Corporate Taxation in Italy
If you plan to set up a company in Italy, an overview of corporate taxes is essential. Italian corporate entities are subject to the general taxation system, but a difference should be made: resident companies are taxed on their worldwide revenue; non-resident companies are taxed only on their Italian-sourced income.
The main authorities responsible for the taxation system are:
- Agenzia delle Entrate (Revenue Agency): for income taxes and indirect taxes;
- Agenzia delle Dogane e dei Monopoli (Customs Agency): for customs duties and monopolies;
- Guardia di Finanza (Financial Police): it has powers to monitor and enforce tax compliance.
Italian companies are subject to two main taxes: IRES, a corporate tax, and IRAP, a regional tax.
(Corporate Income Tax)
The IRES is charged at a rate of 24% on the worldwide income of resident companies and the Italian-sourced income of non-resident companies and partnerships.
According to the worldwide taxation principle, the income is taxed in Italy regardless of the location or jurisdiction where the income is produced as long as the income is legally attributable to an Italian resident entity.
(Regional Tax on Productive Activities)
The IRAP is charged at a rate of 3.9% on the net value of production in each Italian region, equal to the difference between revenues and operating expenses. However, the rate may change by 0.92% across regions.
The regional tax is levied only by resident companies and permanent establishments of foreign companies (of at least 3 months). Therefore, non-resident companies are not taxed by IRAP.
Both IRES and IRAP may vary depending on the type of company activity and deductions may be applied if certain requirements are met. Therefore, it is always suggested to be assisted by legal assistants.
The VAT (Value Added Tax) is a tax applied to the transfer of goods and services by entrepreneurs or professionals during their business activity. In Italy, the VAT rate is 22%. However, some specific goods and services listed by the law are exempt from VAT.
The VAT is a tax borne only by the final consumer. In fact, the business owner can deduct from the VAT the amount of tax that they have paid on purchases related to his business activity.
The company entities are levied also by municipal taxes, called Unified Municipal Tax (Imposta Unica Comunale), composed by:
- Imposta Municipale Unica: a municipal real estate tax applies to immovable properties located in Italy at a general rate of 0.76% on the cadastral value of the property;
- Tributo per i Servizi Indivisibili: a service tax applies to real estate owners at a different rate depending on the cadastral category;
- Tassa sui rifiuti: a waste tax applies at a different rate depending on the cadastral category.
In 2019, the Digital Service Tax was introduced, and it will be effective after June 2019 with the issuance of a Ministerial Decree. Companies shall apply a tax at the rate of 3% on the value of digital services, net of VAT.
Foreign entrepreneurs may find the Italian Taxation system tricky and complicated, that’s why legal assistance is always suggested.
VGS Lawyers will assist you to comply with your business activity under Italian Law and will provide you with the necessary legal services.
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