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Corporate Taxes In Italy: Complete Guide

This article will briefly discuss corporate taxes in Italy. Residents as well as non-residents are subject to both individual incomes along with corporate taxes in Italy.

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Corporate Taxes In Italy

Residents as well as non-residents are subject to both individual incomes along with corporate taxes in Italy. Resident companies in Italy are subjected to Italy corporate taxes on their global earnings. Corporations have levied Italy corporate taxes called CIT which is also referred to as tax imposta sul reddito sulle società or IRES.

corporate taxes in italy

Non-residents who conduct commercial operations in Italy are also subjected to the corporate tax rate in Italy based on the revenue that is generated in the country. 

Business taxes in Italy called IRAP are levied on those who are frequently involved in an independently operated business in the region’s manufacturing of commodities or services. 

This article will briefly discuss corporate taxes in Italy. Along with that, it will briefly discuss the Italy corporate tax rate. 

Various corporate taxes in Italy

All businesses in Italy are levied various corporate taxes. This section of the article will describe the various business taxes in Italy that are applicable to companies.

Italian businesses must pay regional tax (IRAP) and corporate income tax (IRES) on their profits. 

The following are the regular rates of business taxes in Italy:

  • 24% for IRES.
  • 3.9% for IRAP.

Corporate Taxes in Italy (IRES)

Presently, the national corporate tax rate in Italy called IRES is 24 percent. Businesses are subjected to the Italy corporate taxes and must register for VAT and file a statement of formation to the Inland Revenue as soon as they are formed in Italy. 

A Corporation Tax Return for an Italian business should be submitted to the Inland Revenue not later than 1 year from the accounting specified date. Companies with Italian tax residency are obligated to pay the corporate tax rate in Italy, entitled to exemption from double taxation, on their international revenue and profits. 

The worldwide income included in the gain and loss statement produced for the applicable fiscal year in accordance with business law regulations and regulated in accordance with tax legal principles constitutes the taxable base for Italy corporate taxes.

Regional Tax on Production Activities (IRAP)

The regional tax on production activities (IRAP) is one of the business taxes in Italy, which is a small-scale tax levied locally by the district where the taxable industrial operations are carried out. The regional corporate tax rate in Italy called IRAP might differ depending on the region, but they often remain at 3.9% for IRAP. 

The overall volume of production generated in each Italian area is the IRAP taxable base, which is calculated differently based on the kind of taxpayer who pays Italy corporate taxes. The taxable basis for business and industrial firms to calculate the corporate taxes in Italy excludes capital gains on capital assets and other financial components.

The IRAP taxable basis for financial institutions is generally described as follows:

  • Dividends lowered the intermediation margin by approximately 50%.
  • 90% of the expenses are associated with amortizing fixed physical and intangible resources.
  • 90% of additional bureaucratic expenditures.

The standard IRAP Italy corporate tax rate is 3.9%. However, it may be increased or decreased by up to 0.92% in any area where IRAP is assessed.

Tonnage tax in Italy

Italian local taxable shipping firms, as well as non-resident shipping firms functioning in Italy via a PE, may be eligible for and choose to be subjected to the business taxes in Italy based on the Italian tonnage tax scheme. The system essentially permits the allocation of the net tonnage of the eligible vessels to the relevant shipping periods in order to determine probable revenue. Also, IRES corporate tax rate in Italy is applicable to the tonnage revenue. 

Ships that want to pay the tonnage levy would have to:

  • Possess greater than 100 total tonnes of tonnage.
  • Be employed for operations such as towing, salvaging, and transporting people and cargo.
  • Function in global shipping as deemed appropriate by the Italian International Registry’s guidelines.

Ships that are empty boat charters are not included. If a chartered ship’s worldwide net tonnage is lower than 50% of the actual gross tonnage, the ship is subject to the tonnage tax system.

Business taxes in Italy on cross-border transactions

transfer pricing

1. Transfer pricing

The transfer pricing regulations in Italy adhere to the OECD’s transfer pricing guidelines. According to the ITC, if transactions aren’t at arm’s distance, the Agenzia Delle Entrate may apply transfer pricing adjustments.

Additionally, Italian taxpayers must maintain and be ready to present transfer pricing records that show the way transfer values were determined. The paperwork has to abide by a number of procedural and material specifications established by the tax administration.

Regardless of whether there are transfer pricing modifications, there won’t be any penalties if the taxpayers present properly preserved and produced transfer price documents during the examination of transfer pricing.

Contrarily, the taxpayers are responsible for a fine that often can vary from 90% to 180% of the tax owed on the adjustments, in addition to the taxes due, if they fail to maintain proper paperwork.

witholding tax

2. Withholding Taxes

Interests, royalties, and dividend distributions generated by corporations with Italian residency to non-residents are subjected to corporate taxes in Italy. The final Italy corporate tax rate of withholding tax (WHT) is applied to the major sources of revenue at the amounts listed below.

  • Dividends– Dividends are typically liable to pay Italy corporate taxes at a rate of 26% withholding tax (WHT).

The beneficiary may be entitled to a reimbursement of up to 11/26 of the withholding tax’s original payment if they can demonstrate through proof from their nation’s tax administration that they have paid a total tax for the same dividends.

If the beneficiary is a corporation domiciled and liable to corporate tax in another member state of the EU or a member state of the EEA nation that permits an acceptable transmission of information with Italy, the WHT Italy corporate tax rate on dividends is lowered to 1.2%.

Additionally, WHT could be diminished or excluded in accordance with the tax agreement in effect with Italy and the participant’s country of domicile.

  • Interest income- Interest from governmental securities and treasury bonds by specific project financing corporations are liable to pay business taxes in Italy at a WHT rate of 26%, or 12.5% when paid to non-resident individuals.

According to the implementation of the taxation agreement in effect between Italy and the participant’s nation of residency, WHT may be lowered or omitted.

  • Royalties– Royalties given to non-resident corporations are liable to a 30% WHT, which would be frequently employed to 75% of the total sum of the payments,  amounting to an applicable rate of 22.5%.

No WHT is assessed on the outward stream of royalties if certain requirements outlined under EU Interest Royalties were fulfilled.

Value-Added Tax in Italy

VAT is charged at every stage of the provision of products and services in Italy as well as on purchases made from some of the other EU countries. The importing of products from countries outside the European Union is likewise subject to VAT. 

The average VAT rate is 22%. Lower rates of 10%, 5%, and 4% are applicable under particular conditions. 

Non-residents who do not have a constant presence in Italy are permitted to select a representative to act on their behalf and carry out their legal obligations under the VAT regulation. 

When engaging in any taxable operations in Italy, non-residents are required to submit a statement to the relevant authorities with specific details in order to obtain a VAT number.

Capital Gains in Italy

Gains from the sale of capital assets are typically calculated as the margin between:

  • The selling price or indemnity obtained, less direct expenditures associated with the sale or indemnity, and,
  • The modified tax basis of the property.

For the financial period in which these profits are realized, the difference is counted as taxable income. 

Capital gains can be counted at the firm’s discretion, in the taxable base entirely this year during which they are realized, or in equivalent installments in the current and subsequent taxable years, but they may not be managed to carry beyond the fourth year if the estate being sold has indeed been owned for at most 3 years.

Capital gains from the sale of stock and investment vehicles that are comparable to shareholdings in domestic corporations or partnerships are subject to special requirements.

The capital gains that arise as a result of these capital instruments are exempt from taxes by 95% under those regulations. 

The exemption is valid if:

  • The involvement has been in existence for at least since the beginning of the twelve months prior to the acquisition.
  • On the initial balance sheet that is finalized just after the acquisitions, the participation is categorized as one of the financial capital assets.
  • Ever since the commencement of the third fiscal year before the sale, at minimum, the participating firm has been actively conducting commercial operations or trading.

Gains realized on assets related to a non-resident company’s commercial operations in Italy that has a fixed place of business there are taxed. 

The taxation of capital profits for non-resident businesses lacking the need for a fixed presence in Italy varies on the type of asset sold:

  • If the holdings are based in Italy, the revenue from the real estate investments is taxed as other earnings there. If the transferor has possessed the asset for longer than 5 years, these assets are not taxed.
  • If the resources are transportable and located in Italy, the gain is taxed there except if a taxation agreement forbids it.
  • Italy only taxes stocks of an organization that result in capital profits from the selling of participatory stakes if the participation is held by an Italian business.

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Conclusion

There are numerous distinct business organizations that are established in Italy. All these organizations are subjected to various corporate taxes in Italy. This article briefly described the numerous Italy corporate taxes that are applicable in the nation. 

For more queries related to Italy corporate tax rate, consult Odint Consulting. Our experts will be glad to solve your queries. 

FAQ’s

The Italian Revenue Agency (Agenzia Delle Entrate) has the duty of receiving taxes in Italy. 

Non-residents or foreigners who conduct commercial operations in Italy are also subjected to the corporate tax rate in Italy based on the revenue that is generated in the country. 

The average VAT rate in Italy is 22%. Lower rates of 10%, 5%, and 4% are applicable under particular conditions. 

The following are the regular rates of business taxes in Italy:

  • 24% for national Corporate Tax (IRES).
  • 3.9% for Regional Tax on production Activities (IRAP).

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