What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Answer ... With some specific and limited exceptions, Italian tax law does not provide for special tax regimes with reference to specific business sectors/zones.
However, Italian law does provide for two ‘extra-customs zones’ - the Municipality of Livigno and Campione d’Italia - where value added tax, custom and excise duties are not applied.
In addition, some free trade zones, called ‘Zone Franche Urbane’ (ZFUs), have been recognised by the Italian government in order to promote the economic development of specific areas characterised by social and environmental challenges. In such free trade zones, tax exemptions and decontribution programmes are reserved (mainly) to small and micro enterprises.
Italian tax law further provides for a special regime applicable to listed real estate investment companies, based on which income from real estate leased to third parties is not subject to corporate income tax (‘Imposta sul Reddito delle Società’ (IRES)) or to regional tax on business activities (‘Imposta Regionale sulle Attività Produttive’ (IRAP)).
A special regime called the ‘patent box’ is granted to companies investing in intellectual property, under which they benefit from a 50% exemption from IRES and IRAP taxation of income derived from the direct or indirect exploitation of intangibles and intellectual property (see question 3.2).
Answer ... As far as corporate reorganisations are concerned, pursuant to Italian law, the following transactions are, in principle, tax neutral:
- capital contributions of ‘control’ shareholdings (ie, more than 50% of the voting rights) or ‘connection’ shareholdings (ie, more than 20% of the voting rights, reduced to 10% for listed companies);
- capital contributions of going concerns; and
- certain exchanges of shareholdings.
However, companies undertaking such transactions may step up, for IRES and IRAP purposes, the tax basis of certain assets received by paying a substitutive tax ranging from 12% to 16% of the revaluated value.
Answer ... No, in principle, this is not possible for corporate taxpayers.
Answer ... If the functional/reporting currency adopted by the taxpayer is different from euros, the year-end accounting balances should be converted into euros for taxation purposes in Italy.
Answer ... In Italy, no specific rules apply to the corporate income taxation of intangibles (with the exception of the patent box regime described in question 3.2).
Intangibles which qualify as fixed assets for corporate income tax purposes are subject to depreciation, calculated on the purchase price or on the cost of manufacture, which is tax relevant at rates not exceeding those prescribed by the Ministry of Finance. Depreciation is computed using the straight-line method.
- purchased goodwill may be depreciated over a period of 18 years;
- know-how, copyrights and patents may be depreciated in accordance with financial statements, but over at least two fiscal years;
- trademarks may be depreciated over a period of 18 years;
- research expenses and advertising expenses may be either entirely deducted in the year of sustainment or depreciated in equal instalments in that year of sustainment and the four subsequent years; and
- depreciation allowances of other rights may be claimed with reference to the utilisation period.
Furthermore, the disposal of intangibles may generate a taxable capital gain equal to the difference between the sale price and the tax value of the asset.
Answer ... Corporate income taxpayers are ordinarily allowed to deduct, from labour costs, mandatory contributions to employees’ pension funds paid according to the law.
Corporate income taxpayers can further deduct:
- voluntary contributions to employees’ integrative pension funds; and
- 4% of the ‘employee severance indemnity” (‘Trattamento di Fine Rapporto’) paid to integrative pension funds each year.
Answer ... An increased 27.5% IRES rate applies to certain banks and financial institutions (see question 1.2).
Answer ... Other than surtaxes applied to certain banks and financial institutions (see questions 1.2 and 2.7), Italian tax law does not provide for further surtaxes as regards corporate income taxpayers.
Answer ... Italian tax law provides for an allowance for corporate equity increases (‘Aiuto alla Crescita Economica’ (ACE)), which grants to Italian enterprises (including Italian branches of foreign companies) a deduction from taxable income corresponding to an assumed ‘notional return’ on qualifying equity increases occurring from 2010. For Italian permanent establishments of non-resident companies, this benefit is computed on the increase in the relevant endowment fund (for a permanent establishment, the endowment fund is equivalent to equity).
The ACE deduction may be offset against the net taxable base of the taxpayer, but it cannot generate a tax loss. Any excess ACE can be carried forward or converted into tax credits for IRAP purposes. The qualifying equity increase is the result of an algebraic sum of positive and negative equity adjustments occurring after 2010.
The following are positive adjustments:
- cash contributions by shareholders;
- non-distribution of profits; and
- equity increases due to the waiver of credits by shareholders.
The following are negative adjustments:
- dividend distributions; and
- equity reserves assignments to shareholders.
Statutory losses do not qualify as negative equity adjustments for ACE purposes because they do not represent a voluntary act of assignment to the shareholders. However, the value of the qualifying equity for ACE purposes cannot exceed the net equity of the entity at the end of each fiscal year (which is affected by the statutory losses).
For 2018, the rate of the notional return applicable to the equity increase qualifying for ACE purposes is 1 1.5%.
Specific rules apply to domestic tax groups in case of excess ACE at the level of one participant used to offset the income generated by the fiscal unit.