Recently, the Italian government has made a number of amendments
on the reformed tax system, most importantly on corporate taxation.
The changes have touched different aspects of the tax system.
What does this mean for the citizens and foreign investors in
The current changes are by no means detrimental. On the
contrary, they have made running a business and living in the
country much easier. Before we move on to the amendments on the
corporate tax system, let's first explore how the Italian
corporate income tax (IRES) works.
What does IRES entail?
If you are planning to invest in Italy, it is important that you
understand taxation on businesses. The IRES is equivalent to 27.5%
of the worldwide income of all the companies based in Italy. An
extra 6.5% is levied on companies in the energy sector and have
registered with gross revenues of about €3 million in the
previous year, as well as a tax base of €300,000.
The amount is calculated yearly. You are allowed to pay the dues
in the form of instalments as agreed with the tax office. You can
pay in advance or settle the entire payment at once. The amount
that one pays depends solely on the type of business. Corporate
organisations pay by instalments based on their tax period. For
instance, as mentioned earlier, resident companies in the country
serving the energy sector, are subject to additional tax
Usually, for large commercial establishments, the tax period
goes hand in hand with the financial year. For individual
entrepreneurs, the tax period corresponds to their calendar year.
It is worth noting that the IRES custodians demand all resident
companies to pay taxes on income earned in the country and overseas
whereas foreign countries only pay taxes for the earnings accrued
Latest changes on IRES
Currently, the taxation authority in Italy has made some changes
in IRES, in a bid to encourage companies and individuals, both
local and foreign, to invest in the country. They have done this by
reducing the corporate tax rate to 27.5%. This is a bit lower than
the previous rate. Companies registered in Italy or overseas, are
allowed partial exemption of about 95% on the capital gains they
acquire after selling equity investments.
There is also partial exemption of 95% on dividends made from
equity assets in organisations both abroad or in Italy. A ceiling
on the interest expense deductibles for all companies has also been
implemented. Group companies may also benefit from the group
taxation procedure. They can determine the single taxable income
for their parent company based in Italy. The government has also
gone a step further to make start-ups rise to the top, easier. They
are exempted from paying taxes on capital gains they have
Other Corporate Taxes
Individual income tax (IRPEF)
This is paid on any income earned in Italy or abroad for the
residents. If you are a foreigner, you are charged on any income
you earn in the country.
Regional Business Tax (IRAP)
This tax is charged locally on businesses operating within the
Italian regions. Foreigners only become candidates of IRAP, if they
generate value of production, from companies established within the
The VAT rate in the country is 22% and it is charged on the sale
of all goods and services, within the Italian territory.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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