Before starting business activities in Italy, the tax regime is one of the most important aspects that need to be completely understood. This is primarily because tax knowledge positively influences tax awareness, increases tax compliance, and reduces tax liability for your business.
In Italy, the Corporate Income tax rate is one of the tax types that should be under because it applies to all companies that derive income from Italy.
The Italy corporate income tax is collected from companies, and its amount depends on the net income companies normally acquire while exercising their business activity during one business year.
Italian corporate entities and non-resident companies (only on Italian source income) are subject to a corporate income tax, known as IRES (imposta sul reddito sulle società), and to a local tax on productive activities, known as IRAP (imposta regionale sulle attività produttive)
The headline rate of tax on corporate profits in Italy
- IRES
The taxable base is the entire income shown in the profit and loss account prepared for the applicable financial year in respect of the company law rules and adjusted according to tax law provisions. The tax basis can be reduced through numerous deductions provided by tax law provisions.
The standard rate of IRES is 24% but as for financial intermediaries (banks, insurance companies, etc.), an extra 3.5% rate applies (up to 27.5%). Also, a 10.5% increase applies to so-called shell companies.
- IRAP
The IRAP is a regional production tax, in Italy. The tax rate of the IRAP is the net value of production acquired in each Italian region and the way the taxable base is calculated will depend on the type of taxpayer.
The standard rate of IRAP is 24% but different IRAP rates are applicable for specific entities (i.e. banks and financial institutions, and entities with a specified governmental exclusive right to provide services).
Also, some regions in Italy have the power to slightly increase or decrease IRAP rates annually, within the limit of 0.92%.
Tax exemption in Italy: There are some corporate tax exemptions in Italy, e.g., companies generating in special economic zones in Italy, and the ones dealing with intellectual property investments are either subject to tax exemptions or lower tax rates.
What companies must pay corporate tax in Italy?
Companies with commercial activities in Italy must pay the corporate tax rate, whether they are domestic or established with foreign capital.
In essence, all companies operating as one of the following must register for and pay this tax in Italy:
- limited liability companies,
- cooperative companies,
- joint-stock companies,
- European companies and European cooperatives,
- public and private entities resident in Italy, and all kinds of companies and other legal entities.
The basic highlights of other taxes in Italy
- Substitutive tax on reorganizations (mergers and de-mergers)
Italian companies involved in mergers or de-mergers will not pay the corporate tax during this process, but they will pay a tax known as the “substitutive tax”. This tax is charged at rates varying from 12% to 16% of the company’s financial value.
The Italian substitutive tax is charged on a progressive technique of 12% to 16% (e.g.. 12% up to EUR 5 million, 14% for between EUR 5 million to EUR 10 million, and 16% for more than EUR 10 million) to be paid by the deadline of the tax payment of the fiscal year in which the reorganization took place or the subsequent fiscal year.
- The tonnage tax
Shipping companies with operations and permanent establishments in Italy can be subject to the Italian tonnage tax regime.
To qualify for the tonnage tax in Italy, ships must have a net tonnage of over 100 net tons, be used for the transportation of goods and passenger transportation, towing, and other services, and operate in multinational shipping as defined by the rules guiding Italian International Registry.
The tax is based on the net tonnage of the qualifying ships allotted to the effective shipping days. The IRES applies to the tonnage income in Italy.
For more detail on tax compliance in Italy or help in establishing yourself in this country, let’s go ahead and contact your Damalion expert now.
