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Corporate Tax in Italy

Corporate Tax in Italy

The corporate tax is one of the main taxes charged to companies for their commercial activities in Italy. The rates for corporate tax decreased in the last years from 53.20% in 1996, to 37.25% in 2006 and it reached 24% in 2018. The corporate tax rate includes the IRES and IRAP, other components of the main tax, which generally have to be paid by most companies. However, several exemptions apply.  You can find out extensive information on the corporate tax rate in Italy from our team of Italian lawyers.

Paying IRES in Italy

Companies that are running businesses in the energy field are required to pay an IRES different than the one applicable to most of the companies operating in other business sectors, and this also applies to legal entities that are “dormant” or that had tax losses in their previous financial years. Companies that operate in fields such as finance or insurance have to pay a corporate tax calculated at a different rate

What is the current corporate tax rate in Italy? 

Since 2018, the corporate tax rate in Italy has been maintained at the same levels. The rate at which corporate entities must pay the corporate tax is generally the same for most of the business sectors in Italy, but one should know that there are specific rates for entities operating in the financial sectors, but also for those working in the shipping industry, where the corporate tax will apply as a tonnage tax. Below, you can find some of the basic highlights of this tax, which can be presented at length by our Italian lawyers

  • the standard corporate tax rate in Italy is of 24% (known as IRES);
  • to this, companies will also need to pay the IRAP, charged at the rate of 3.9% and which represents a regional corporate tax that can vary based on the region where the company operates;
  • however, regional administrations can increase or decrease the standard IRAP by +/- 0.92%;
  • companies involved in mergers or de-mergers will not pay the corporate tax while being in this process, but they will pay what is known as the substitutive tax, charged at rates ranging from 12% to 16% from the company’s financial value;
  • the substitutive tax is charged on a progressive system – the 12% is charged for a corporate value of maximum EUR 5 million, while the 16% is charged when the company accounts for more than EUR 10 million. 

What entities are liable to pay the corporate tax rate in Italy?

The corporate tax is charged to corporate entities developing a commercial activity in Italy, from which they obtain profit. The tax is charged when the company develops its activity only in Italy, but also if it expands on foreign markets. The same applies to foreign companies operating in Italy, as they will be liable to the corporate tax for the income obtained from their activities carried out here. 

According to the Italian Revenue Agency, the obligation to pay the corporate tax rate in Italy is imposed to most of the legal entities prescribed by the national law. Thus, all companies operating as one of the following must register for and pay this tax: joint-stock companies, limited liability companies, partnerships limited by shares, European companies or European cooperatives. 

The obligation to pay the corporate tax rate in Italy is imposed to entities registered as non-profit organizations, as well as to trusts that are Italian tax residents or foreign tax residents. Corporate tax is also charged to entities registered as undertakings for collective investments, but there is an exemption on the payment of this tax for the latter entity in specific legal situations, that can be detailed by our team of Italian lawyers.  

One must also know that IRAP generally applies to those involved in production activities and thus, certain types of economic activities will be exempted from the payment of this tax. Here, the law prescribes an exemption for entities operating as pension funds or European economic interest groupings. Details about the Italy corporate tax rate can be discussed with our Italian lawyers.

Those who want to buy a house in Italy can benefit from legal advice offered by our lawyers regarding the necessary documentation in this transaction. Property registration in Italy is done with the Land Registry, but until that moment, our specialists will be able to draw up the sale-purchase contract and check the documents of the chosen property. It is much more advisable to discuss all the legal aspects with us to benefit from an uncomplicated process.

Does Italy offer any special tax regimes?

As a general rule, all companies operating in Italy must follow the same tax regime. However, Italy has several free trade zones where certain basic corporate taxes do not apply, such as the value added tax, excise duty or the corporate tax. The tax exemptions vary based on the region, as the exemptions were created to sustain the development of a region. Special tax regimes can be found in Italy for micro and small enterprises. In the case of businesses registered as real estate investment companies listed on the stock exchange, the Italian law prescribes the possibility of being exempted from the payment of the IRES and IRAP in certain cases. 

Italy corporate tax rate can also be diminished in the case of companies that are involved in intellectual property investments. Here, through the patent box regime, they can benefit from a reduction on the corporate tax of 50%. You can address to our lawyers in Italy folegal assistance on the intellectual property regime and the tax advantages companies can obtain.  

Depending on the business activity you are interested in, our team of Italian lawyers can provide in-depth information on the advantages you can have when paying the corporate tax rate in Italy and you can also receive legal representation on other tax deductions or tax minimization procedures that can apply to your business. 

Regional tax for production in Italy 

The IRAP is a regional tax for productive activities and it is calculated on the added value of the production, minus the costs for the production, obtained by the company in Italy. The rate for this tax may vary from region to region, but the standard rate is 3.9% and it can be increased by approximately 1% (0.95%, more exactly). TheItaly corporate tax rate is calculated on the net total income of the companies during one business year and it is an important source for the public budget in Italy.

A company that has the main part of its business in Italy or that is managed from this country has to pay taxes for the Italian authorities. This is considered a resident company that is required to pay the corporate tax rate in Italy calculated on its income obtained at a global level, while companies that are not residents in Italy have to pay only for their income from Italy. The corporate tax is owed also for capital gains that are considered ordinary income. There are some exemptions applied to capital gains obtained from sale of participations – 95% of this income is exempt if some conditions are fulfilled, according to the Italian laws.

Making investments in Italy

There is no doubt about the idea of ​​investing in Italy and business development in this country. The business environment in Italy is highly valued by international investors, so the Italian government continues to improve this climate and provide as many benefits as possible to those who want to develop their operations in this country.

Besides the experienced workforce that any foreign investor can benefit from, the incentives dedicated to foreign entrepreneurs, the excellent infrastructure, the ease with which a company can be set up, the taxation system and economic stability are essential advantages for the business environment in Italy. Here are some interesting statistics about the economy and business direction in Italy:

  • In terms of total FDIs for Italy in 2019, the country registered around USD 446 billion.
  • The same year registered nearly USD 7 billion in matters of the total value of greenfield investments in Italy.
  • The manufacturing sector continues to absorb a large percent of the total FDIs, being the most prolific one in Italy.
  • The 2020 Doing Business report issued by the World Bank ranked Italy 58th out of 190 worldwide economies for simplified business and more.
  • Italy offers the biggest market within the European Union countries, allowing foreign investors to develop their profitable operations.
  • The Netherlands, France, Luxembourg, Germany, and UK represent the key investors in Italy.
  • There are more than 12,700 companies established with foreign capital, according to the Italian Trade Agency.

Choosing our tax experts in Italy

The tax regime needs to be completely understood when having a business in Italy. This is a matter where you can benefit from professional services offered by our Italian lawyers with experience in the taxation field. Plus, the tax registration of companies in Italy can be professionally managed by our specialists in the field, so make sure you address your inquiries to our experts.

FAQ about corporate tax in Italy

1. What is the corporate tax in Italy?

The corporate tax in Italy is set at 24% and it is known as IRES. This is an important tax in Italy that must be paid by certain entities registered in this country.

2. What companies must pay corporate tax in Italy?

Companies with commercial activities in Italy must pay the corporate tax rate, regardless of if they are domestic or established with foreign capital.

3. How is the corporate tax in Italy composed?

IRES and IRAP form the corporate tax in Italy. IRES is the corporate income tax while IRAP is the regional production tax.

4. Do non-profit organizations in Italy pay the corporate tax?

Yes, non-profit organizations need to align with the requirements of the corporate income tax in Italy. This is a tax obligation that can be entirely explained by one of our lawyers in Italy.

5. Do branches and subsidiaries in Italy pay IRES?

Yes, foreign entities with branches and subsidiaries must pay the Italy corporate tax rate. The Company Act in Italy and the Fiscal Code comprise information about the taxation of enterprises in this country.

6. Are there any corporate tax exemptions in Italy? 

Yes, companies activating in special economic zones in Italy and the ones dealing with intellectual property investments are subject to tax exemptions or lower tax rates. You can discuss further details on this topic with our Italian lawyers.

7. What is the tonnage tax and how it involves IRES in Italy?

The tonnage tax is imposed on shipping companies with operations and permanent establishments in Italy. The tax is based on the net tonnage of the qualifying ships allocated to the effective shipping days. Then, IRES applies to the tonnage income. More about these aspects can be explained by our Italian advisors.

8. How is the IRAP applied in Italy?

IRAP applies to productive activities in Italy, determined on the added value of the manufacture, minus the costs. The standard IRAP rate is 3.9% but it varies depending on the regions where the companies are registered in Italy.

9. Do small and micro enterprises benefit from corporate tax advantages in Italy?

Yes, 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.

10. Are companies activating as pension funds in Italy subject to Italy corporate tax?

No, the corporate tax is not imposed on pension funds entities registered in Italy.

Foreign entrepreneurs interested in the corporate tax rate in Italy may find out more about the taxation in this country from our law firm in Italy. Please contact us for complete legal services and find out how we can help you.