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Taxes in Italy

Updated on Friday 22nd May 2020

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When you decide to open a company in Italy or in another European country, you may start by estimating the expenses in order to determine if your business can be a lucrative one or you will have to pay a big amount for doing business in a country that seems to be very attractive for foreign investors. In the predicted expenses category you can also include the taxes you will pay for your business.
 
The principal categories of taxes in Italy are the following:
  • -    the value-added tax (VAT or IVA in Italian);
  • -    social security contributions – INPS;
  • -    the personal income tax – IRPEF;
  • -    the corporate income tax - IRES;
  • -    the regional production tax – IRAP.
Our team of agents who specialize in company formation in Italy lists the values of these taxes below. However, it is useful to note that the different taxation percentages may change from time to time. We recommend getting in touch with our agents for updated information on the taxation regulations and laws, in order to make sure that your business in Italy is compliant and that you may correctly estimate the value of your due taxes, according to business activity. 
 

Business taxation in Italy

 
Italy levies taxes at different levels (federal, regional and municipal) and when discussing these taxes we can broadly divide them into direct and indirect ones. For example, the corporate income tax or CIT is an indirect one while the value-added tax is indirect.
 
In summary, the main taxes for corporations are the following:
 
  • - the corporate income tax: the IRES, with a value of 24%, with a higher percentage (27.5%) for banks, brokerage companies, and other financial institutions (except for asset management companies); non-operating companies are also subject to a different rate, of 34.%;
  • - withholding tax: on dividends, interest, and royalties; dividend payments to a non-resident company are usually subject to a 26% final withholding tax (with a refund on the foreign tax paid by the recipient on the dividend); this tax can be reduced by a tax treaty;
  • - the regional tax on productive activities: the IRAP, with a rate of 3.9% for manufacturing and trading companies and a 4.65% rate for banks and other financial institutions, as well as holding companies; for insurance companies this tax has a rate of 5.9%;
  • - social security contributions: the employer’s rate varies and can range from 29% to 32% of the taxable compensation; certain criteria are applicable, such as the type of activity and the employees’ seniority. 
 
Investors who wish to open a company in Italy should take note that this list of corporate taxes is not an exhaustive one. Others may apply, such as the real property tax which will vary according to the municipality in which the immovable property is based (and with certain exemptions for construction companies). Other taxes may only apply for selected business fields, such as the IRAP for various other activities, such as a web tax on the gross revenue from certain digital services (applicable to taxpayers at a group level). The transfer tax and stamp duty are other examples of taxes that can apply in Italy.
 
Italy has implemented a number of EU directives, including the parent-subsidiary law. Our team of agents who specialize in company incorporation in Italy for branches or subsidiaries can provide you with details about this law as well as other directives and requirements of interest.
 

Filing requirements for companies in Italy

 
Companies are expected to file annual corporate income tax returns (IRES and IRAP) in an electronic form. This is done within nine months after the end of the financial year (which, in most cases, is the same as the calendar year). There are two advance payments for the main tax applicable to companies, the IRES, with two separate installments: the first one of 40% of the amount of corporate income tax due in the previous tax year and the second of 60%, or re remainder, of the tax that was due the previous year. These two payments are made by the end of the sixth month and the eleventh month of the financial year.
 
Social security contributions, withholding taxes, and substitute taxes are usually paid by the 16th day of the following month.
 
Penalties can apply for late payments or failure to file the annual corporate income tax returns. The amount of the penalty is calculated according to the severity of the violation (according to a threshold). One of our agents can help investors who wish to open a company in Italy with more information about these penalties. 
 
The main source of tax law for companies is the Corporate Income Tax Law, to which other decrees issued by the Ministry of Finance can apply.
 

Taxation of individuals in Italy

 
Italian citizens and residents are subject to the following taxes:
  • -       the personal income tax;
  • -       the withholding tax;
  • -       the inheritance tax;
  • -       the property tax;
  • -       the social security contribution.
Individuals are taxed progressively on their income, and the maximum rate applied currently is 43% for income that exceeds 75,000 EUR. The lower rates are the following:
  • - 23%: applicable to individuals who derive income in Italy of up to 15,000 ER;
  • - 27%: for income between 15,001 and 28,000 EUR;
  • - 38%: in case of a personal income between 28,001 and 55,000 EUR;
  • - 41%: on income between 55,001 and 75,000 EUR.
 
Individuals should also note that an additional regional tax applies, with rates between 0.7% and 3.33% depending on the region in which the natural person has the registered domicile. A municipality tax can apply, with a value between 0 and 0.9%. Thus, for individual taxation, both the region and the municipality in which they reside is important for taxation purposes.
 
The laws on personal taxation in Italy also allow for personal tax deductions for certain categories of individuals. For example, private employees may benefit from a flat tax rate of 10% on the bonuses they earn (bonuses of up to 10,000 EUR). In addition to this, individuals may also be entitled to several tax benefits. 
 
The taxation for self-employed individuals can also be subject to slightly different taxation principles. In some cases, they may be subject to a flat tax of 15% on up to 65,000 of the business gross income, without any other regional or municipal taxes applicable. One of our agents who specializes in company formation in Italy can also provide you with details on how to set up a sole trader and how the taxation principles apply in this case if this is the preferred manner of doing business in Italy. 
 
The principle of taxation is based on residence, meaning that resident individuals will be taxed on their worldwide income while non-residence only on their Italian-source income. Our local agents can provide you with more information about the taxation of foreign citizens in Italy.
 
As far as other taxes on individuals are concerned, the most important ones are:
 
  • - capital duty and stamp duty;
  • - the inheritance tax: with 4%, 6% and 8% rates depending on the type of relationship the beneficiaries had with the deceased;
  • - the net wealth tax: a tax of 0.2% on the financial assets held abroad by an Italian resident (for example, bank accounts); individuals who own immovable property in a foreign country are also subject to a 0.75% tax of the original market value/cost of the property;
  • - social security: the employee’s portion of this tax will also vary according to the business field in which he activates as well as the position;
  • - other taxes can include those veiled on the bonuses and stock options of directors in the financial sector (a tax payable on the amount of variable compensation that exceeds the fixed salary).
If you have problems or you need more information about the taxes you should pay for your company in Italy, you can contact our local agents who can introduce you to local accountants.

 

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