The Italian 2000 Budget Law

January, 2000

With the enactment of the Italian 2000 Budget Law ("BL"), a set of new provisions will affect the tax treatment of Italian companies and individuals over the new year. Inter alia, the new BL provides as follows:

A valuable provision by the BL amends the registration tax on contributions to the equity net of Italian businesses (i.e. fresh capital, credits etc.). The existing proportional registration tax rate (i.e. 1%) has been abolished and such contributions will benefit from the fixed rate of ITL 250.000 if they do not involve real properties to which the current proportional rates still applies. Appropriate statements concerning the amount of contribution involved - required for tax computation purposes – and filed with the Registration Tax Office, must thus be considered abolished. This new tax treatment shall apply to capital increase resolutions passed as of October 1, 1999.

Also, the registration tax which applies to home purchases has been decreased by one percentage point from 4% to 3% for the purchase of the first home, and from 8% to 7% under any other circumstance.

The IRAP tax rate on banks and insurance companies increases from 5% to 5.4% as of the 1999 financial year for report in the 2000 tax return.

As of the calendar year 2000, the threshold Inheritance and Gift Tax exemption for heirs increases from 250,000,000 ITL to 350,000,000 ITL, and as of the calendar year 2001, another threshold increment up to 500,000,000 takes effect.

As for personal income tax, various changes will focus on the current fiscal year. Main changes include:

• NEW ALLOWANCES

A set of new tax allowances was enacted affecting various taxpayer categories such as employees in order to update their remuneration.

• HOUSING TAX RELIEF

Further provisions were introduced to boost the housing sector development:

(i) Maintaining for the fiscal year 2000 allowances of 36% for maintenance and restructuring expenses incurred on real properties;

(ii) a further allowance equal to 19% on mortgage interest up to 5,000,000 per year;

(iii) Pursuant to the 99/85/Ce European directive, and effective only within the fiscal year 2000, the VAT rate applicable on restructuring and maintenance activities on real properties decreases from 20% to 10%.

• PERSONAL TAX SLICES AND TAX FORMALITIES

(i) As of the fiscal year 2000, the personal tax rate which applies to the specific slice ranging from ITL 15,000,000 to 30,000,000 dropped from 26.5% to 25.5%;

(ii) The periodical in advance tax payment (acconto) decreased from 98% to 92%.

• SELF EMPLOYEES

For self-employed persons in the category "Collaboratori Coordinati e Continuativi" (i.e. directors, consultants, etc) the BL provides:

(i) As of the financial years 2000 and 2001 their social security contribution increases to 13% of their yearly revenue. It tops out at 19.5% in fiscal year 2014; representing an increase of 1% once every two years.

(ii) Alternatively, the BL, subject to certain conditions, also provides for an increase of their flat income tax deduction from 5% to 6% but only to the extent that their whole income derives from the work activity as collaboratori.