Corporate Income Tax in Italy

 

CIT (Corporate Income Tax) in Italy

 

The tax rates applicable to Italian companies are subject to:

 

- corporate tax called IRES (Imposta sul Reddito sulle Società) at 24% and

 

- regional production tax called IRAP (Imposta Regionale sulle Attività Produttive) at 3,90%, the rate is stated by each region (in Italy there are 19 regions and 2 autonomous provinces).

 

​

The Corporate Income Tax in Italy: IRES (Imposta sul Reddito delle Società)

​

The IRES tax base is stated in accordance with the principle of worldwide taxation, where income is taxed in Italy as long as it is legally attributable to an entity resident in Italy, regardless of the place/jurisdiction where the income is generated.

 

Foreign companies not resident in Italy are taxed only for the income produced in Italy.

 

IRES is the income tax of corporations in Italy, it is due by:

  

- entities and joint stock companies, cooperatives and mutual insurance companies that carry out commercial activities and are resident in Italy;

- it also due if there is no residence in Italy but at least a part of the commercial activity is carried out in Italy;

- public and private bodies of a non-commercial nature but residing on Italian territory, including trusts resident abroad.

 

Not all the operating costs are deductible, therefore in general to obtain the value of the tax to pay it is better to use special software

 

Currently the rate for the payment of Ires corresponds to 24%.

 

About the deductions, it is quite complex and the list of deductible expenses varies from year to year, so it is not possible to establish in advance what can be deducted and what cannot; some examples: remuneration of directors; everything related to the company car fleet, from purchase to common operating expenses, such as fuel costs, are considered to be deductible charges of 20% .

 

 

IRAP (Imposta Regionale sulle Attività Produttive)

 

The IRAP is an acronym for Regional Tax on Productive Activities, it is an additional corporate tax charged on business activities applied to turnover and not to operating profit, it is paid by companies and freelancers, as well as the bodies (also public administrations) and agricultural producers (in some cases, they may be exempted), all those who exercise even a non-commercial.

 

Each region in Italy provide its own IRAP rate (in Italy there are 19 regions and 2 special provinces which each year states the rates of IRAP), please check it a the weblink of the Ministry of Finance in main regions the rate concerning ordinary activities is 3,90%, regions can increase or decrease the standard IRAP rate by up to 0.92%.

​​

​

Calculation of IRAP

 

Different kind of IRAP rates apply to: banks, financial institutions, insurance companies and entities that have been granted the exclusive right to provide services by the state.

 

The calculation of IRAP tax base depends on the nature of the taxpayer's business, so that, debt and risk provisions and special items cannot be taken into account for stating the IRAP tax base.

 

The taxable amount for the calculation of the IRAP varies according to whether the taxable person is:

 

- commercial enterprise;

- agricultural producer;

- non-commercial body and / or public body;

- banks and / or insurance companies.

​

Companies with establishments in different regions must allocate their entire taxable base to each region based on the cost of employing employees in each region.

 

For the calculation of IRAP it is relevant where a plant has been in operation for more than three months.

 

Italian companies with Permanent Establishments abroad and shipping companies subject to tonnage tax are not subject to IRAP on income generated through these PEs.

 

The deduction of labor costs under IRAP depends on the type of employment contract, in particular, are fully deductible:

 

- costs relating to employees employed on an indefinite-term contract;

- premiums for compulsory accident insurance (due to Istituto Nazionale Infortuni sul Lavoro, INAIL) of temporary employees.

 

The production costs do not include employees' wages, accrued credits and the interest of any leasing payments.

​

​

IRAP for sales and manufacturing companies:

 

- IRAP tax base is the gross profit margin stated in the company's financial statements;

- interest income, interest expense and bad debt provisions are excluded from the IRAP taxable base.

​

​

IRAP for Banks:

 

- IRAP taxable base is generally defined as: brokerage margin less 50% of dividends;

- 90% of depreciation expenses related to fixed tangible and intangible assets;

- 90% of other administrative expenses,

- net of NPL adjustments and revaluations.

​

​

IRAP for Non-Banking Financial Institutions and Holding Companies:

 

for these entites will apply specific rules.

​

​

IRAP for agriculture producers

​

For agricultural producers the taxable amount is determined as the difference between the amount of the fees and the amount of the purchases made for the agricultural production itself; it is possible to choose to calculate the taxable amount like a commercial enterprises.

 

The agricultural producer exempted from VAT is also exempt from IRAP.

 

​

Payment of IRAP

​

The same tax dates of IRPEF and IRES apply to the payment of IRAP .

 

Commercial companies must now make the payment through the F24 Model in two installments (16th June and 30th November of the year of competence).

 

The payment for the balance of the previous year must also be paid on 16th June, it is possible to decide to pay within 30 days following that date with an increase of 0,4%.

 

​​

IRAP by municipalities

​

Also municipalities can decide to charge its own IRAP rate (sovraimposta comunale).

 

​

Tax returns: read more here.

​