1. Corporate Income Tax (CIT)
Italy’s Corporate Income Tax (CIT), known as Imposta sul Reddito delle Società (IRES), applies to profits earned by resident and non-resident companies. Italy has structured its CIT system to support investment, with incentives and deductions for innovative and sustainable activities.
| Corporate Income Tax Rates | Tax Rate | Details |
|---|---|---|
| Standard CIT Rate | 24% | Applies to all corporate profits. |
| Local Tax (IRAP) | 3.9% | Regional tax on production activities, subject to variation by region and industry. |
Key CIT Compliance Factors:
- Resident Corporations: Companies with legal or administrative headquarters in Italy are taxed on global income.
- Non-Resident Corporations: Taxed only on income generated from Italian sources. If the foreign company has a Permanent Establishment (PE) in Italy, income generated through the PE is subject to Italian tax.
Tax Deductions and Incentives:
- Patent Box Regime: Provides a reduced tax rate on profits derived from intellectual property, including patents.
- Super and Hyper Depreciation: Enhanced depreciation allowances are available for investments in new machinery and technology.
Filing and Payment Deadlines:
- Tax Return: Due by the end of the ninth month after the fiscal year ends.
- Payments: CIT payments are required in advance (typically two installments).
2. Individual Income Tax (PIT)
Individual income in Italy is subject to progressive tax rates, with rates rising with income levels. Additional deductions and incentives are available, such as the Impatriate Tax Regime, designed to attract foreign talent by reducing taxable income for expatriates.
| Income Range (EUR) | Tax Rate | Details |
|---|---|---|
| Up to €15,000 | 23% | Lowest bracket |
| €15,001 – €28,000 | 25% | |
| €28,001 – €50,000 | 35% | |
| Above €50,000 | 43% | Highest bracket |
Additional PIT Considerations:
- Tax Deductions: Available for certain expenses like dependents, healthcare, and mortgage interest.
- Expat Tax Benefits (Impatriate Regime): Provides up to a 70% reduction in taxable income for eligible expatriates for five years (extendable under certain conditions).
Withholding Tax for Non-Residents:
- Non-residents are subject to a withholding tax on income from Italian sources, including dividends, interest, and royalties.
| Income Type | Withholding Tax Rate | Notes |
|---|---|---|
| Dividends | 26% | Rate may be reduced by tax treaties. |
| Interest | 26% | Varies with tax treaties. |
| Royalties | 30% | Lowered rates possible via tax treaties. |
Filing Requirements:
- Deadline: Individual tax filings are generally due by November 30 of the following year.
- Employer Withholding: Employers must withhold and remit taxes monthly.
3. Value Added Tax (VAT)
VAT in Italy is a consumption tax applied to most goods and services, with exemptions for specific areas such as financial services and healthcare.
| Type of Rate | VAT Rate | Applicable Goods/Services |
|---|---|---|
| Standard Rate | 22% | Most goods and services |
| Reduced Rate | 10% | Certain essentials, including some food and utilities. |
| Super Reduced Rate | 4% | Basic necessities like food staples and pharmaceuticals. |
VAT Exemptions: Certain services (e.g., medical, financial, and educational) are generally exempt from VAT.
Registration and Filing:
- VAT Registration: Required if turnover exceeds €85,000.
- Filing Frequency: Typically quarterly, though smaller businesses may be eligible for annual filings.
4. Withholding Tax
Italy requires withholding tax on payments to non-residents, including interest, dividends, and royalties, with potential reductions if tax treaties apply.
| Income Type | Withholding Tax Rate | Notes |
|---|---|---|
| Dividends | 26% | Reduced rates possible with tax treaties. |
| Interest | 26% | Can be reduced for treaty-protected entities. |
| Royalties | 30% | Treaty-dependent reductions possible. |
5. Social Security Contributions
Social security contributions in Italy fund benefits like pensions, healthcare, and unemployment insurance, with both employers and employees making contributions.
| Contribution Type | Employer Contribution | Employee Contribution | Coverage |
|---|---|---|---|
| Employee Insurance | 30–33% | 9-10% | Pensions, unemployment, disability. |
| Health Insurance | Variable (INPS) | Variable | Covers medical and health benefits. |
| Pension Contributions | Included in above | Included in above | Part of the National Pension Fund (INPS). |
Filing and Payment Deadlines:
- Social security contributions are due monthly and must be reported with payroll filings.
6. Business Tax Incentives
Italy offers a variety of incentives to encourage growth, investment, and technological advancement.
| Incentive | Benefit | Details |
|---|---|---|
| Patent Box | Reduced tax rate on IP income. | Applicable to income from patents and intellectual property. |
| Investment Credit | Deductions for eligible investments. | Includes tax credits for machinery, technology, and digital innovation. |
| South Italy Investment Credit | Enhanced deductions for regional investment. | Encourages business growth in economically disadvantaged areas. |
7. Additional Considerations
Tax Residency:
- Corporate Residency: A company is considered tax-resident if it is incorporated in Italy or has a management base there.
- Individual Residency: Individuals who spend more than 183 days in Italy within a calendar year are considered tax residents.
Permanent Establishment (PE):
- Foreign businesses with a PE in Italy are subject to Italian tax on income derived from that establishment. The PE includes fixed places of business like branches or offices.
Filing Deadlines:
- Corporate Tax Returns: Due by the end of the ninth month after the fiscal year.
- Individual Tax Returns: Due by November 30 of the following year.
Penalties:
- Late Filing Penalty: Up to 30% of the tax owed for delayed returns.
- Interest on Late Payments: Charged on overdue amounts based on the European Central Bank (ECB) rates.