Corporate Tax Rates in Italy
Italian corporate entities are subject to a corporate income tax (IRES, introduced under Presidential Decree 917 of 22 December 1986) and to a regional production tax (IRAP). Italy’s rate of corporate income tax stands at 24% while the standard regional production tax is 3.9%. All companies with commercial activities in Italy must pay the corporate tax rate whether they are domestic or have been established using foreign capital. Compared to other European Union countries, Italy’s corporate tax rate regimes are slightly higher, with an average rate being 21.3%. While 24% still seems fairly high, it was 27% until 2018 and is expected to decrease in the future.
The regional tax rate may vary and tends to be higher for banks, financial institutions (4.65%), and insurance companies (5.9%). Additionally, regional authorities have the right to increase, or decrease, their regional production taxes by nearly 1% (0.92% to be exact).
Italian tax resident companies must pay IRES on their worldwide income and gains, which are subject to double taxation or relief depending on agreements between countries. For example, an income tax treaty between Switzerland and Italy allows for banks to pay a much lower standardrate, around 12.5%, on the condition that the recipient of the interest was the effective beneficial owner. For this reason it is good to be familiar with agreements between Italy and one’s own country regarding taxation. It goes without saying that all of this must be documented and filed with the proper authority. For example, foreign banks that have given loans to Italian residents (or vice versa) but have not filed a corporate tax return in Italy declaring such loans run the risk of paying penalties or incurring further interest.
The IRAP taxable base is the net production value obtained in each Italian region. The way the taxable base is computed changes depending on the type of taxpayer. For commercial and manufacturing companies, the taxable base does not include capital gains on financial assets.
Corporate Tax Rate Exemptions
Some companies qualify for exemption or a lower rate of taxation. Companies active in Italy’s special economic zones and ones dealing with intellectual property investments are subject to tax exemptions or lower rates. Additionally, small businesses in Italy are subject to special taxation regimes, and these can be verified with our specialists in the field at the time of company registration. Foreign entities with branches and subsidiaries must pay the Italy corporate tax rate. While some companies may be taxed less, others, like those operating in the oil, gas or energy business are subject to a 4% surtax.
Companies must file their corporate tax return in Italy—both IRES and IRAP—within 11 months following the end of the fiscal year. The amount to be paid is generally split into two rates, the first at 40% and the second for the remaining 60%. Again, it should be stressed that failure to file or pay may be subject to heavy penalties, with the possibility of being subjected to a separate, and stricter, tax regime based on the company’s tax compliance history.
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