes reinvested in the business by sole traders, individual entrepreneurs and partnerships using ordinary state accounts.

The Iri rate is 24% and profits are taxed on a cash basis.

Under this regime, entrepreneurs and partners pay the progressive income tax (Irpef) only in relation to the funds taken out of the business.

VAT

The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the European Union. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union. (Source: The European Commission – VAT)

The Italian VAT rates are either standard (22%) or reduced rates (4%, 5% or 10%).

For a more detailed explanation of VAT, please refer to:

– The European Commission – VAT
– The PricewaterhouseCoopers Report, ‘What About Italy?’ ‘Chapter 6 – VAT’. Click here to download the Report.

 

Individual Income Tax

The individual is liable to Italian income taxes on the basis of his/her “tax residency status” to be determined in accordance with the Italian Income Tax Code. An individual is considered “resident” for tax purposes if, for the greater part of the fiscal year he/she (i.e.: 183 days):

  • is registered with the Registry of the Italian Resident Population (called “Anagrafe”); or
  • has his/her “domicile” in the territory of the Italian State, as defined by Section 43 of the Italian Civil Code (the place where the individual as his/her economic, social and family centre of interests);
  • has his/her “residence” in the territory of the Italian State, as defined by Section 43 of the Italian Civil Code (the place where the individual has the habitual abode).

 

Tax resident individuals:

Tax resident individuals are liable to the Italian personal (or national) income taxes on their income wherever produced (under the so-called ‘worldwide principle’). Therefore, tax residents are also subject to taxation on income deriving from real estates owned outside of Italy, foreign dividends and interests, foreign compensations and Director’s fees, and other foreign income. In addition to the personal income tax, the Italian legislature, as of the fiscal year 2012, has introduced for Italian tax residents a ‘wealth tax’ on investments (financial and not) owned outside of Italy (called “IVAFE” on financial investments owned outside of Italy and “IVIE” on real estates).

 

Non-tax resident individuals:

Non-tax resident individuals are subject to PIT (IRPEF) only on ‘income produced’ in Italy (i.e. employment income related to the work activity performed in Italy). Therefore, foreign income is not relevant to the purposes of taxation in Italy of both income and wealth tax.

 

Source: PricewaterhouseCoopers Report, ‘What About Italy?’ ‘Chapter 26’.Click here to download the Report.