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Tax rates in Italy

Tax Rates

Consumption Taxes

Nature of the Tax
IVA (Imposta sul Valore Aggiunto)
Tax Rate
22% in 2021
Reduced Tax Rate
The Italian legislation provides several reduced VAT rates:
- 4% for listed food, drinks, agricultural products, books, newspapers and periodicals, medical equipment
- 5% for certain health services, for the sale of food herbs, and for certain transport services on seas, lakes, and rivers
- 10% for medicines, supplies of food and drink in restaurants, bars and hotels, supplies of electricity, methane and liquid petroleum, all for domestic use, electricity and gas for use by extraction enterprises and industrial enterprises, accommodation services rendered by marina resorts.

From 1 January 2021, all “anti-COVID-19” goods are taxed at the rate of 5%. From 20 December 2020 to 31 December 2022, an exemption with credit applies in respect of the supply of COVID-19 in vitro diagnostic medical devices and related services, as well as for the supply of COVID-19 vaccines.

Other Consumption Taxes
Several goods and services are subject to excise taxes in Italy, including: energetic products like petrol, gas oil, natural gas, coal; alcohol and alcoholic drinks; processed tobaccos and electric power.
Various stamp duties apply.
 
Find out more about Taxes and Accounting in Italy on GlobalTrade.net, the Directory for International Trade Service Providers.
 

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Corporate Taxes

Company Tax
24%
Tax Rate For Foreign Companies
Resident companies are taxed on their worldwide revenue. Non-resident companies are taxed on their Italian-sourced income.
Foreign tax credit is available on tax paid on foreign-source income.
Capital Gains Taxation
In general, capital gains are treated as ordinary income and taxed at the corporate income rate of 24%, plus IRAP at 3.9%. Capital gains derived from the sale of participations may be 95% tax-exempt if the following conditions are met: a) the participation has been held for a minimum uninterrupted period of 12 or 13 months; b) the participation is classified as a financial fixed asset in the first financial statement closed after the participation was acquired; c) the majority of the subsidiary's income is not generated in a tax haven country or one with a privileged tax regime over the last three years before the disposal; and d) the company in which the participation is held carries out a business activity continuously over the last three years before the disposal.
Capital gains obtained by non-resident companies are taxed at a 26% rate.
Main Allowable Deductions and Tax Credits
Business expenses directly related to income generation are generally deductible: costs of setting up a business, commissions, depreciation and amortisation, staff bonuses and remuneration, royalties, advertising and entertainment expenses (capped). IMU is deductible for IRES purposes up to 60% in FY 2020 and FY 2021; 100% thereafter.
Interest expense is fully tax-deductible up to the amount of interest income. Interest expense in excess is deductible at up to 30% of the gross EBITDA, and the part in excess of the yearly limitation is carried forward in the following five fiscal years. Specific rules apply to the deduction of bad debts. Travel expenses incurred within the municipality are tax-deductible up to 75% (however, VAT is fully deductible).

An "allowance for corporate equity” (ACE) is available, consisting of a deduction equal to the net increase in the equity employed, multiplied by a rate determined each year (1.3% in 2021). The deduction is available each year, provided the equity increase is not diminished.

Company cars expenses can be deducted up to 20% for cars that are not assigned to employees or are granted to employees solely for business use, and 70% if they are destined to employees for both business and private purposes. Mobile and landline telephones expenses are deductible up to 80%.

Losses may be carried forward and offset against corporate taxable income; however, 20% of taxable income in any year cannot be offset by carried-forward losses and is subject to corporate tax. Losses incurred in the first three tax periods may be carried forward to be offset against 100% of taxable income if these losses are linked to a new business activity. The carryback of losses is not permitted.

A tax credit equal to 50% of expenses for sanitizing the environment and work tools has been granted due to the COVID-19 pandemic. Furthermore, donations made over the course of 2020 to fight the pandemic are fully deductible.

The patent box regime and R&D credit scheme grant tax credits subject to qualifying provisions to companies that invest in R&D. The tax exemption is up to 50% of the expenditure and can be granted to the permanent establishments of foreign companies if the latter are based in countries with which Italy has concluded a tax treaty and which exchange tax information with the company.

Other Corporate Taxes
A municipal tax is generally applied at a rate between 1.06% and 0.76% (generally 0.86%) on company-owned real estate (IMU). Municipal taxes are also calculated on the IMU for a common tax (IUC - Imposta unica comunale) on service (TASI) and refuse (TARI).

A transfer tax is applicable to all transactions registered with the public register, generally taxed at a percentage of the value.

Stamp duty ranging from EUR 2 to EUR 100 is levied on legal and banking transactions, at varying rates. Stamp duty applies to the transfer of shares or other financial instruments issued by resident companies at 0.2% transaction value, or 0.1% if the sale is made on a stock exchange (so-called "Tobin Tax").

Companies deemed to be "non-operating" are subject to a tax on a deemed minimum income at a rate of 34.5%. Non-operating status includes companies: with low turnover and inventory increase rates, with insufficient revenues, that are unprofitable or declare tax losses for 5 consecutive fiscal tax years.

A regional tax on productive activities (IRAP) of 3.9% is levied on the net value of production in each Italian region by resident companies and permanent establishments (PEs) of foreign companies. The rate may vary by up to 0.92% across regions. IRAP is on average 4.65% for banks and financial institutions and 5.9% for insurance companies.

A 30% withholding tax is levied on compensation paid to a non-resident company for the use of industrial, commercial and scientific equipment in Italy.

A Digital services tax (DST) was introduced in 2020. It is levied on taxpayers that, at a group level, have annual global turnover over EUR 750 million in the previous calendar year and annual revenue from digital services rendered in Italy of over EUR 5.5 million in the previous calendar year, irrespective of their tax residency. The rate is 3% of gross revenue net of VAT or indirect taxes. Companies subject to the tax must maintain monthly records of relevant transactions.

Social security contributions depend on the activity performed by the company, the number of employees, and the employee's position. For employers, the contribution is generally around 30%.

Other Domestic Resources
Italian Revenue Agency
Doing Business: Italy, to obtain a summary of taxes and mandatory contributions

Country Comparison For Corporate Taxation

  Italy OECD United States Germany
Number of Payments of Taxes per Year 14.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 238.0 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 59.1 41.6 36.6 48.8

Source: Doing Business, Latest available data.

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Individual Taxes

Tax Rate

EUR 0 - 15,000 23%
EUR 15,001 - 28,000 27%
EUR 28,001 - 55,000 38%
EUR 55,001 - 75,000 41%
EUR 75,001 and over 43%
Municipality Tax 0 to 0.8%
Regional Tax 1.23% to 3.33%
Self-Employed Resident Individuals Flat tax of 15% on up to EUR 65,000 of business and professional gross income, without being subject to additional regional and municipal taxes (conditions apply)
A reduced flat tax of 5% applies for new activities (conditions apply)
Allowable Deductions and Tax Credits
Provided that the conditions requested by law are met, the main deductions from gross taxable income, if they have not been deducted from each kind of income, are the following:

- Employee’s mandatory social security contributions are fully deductible
- Social security contributions paid for domestic employees: up to EUR 1,549.37
- Medical expenses for disabled individuals are fully deductible
- Contributions paid to the specific complementary pension funds are deductible, up to EUR 5,164.57
- Voluntary social security contributions paid to the mandatory pension scheme

Individuals can fully deduct from taxable income the alimony paid to a separate or divorced spouse resulting from a court judgment. Contributions to certain religious entities can be deductible from the taxable income up to EUR 1,032.91 per taxpayer.
Other deductions include maintenance allowance, university expenses, medical expenses, dependent elderly or disabled persons, etc.

In determining taxable income, Italy has adopted a system of tax credits (i.e. up to EUR 1,880 for employment income, up to EUR 1,104 for self-employment, up to EUR 800 for dependant spouse, up to EUR 1,200 for each child below three years, or EUR 950 for each child above three years, etc.).
Other credits include: medical expenses (19% of the amount in excess of EUR 129.11), interest on real estate mortgage loans (19%, capped at EUR 4,000), life and accident insurance (up to EUR 530), annual rental fees paid for the principal abode (for incomes below EUR 30,987.41).

Law no. 21/2020 and the Italian Budget Law for FY 2021 introduced a distinct mechanism for reducing taxes, consisting of an additional tax deduction. It is due, from 1 July to 31 December 2020, in the case of incomes between EUR 28,000-40,000, in two separate measures, which decrease with increasing income:
- EUR 480 from 1 July 2020 to the end of December 2020 and EUR 960 from 1 January 2021 onwards, increased by the product between EUR 120 (from 1 July 2020 to the end of December 2020) and EUR 240 (from 1 January 2021 onwards) and the amount corresponding to the ratio between EUR 35,000, less the total income, and EUR 7,000, if the total income is greater than EUR 28,000 but not EUR 35,000.
- EUR 480 from 1 July 2020 to the end of December 2020 and EUR 960 from 1 January 2021 onwards, if the total income is greater than EUR 35,000 but not EUR 40,000; the deduction is due for the part corresponding to the ratio between the amount of EUR 40,000, less the total income, and the amount of EUR 5,000.

Special Expatriate Tax Regime
Non-residents are only taxed on income and gains arising in Italy, compared to worldwide income and gains for residents.

Under the “Neo-domiciled tax regime”, individuals who migrate their tax residency to Italy (if they did not have an Italian tax residency for at least nine years over ten fiscal years preceding the transfer) are allowed to opt for their non-Italian sourced income to be taxed in with a flat substitutive tax, at a fixed amount of EUR 100,000.
Resident individuals are taxed 26% on interest (12.5% on Italian treasury bonds or similar bonds), dividends and capital gains on non-qualified participations. Non-resident individuals resident in a “white list” country are not taxed on capital gains related to non-qualified participations, and gains realized by non-residents on the disposal of shares listed on a stock market are exempt. Otherwise, non-residents are taxed at the 26% flat rate on dividends, capital gains related to participations and interest.
Under the new “Foreign Pensioners’ regime”, individuals that already receive a foreign pension may opt to pay a substitutive tax of 7% on all foreign source income in lieu of the progressive tax rates for a period of nine years.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
Ministry of Finance website
Withholding Taxes
Dividends: 0% (resident company) / 1.2% (domestic final WHT on dividends distributed to shareholders resident in an EU/EEA country) / 26% (individuals and non-EEA companies);
Interest: 0% (resident company) / 12.5% (for government bonds) / 26% (individuals and non-resident companies);
Royalties: 0% (resident companies and individuals) / 22.5% (non-residents).

Withholding taxes may be reduced under an international tax treaty.

Bilateral Agreement
The United Kingdom and Italy are bound by a double taxation treaty.

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Find out more about Taxes and Accounting in Italy on GlobalTrade.net, the Directory for International Trade Service Providers.

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Latest Update: June 2022

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