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Business Setup and Support in Italy TAX ADVICE IN ITALY

Yaroslav Shevel

Lawyer

E-mail

shevel@prikhodko.com.ua

Phone numbers

An expert in corporate and international corporate law. He has many years of experience in establishing and reorganizing companies, supporting M&A transactions, as well as providing legal support for opening and running a business in the EU, Asia, and North America.

TAX ADVICE IN ITALY

The Italian tax system is multi-tiered and includes taxes at the national, regional and municipal levels.

The main taxes are:

IRPEF (Tax on Personal Income) – is a tax on personal income.
IRES (Imposta sul Reddito delle Società) – is a tax on the income of legal entities.
IRAP (Regional Tax on Productive Activities) – is a regional tax on productive activities.
IVA (Value Added Tax) – value added tax.

At the same time, tax rates and rules may vary depending on the region and type of activity.

The main regulations governing the Italian tax system are:

Decree of the President of the Republic n. 917/1986 (TUIR) – Decree of the President of the Republic n. 917 of 22 December 1986 – Unified text of income tax legislation (TUIR).
Decreto Legislativo n. 446/1997 (IRAP) – Legislative Decree No. 446 of 15 December 1997 – Introduction of the regional tax on productive activities (IRAP).
Legislative Decree n. 471/1997 (Reform of non-criminal tax sanctions) – Legislative Decree No. 471 of 18 December 1997 – Reform of administrative (non-criminal) tax sanctions.
Legislative Decree No. 231/2007 (Implementation of Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of laundering the proceeds of criminal activity and financing terrorism) – Legislative Decree No. 231 of 21 November 2007 – Implementation of Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of laundering the proceeds of criminal activity and financing terrorism.

Basic taxes for business

Corporate Income Tax (IRES)

Rate: 24%.
Taxable object: company’s net profit.
Features: possibility of reducing the tax base through tax credits and benefits.

Regional tax on productive activities (IRAP)

Rate: base rate 3.9%, may vary depending on region.
Taxable object: gross operating profit.
Features: does not take into account personnel costs when calculating the tax base.

Value Added Tax (IVA)

Standard rate: 22%.
Reduced rates:
10% – on some food products, hotel services.
5% – for some social services.
4% – for basic food products, books, and medical equipment.
Features: mandatory registration for all enterprises, regardless of turnover.

There are also tax regimes for small businesses and freelancers.

Flat rate mode

Conditions: annual income up to €85,000.
Tax rate: 15%, reduced to 5% for the first 5 years for new businesses.
Advantages: simplified accounting, exemption from IVA and IRAP.

Minimum wage mode

Conditions: for entrepreneurs under 35 years of age or new businesses.
Tax rate: 5% for the first 5 years.
Features: simplified taxation and reporting.

Italy also provides a number of tax breaks and incentives for businesses aimed at supporting innovation, technological development and digitalisation.

In particular, companies can benefit from tax credits for research and development (R&D), which allow them to offset up to 50% of relevant costs, provided that the annual investment is at least €30,000, and the total amount of the benefit can reach €20 million per year.

In addition, there is a Patent Box regime, which provides for a reduction in the effective tax rate on income related to the use of intellectual property objects — such as patents, trademarks or software — to a level of approximately 13.5%.

It will also be useful: OPENING A BANK ACCOUNT IN ITALY

Businesses can also apply for investment tax credits, which allow them to receive compensation for up to 40% of the cost of capital investments in the modernization of production facilities or the implementation of digital solutions, which creates additional incentives for the introduction of innovative technologies into production and service processes.

Italy is a party to many international agreements for the avoidance of double taxation, which provide:

Reduction or exemption from taxes on income received from abroad.
Application of the “arm’s length” principle for transfer pricing.
Possibility of preliminary agreement on prices with tax authorities.

Regarding tax obligations and reporting:

Annual tax return: filed by November 30 of the following year.
Quarterly IVA reports: submitted by the 16th of the month following the reporting quarter.
Financial reporting: mandatory for all companies, submitted to the Chamber of Commerce.

It is worth emphasizing the importance of social contributions, which constitute an integral part of the fiscal burden for businesses.

The amount of mandatory social contributions varies within 30% of the employee’s accrued salary and is payable to the national social security authority – INPS (Istituto Nazionale della Previdenza Sociale).

These contributions are mandatory for both employers and self-employed individuals and cover the financing of the pension system, health insurance and other social guarantees.

Accordingly, taking into account the costs of social contributions is critically important for accurate tax planning and assessment of the overall fiscal burden on a company in Italy.