The Italian taxation system provides for the following main taxes:
• Corporate Income Tax (IRES);
• Regional Tax on Industrial Activities (IRAP);
• Value Added Tax (IVA);
• Income tax (for individuals) (IRPEF);
• Inheritance and gift tax;
• Local taxes: national tax on real estate (eg IMU, etc.);
• Registration tax and other indirect taxes on the transfer of property.
1. Corporate income tax (IRES - Imposta sui redditi delle Società)
Since January 1, 2004, all income of companies and institutions is subject to corporate income tax, or IRES.
IRES is subject to all company-wide income.
From January 1, 2017, the rate of this tax was reduced from 27.5% to 24% and is applied to taxable income (this is the basis of its accrual). The corresponding payments are made in the following order: first, two advance payments, and then in the amount of the residual tax liability.
The tax period is usually equal to 12 months and coincides with the calendar year.
Withholding taxes are usually fully deductible from the IRES. If the sum of advance tax payments and taxes on income at source exceeds the total amount of tax payable, such difference may be carried forward and deducted from the tax for the next period, refunded or set off against any other tax and insurance liability.
2. Withholding taxes
Withholding taxes apply to a variety of payment types. The following payments are most significant in this respect: Dividends Dividend income received by individuals who are not engaged in business is subject to personal income tax (IRPEF), as follows:
• the amount of tax is determined and paid by the taxpayer on a certain part of the amount of dividends, if we are talking about participation shares with certain rights; and
• for non-deductible interest holders there is a flat rate 26% replacement tax withheld from all income.
There are three different interest rates for taxes on dividends received by holders of certain rights:
• 58.14% on dividends from profits generated between 1 January 2017 and 31 December 2017;
• 49.72% — for dividends from profit generated in the period from January 1, 2008 to December 31, 2016;
• 40.00% - for dividends from profits formed in the period up to December 31, 2007.
In accordance with the Law on the Budget for 2018, the above rules apply to dividends on participation interests with certain rights received from profits for 2017, and provided that a resolution on their distribution was adopted no later than December 31, 2022. Dividends paid out of subsequent profits/based on subsequent resolutions are subject to a 26% surrogate tax regardless of the specifics of the interests (i.e. both with certain and indefinite rights).
Shares with certain rights are understood as shares, the owners of which have the right to:
• more than 2% of voting rights within the framework of the regular meeting of participants or 5% of the capital or corporate assets of companies listed on the stock exchange;
• more than 20% of the voting rights within the framework of the regular meeting of participants or 25% of the capital or corporate assets of other companies.
Dividends received from foreign sources located in blacklisted countries are subject to withholding tax at the standard rate and paid upfront at a rate of 26% on 100% of such dividends.
Dividends paid to non-residents (other than European companies) are subject to income tax without deductions at a flat rate of 26%. In this case, subject to certain conditions, reduced rates and compensation may apply (resulting in a final rate of 15%). Dividends paid to European companies are subject to income tax without deductions at a flat rate of 1.20%.
Payments to eligible European parent companies are exempt from withholding taxes in accordance with the EU Parent-Subsidiary Directive.
Interest
Interest on bank deposits and current accounts is subject to a surrogate tax on income withheld at source without deductions at a flat rate of 26%. Other interest on loans, deposits and current accounts is also subject to withholding tax at a flat rate of 26%, paid upfront.
Interest on bonds and other financial assets is subject to advance income tax or tax on the amount finally received at a flat rate of 26%, depending on various conditions.
Interest paid to non-residents is taxed at the same rates as the income of resident individuals; Income tax is paid on the final amount received. Interest on deposits in banks and post offices paid to non-residents is not taxed.
Payments to related European companies, subject to certain conditions, are not subject to taxes, in accordance with the EU Interest and Royalty Directive.
3. Regional tax on productive activities - (lmposta Regionale sulle Attivita Produttive - IRAP)
Regional tax on productive activities (IRAP) is a local tax that is collected in the region where the productive activity is carried out, creating a taxable base. If the taxpayer conducts economic activities in organizations and branches located on the territory of several regions, then his taxable income and, accordingly, IRAP are distributed in proportion to the costs of maintaining personnel employed in such organizations and branches located in different regions.
4. Value Added Tax (IVA, lmposta sul Valore Aggiunto) VAT is a universal consumption tax that is charged on the “value added” of goods and services. In particular, this tax is applicable in the event of an increase in the cost of goods or services at different stages of production and trade - up to the receipt of goods by the final consumer, on whom the burden of this tax falls in full.
The tax base and
VAT rates are subject to transactions that meet the following criteria:
• an objective criterion: the transaction must involve the transfer of goods or the provision of services;
• subjective criterion: these operations must be carried out within the framework of a business, creative or professional activity;
• territorial criterion: these operations must be carried out on Italian territory.
For VAT purposes, "territory of Italy" means the territory of the Italian Republic, with the exception of the municipalities of Livigno, Campione d'Italia and the waters of Lake Lugano, which are Italian territory.
Basically VAT is applicable to the following transactions:
• alienation of goods produced in Italy in the course of a business, creative or professional activity;
• supply of services in Italy within the framework of business, creative or professional activities;
• transactions for the purchase of goods between the seller and the buyer, residing in different EU countries, within the framework of a business, creative or professional activity;
• the acquisition of certain services supplied in Italy by persons from foreign countries in the course of a business, creative or professional activity;
• import of goods from non-EU countries.
However, VAT is not applicable to all of the above transactions carried out in Italy. Some of these transactions are actually tax exempt. VAT is not applicable to a number of transactions for other reasons.
Transactions that meet the three criteria described above, but are excluded from the list of items subject to VAT due to clear provisions of the law, are subject to VAT exemption: for example, financial costs, medical services, insurance premiums, etc. VAT cannot be applied either. operations that do not meet at least one of the above criteria.
Current rates
The universal VAT rate is 22%.
Along with the regular rate, there are three reduced rates: 10%, 5% and 4%, as well as a “zero” rate, which is applicable to certain so-called “tax-free” transactions (export of goods, provision of certain international services or services related to international trade, transportation of goods to other EU states, supply of a number of services related to the transportation of goods to other EU states).
5. Municipal property tax (IMU, lmposta Municipale Unica) and other local taxes
The IMU Municipality Tax is imposed on owned buildings, land allocated for development and agricultural land located on the territory of Italy and intended for use for any purpose, including property used for economic activities.
The owner of property rights or real rights, such as the right to use someone else's property for life, the right to operate, reside, lease in perpetuity, the right to own the surface, is required to pay such municipal tax.
In the case of a finance lease, this tax is paid by the tenant of the real estate. The tax base for these purposes is determined in the following order:
• buildings: the tax base is equal to the product of the cadastral rent, increased by 5%, and the multiplier, which varies from 55 to 160 depending on the cadastral category of the object;
• land under the building: the tax base is equal to the commercial value of the land on January 1 of the relevant fiscal year;
• agricultural land: the tax base is equal to the product of cadastral income increased by 25% and a multiplier equal to 135;
The following are exempt from IMU:
• houses used as a taxpayer's first home;
• in accordance with Law 208/2015, starting from the fiscal year 2016 - agricultural land that is cultivated is owned and used by farmers and professional agricultural entrepreneurs.
Please note that under certain conditions, which are verified by the municipality or proved by the owner, 50% of the taxable base for buildings that are unusable or habitable are considered exempt from IMU until their use becomes possible.
The base rate of 0.76% applied to the tax base is usually used to determine the amount of tax.
However, each municipality is officially authorized to change this rate, but not more than 0.3% (in any direction), so its actual range is 0.46% - 1.06%.
The amount of tax payable is paid in two installments, on June 16 and December 16 of each fiscal year. In fiscal year 2016, a new tax, the Tax on Intangible Municipal Services (TASI), was introduced, which is levied on the ownership of buildings and plots suitable for building. TASI has the same tax base as IMU and the rate varies from 0.1% to 0.25%. The tax amount is paid in two installments, on June 16 and December 16 of each fiscal year. Please note that the sum of TASI and IMU rates must not exceed the maximum IMU rate, i.e. 1.06% (EUR).
6. Registration tax
Presidential Decree No. 131/1986 contains a list of documents requiring mandatory registration and documents that can be registered by their users on a voluntary basis.
In particular, documents relating to real estate or assets drawn up in Italy, corporate transactions agreements and documents drawn up abroad, the meaning of which is to create or transfer real rights to intangible assets or companies located in Italy, the delivery of such assets for rent or hire.
The law provides for different deadlines for the mandatory registration of each of the documents in the list, while for documents that can be registered if used, there are no deadlines for such registration.
All other documents may be submitted for registration on a voluntary basis by any interested parties. The tax amount is determined by the competent tax authority, which sets the tax rate depending on the amount indicated in the registered document or the content of the services described in it. All applicable rates are shown in the tariff table attached to Presidential Decree No. 131/1986. The applicable rates range from 0.5% to 15%, depending on which category
the relevant document belongs to for registration tax purposes, but not less than 67 euros. However, for some documents there is a fixed rate of 200 euros.
Please note that the registration of documents related to the sale of assets and the provision of services subject to VAT (including supplies exempt from tax due to lack of premises in Italy, as well as supplies exempt from tax) are always paid at a flat rate 200 euros.
An important exception is the leasing of instrumental (useful) assets, which are subject to both VAT and proportional tax on the registration of relevant documents (1%).
Tax payment is made to the tax authority at the time of registration. Responsibility for paying the tax lies with the officials who prepared, received or certified the document, as well as the persons for whom it is registered (counterparties or acquirers of rights), and realtors.
7. Personal Income Tax (IRPEF, lmposta sul Reddito delle Persone Fisiche)
This is a progressive personal income tax. The basis for its application is the availability of income in cash or property, falling under any of the categories provided for by law. The tax period corresponds to the calendar year.
Persons liable to pay the tax
The following persons are responsible for paying this tax:
• natural persons residing in Italian territory; all their income is taxed;
• natural persons non-residents of the Italian territory; Only income generated in Italy is taxed. In accordance with Italian law, natural persons are recognized as residents of Italy, who for most of the tax period meet at least one of the following criteria:
• they are listed in the registers of the population residing in the territory of the country;
• they are rooted in Italy (to be rooted (domicile) means to associate with Italy their main interests, including moral interest and participation in companies);
• they are residents of Italy (have permanent residence in its territory).
Tax base
The tax is charged on total income, that is, the amount of income in each category, minus losses associated with engaging in creative, professional and/or commercial activities.
The following categories of income are distinguished:
• income from land plots, ie land and buildings located on Italian territory;
• return on invested capital;
• Income from hired labor;
• income of self-employed citizens;
• company income;
• Miscellaneous income, including income from any activity not related to the main creative, professional or commercial activity of the taxpayer.
After adding up all incomes, deductions provided by law are applied, which reduce the taxable base.
Deductions are usually made up to 19% of the taxpayer's expenses for items listed in the Italian Tax Code.
The amount of tax before deductions is determined by applying increasing rates to a progressive scale of net comprehensive income. Additional regional and municipal tax IRPEF Along with the tax, the amount of which is determined in the manner described above, two additional payments are made in favor of the local authorities of the region and municipality in which the taxpayer lives:
• regional additional tax at a rate of 1.73% to 3.33% (the exact rate is set annually by the regional government);
• municipal additional tax, which consists of two rates: set annually at the state level and applied throughout the country, and the second does not exceed 0.8% per year and is introduced by the authorities of a particular municipality (in certain circumstances, the general rate may increase by another 0 .3%).
Non-Resident Income Tax
Personal Income Tax (IRPEF) applies to both residents and non-residents.
Residents pay it from their incomes received everywhere, and non-residents - only from incomes received in Italy on a territorial basis.
The following incomes are considered received in Italy:
• income from land plots and buildings;
• return on invested capital paid by the state, residents of Italy (individuals or organizations) or permanent establishments of foreign organizations in Italy, excluding interest and other income on bank/postal deposits
and current accounts;
• income from wage labor received in Italy;
• income of self-employed citizens from activities carried out in Italy;
• Income from a business conducted in Italy through a permanent establishment;
• other income from activities carried out in Italy and assets located in Italy, return on invested capital received from the sale of shares in resident companies (exceptions: shares with indeterminate rights in companies listed on the exchange; income from bonds listed on the stock exchange, other similar securities and derivative instruments);
• Income from participation in Italian organizations that apply tax transparency
(ie where members are taxed and not the company itself; eg partnerships).
The tax base is equal to the total aggregate income derived in Italy as described above, excluding tax-exempt income and income taxed at source or on the residual amount of the tax liability.
It should also be mentioned that the income described above, which is received in Italy from companies and other organizations that are not residents, including trusts, both with and without formation of a legal entity, is subject to corporate income tax (IRES).
Income generated by non-resident companies is considered commercial income and includes:
• return on invested capital and losses of invested capital associated with assets that are used in business activities carried out in Italy (even if they were formed without the participation of permanent establishments);
• dividends paid by resident companies;
• income from activities carried out in Italy and assets located there;
• return on invested capital received as a result of the sale of shares in resident companies;
• land income attributable to land and buildings located on Italian territory.
An important circumstance is that the provisions of international tax agreements take precedence over internal rules, therefore, in cases where the provisions of such agreements are more beneficial for the taxpayer, he may require their application.
8. Tax obligations
Throughout the year, the taxpayer must comply with a set of obligations, which depends on the category of the taxpayer and applicable taxes. It should be noted that almost all tax declarations and fiscal notices must be submitted to the competent authorities only in electronic form.
Compliance with rules related to direct taxation
In accordance with Italian law, for purposes related to the payment of taxes on personal income and corporate income, taxpayers must submit an annual tax return to calculate the amount and pay taxes for the relevant fiscal year and in advance for the current fiscal year.
The tax return is prepared according to a standard form, which is annually approved by the tax authorities.
Individuals and partnerships file their annual tax return by the end of September of the following tax year, and limited liability companies within nine (9) months after the end of the relevant tax period (usually coinciding with the financial reporting deadline).
Tax payments are made in advance (in two installments) and in the residual amount for the past year. The first amount payable for the current financial year and the balance relating to the previous financial year are paid by the last day of the sixth month after the end of the relevant tax period. It is possible to defer payment until the last day of the seventh month, but in this case an additional payment at a rate of 0.4% is required. The second advance payment for the current year must be made before the last day of the eleventh month after the end of the relevant tax period.
IRAP
An annual IRAP tax return must be filed and filed by the same deadlines as income tax returns.
VAT
The annual VAT return for the calendar year must also be submitted before the end of April of the next tax year. It should show the totals of incoming and outgoing transactions, the amount of tax payable, deductions, payments made, tax payable on the basis of such payments or the application of discounts.
Starting from January 1, 2017, taxpayers are required to send
the following VAT information to the Italian tax authorities:
• Quarterly VAT payment report - within the following time frames, respectively, for each quarter:
- for the 1st quarter: by May 31;
— for the 2nd quarter: until September 16 (only in 2018 — until October 1, 2018);
— for the 3rd quarter: until November 30;
- for the 4th quarter: until February 28 (or 29) of the next year.
• Corporate Income Tax (IRES);
• Regional Tax on Industrial Activities (IRAP);
• Value Added Tax (IVA);
• Income tax (for individuals) (IRPEF);
• Inheritance and gift tax;
• Local taxes: national tax on real estate (eg IMU, etc.);
• Registration tax and other indirect taxes on the transfer of property.
1. Corporate income tax (IRES - Imposta sui redditi delle Società)
Since January 1, 2004, all income of companies and institutions is subject to corporate income tax, or IRES.
IRES is subject to all company-wide income.
From January 1, 2017, the rate of this tax was reduced from 27.5% to 24% and is applied to taxable income (this is the basis of its accrual). The corresponding payments are made in the following order: first, two advance payments, and then in the amount of the residual tax liability.
The tax period is usually equal to 12 months and coincides with the calendar year.
Withholding taxes are usually fully deductible from the IRES. If the sum of advance tax payments and taxes on income at source exceeds the total amount of tax payable, such difference may be carried forward and deducted from the tax for the next period, refunded or set off against any other tax and insurance liability.
2. Withholding taxes
Withholding taxes apply to a variety of payment types. The following payments are most significant in this respect: Dividends Dividend income received by individuals who are not engaged in business is subject to personal income tax (IRPEF), as follows:
• the amount of tax is determined and paid by the taxpayer on a certain part of the amount of dividends, if we are talking about participation shares with certain rights; and
• for non-deductible interest holders there is a flat rate 26% replacement tax withheld from all income.
There are three different interest rates for taxes on dividends received by holders of certain rights:
• 58.14% on dividends from profits generated between 1 January 2017 and 31 December 2017;
• 49.72% — for dividends from profit generated in the period from January 1, 2008 to December 31, 2016;
• 40.00% - for dividends from profits formed in the period up to December 31, 2007.
In accordance with the Law on the Budget for 2018, the above rules apply to dividends on participation interests with certain rights received from profits for 2017, and provided that a resolution on their distribution was adopted no later than December 31, 2022. Dividends paid out of subsequent profits/based on subsequent resolutions are subject to a 26% surrogate tax regardless of the specifics of the interests (i.e. both with certain and indefinite rights).
Shares with certain rights are understood as shares, the owners of which have the right to:
• more than 2% of voting rights within the framework of the regular meeting of participants or 5% of the capital or corporate assets of companies listed on the stock exchange;
• more than 20% of the voting rights within the framework of the regular meeting of participants or 25% of the capital or corporate assets of other companies.
Dividends received from foreign sources located in blacklisted countries are subject to withholding tax at the standard rate and paid upfront at a rate of 26% on 100% of such dividends.
Dividends paid to non-residents (other than European companies) are subject to income tax without deductions at a flat rate of 26%. In this case, subject to certain conditions, reduced rates and compensation may apply (resulting in a final rate of 15%). Dividends paid to European companies are subject to income tax without deductions at a flat rate of 1.20%.
Payments to eligible European parent companies are exempt from withholding taxes in accordance with the EU Parent-Subsidiary Directive.
Interest
Interest on bank deposits and current accounts is subject to a surrogate tax on income withheld at source without deductions at a flat rate of 26%. Other interest on loans, deposits and current accounts is also subject to withholding tax at a flat rate of 26%, paid upfront.
Interest on bonds and other financial assets is subject to advance income tax or tax on the amount finally received at a flat rate of 26%, depending on various conditions.
Interest paid to non-residents is taxed at the same rates as the income of resident individuals; Income tax is paid on the final amount received. Interest on deposits in banks and post offices paid to non-residents is not taxed.
Payments to related European companies, subject to certain conditions, are not subject to taxes, in accordance with the EU Interest and Royalty Directive.
3. Regional tax on productive activities - (lmposta Regionale sulle Attivita Produttive - IRAP)
Regional tax on productive activities (IRAP) is a local tax that is collected in the region where the productive activity is carried out, creating a taxable base. If the taxpayer conducts economic activities in organizations and branches located on the territory of several regions, then his taxable income and, accordingly, IRAP are distributed in proportion to the costs of maintaining personnel employed in such organizations and branches located in different regions.
4. Value Added Tax (IVA, lmposta sul Valore Aggiunto) VAT is a universal consumption tax that is charged on the “value added” of goods and services. In particular, this tax is applicable in the event of an increase in the cost of goods or services at different stages of production and trade - up to the receipt of goods by the final consumer, on whom the burden of this tax falls in full.
The tax base and
VAT rates are subject to transactions that meet the following criteria:
• an objective criterion: the transaction must involve the transfer of goods or the provision of services;
• subjective criterion: these operations must be carried out within the framework of a business, creative or professional activity;
• territorial criterion: these operations must be carried out on Italian territory.
For VAT purposes, "territory of Italy" means the territory of the Italian Republic, with the exception of the municipalities of Livigno, Campione d'Italia and the waters of Lake Lugano, which are Italian territory.
Basically VAT is applicable to the following transactions:
• alienation of goods produced in Italy in the course of a business, creative or professional activity;
• supply of services in Italy within the framework of business, creative or professional activities;
• transactions for the purchase of goods between the seller and the buyer, residing in different EU countries, within the framework of a business, creative or professional activity;
• the acquisition of certain services supplied in Italy by persons from foreign countries in the course of a business, creative or professional activity;
• import of goods from non-EU countries.
However, VAT is not applicable to all of the above transactions carried out in Italy. Some of these transactions are actually tax exempt. VAT is not applicable to a number of transactions for other reasons.
Transactions that meet the three criteria described above, but are excluded from the list of items subject to VAT due to clear provisions of the law, are subject to VAT exemption: for example, financial costs, medical services, insurance premiums, etc. VAT cannot be applied either. operations that do not meet at least one of the above criteria.
Current rates
The universal VAT rate is 22%.
Along with the regular rate, there are three reduced rates: 10%, 5% and 4%, as well as a “zero” rate, which is applicable to certain so-called “tax-free” transactions (export of goods, provision of certain international services or services related to international trade, transportation of goods to other EU states, supply of a number of services related to the transportation of goods to other EU states).
5. Municipal property tax (IMU, lmposta Municipale Unica) and other local taxes
The IMU Municipality Tax is imposed on owned buildings, land allocated for development and agricultural land located on the territory of Italy and intended for use for any purpose, including property used for economic activities.
The owner of property rights or real rights, such as the right to use someone else's property for life, the right to operate, reside, lease in perpetuity, the right to own the surface, is required to pay such municipal tax.
In the case of a finance lease, this tax is paid by the tenant of the real estate. The tax base for these purposes is determined in the following order:
• buildings: the tax base is equal to the product of the cadastral rent, increased by 5%, and the multiplier, which varies from 55 to 160 depending on the cadastral category of the object;
• land under the building: the tax base is equal to the commercial value of the land on January 1 of the relevant fiscal year;
• agricultural land: the tax base is equal to the product of cadastral income increased by 25% and a multiplier equal to 135;
The following are exempt from IMU:
• houses used as a taxpayer's first home;
• in accordance with Law 208/2015, starting from the fiscal year 2016 - agricultural land that is cultivated is owned and used by farmers and professional agricultural entrepreneurs.
Please note that under certain conditions, which are verified by the municipality or proved by the owner, 50% of the taxable base for buildings that are unusable or habitable are considered exempt from IMU until their use becomes possible.
The base rate of 0.76% applied to the tax base is usually used to determine the amount of tax.
However, each municipality is officially authorized to change this rate, but not more than 0.3% (in any direction), so its actual range is 0.46% - 1.06%.
The amount of tax payable is paid in two installments, on June 16 and December 16 of each fiscal year. In fiscal year 2016, a new tax, the Tax on Intangible Municipal Services (TASI), was introduced, which is levied on the ownership of buildings and plots suitable for building. TASI has the same tax base as IMU and the rate varies from 0.1% to 0.25%. The tax amount is paid in two installments, on June 16 and December 16 of each fiscal year. Please note that the sum of TASI and IMU rates must not exceed the maximum IMU rate, i.e. 1.06% (EUR).
6. Registration tax
Presidential Decree No. 131/1986 contains a list of documents requiring mandatory registration and documents that can be registered by their users on a voluntary basis.
In particular, documents relating to real estate or assets drawn up in Italy, corporate transactions agreements and documents drawn up abroad, the meaning of which is to create or transfer real rights to intangible assets or companies located in Italy, the delivery of such assets for rent or hire.
The law provides for different deadlines for the mandatory registration of each of the documents in the list, while for documents that can be registered if used, there are no deadlines for such registration.
All other documents may be submitted for registration on a voluntary basis by any interested parties. The tax amount is determined by the competent tax authority, which sets the tax rate depending on the amount indicated in the registered document or the content of the services described in it. All applicable rates are shown in the tariff table attached to Presidential Decree No. 131/1986. The applicable rates range from 0.5% to 15%, depending on which category
the relevant document belongs to for registration tax purposes, but not less than 67 euros. However, for some documents there is a fixed rate of 200 euros.
Please note that the registration of documents related to the sale of assets and the provision of services subject to VAT (including supplies exempt from tax due to lack of premises in Italy, as well as supplies exempt from tax) are always paid at a flat rate 200 euros.
An important exception is the leasing of instrumental (useful) assets, which are subject to both VAT and proportional tax on the registration of relevant documents (1%).
Tax payment is made to the tax authority at the time of registration. Responsibility for paying the tax lies with the officials who prepared, received or certified the document, as well as the persons for whom it is registered (counterparties or acquirers of rights), and realtors.
7. Personal Income Tax (IRPEF, lmposta sul Reddito delle Persone Fisiche)
This is a progressive personal income tax. The basis for its application is the availability of income in cash or property, falling under any of the categories provided for by law. The tax period corresponds to the calendar year.
Persons liable to pay the tax
The following persons are responsible for paying this tax:
• natural persons residing in Italian territory; all their income is taxed;
• natural persons non-residents of the Italian territory; Only income generated in Italy is taxed. In accordance with Italian law, natural persons are recognized as residents of Italy, who for most of the tax period meet at least one of the following criteria:
• they are listed in the registers of the population residing in the territory of the country;
• they are rooted in Italy (to be rooted (domicile) means to associate with Italy their main interests, including moral interest and participation in companies);
• they are residents of Italy (have permanent residence in its territory).
Tax base
The tax is charged on total income, that is, the amount of income in each category, minus losses associated with engaging in creative, professional and/or commercial activities.
The following categories of income are distinguished:
• income from land plots, ie land and buildings located on Italian territory;
• return on invested capital;
• Income from hired labor;
• income of self-employed citizens;
• company income;
• Miscellaneous income, including income from any activity not related to the main creative, professional or commercial activity of the taxpayer.
After adding up all incomes, deductions provided by law are applied, which reduce the taxable base.
Deductions are usually made up to 19% of the taxpayer's expenses for items listed in the Italian Tax Code.
The amount of tax before deductions is determined by applying increasing rates to a progressive scale of net comprehensive income. Additional regional and municipal tax IRPEF Along with the tax, the amount of which is determined in the manner described above, two additional payments are made in favor of the local authorities of the region and municipality in which the taxpayer lives:
• regional additional tax at a rate of 1.73% to 3.33% (the exact rate is set annually by the regional government);
• municipal additional tax, which consists of two rates: set annually at the state level and applied throughout the country, and the second does not exceed 0.8% per year and is introduced by the authorities of a particular municipality (in certain circumstances, the general rate may increase by another 0 .3%).
Non-Resident Income Tax
Personal Income Tax (IRPEF) applies to both residents and non-residents.
Residents pay it from their incomes received everywhere, and non-residents - only from incomes received in Italy on a territorial basis.
The following incomes are considered received in Italy:
• income from land plots and buildings;
• return on invested capital paid by the state, residents of Italy (individuals or organizations) or permanent establishments of foreign organizations in Italy, excluding interest and other income on bank/postal deposits
and current accounts;
• income from wage labor received in Italy;
• income of self-employed citizens from activities carried out in Italy;
• Income from a business conducted in Italy through a permanent establishment;
• other income from activities carried out in Italy and assets located in Italy, return on invested capital received from the sale of shares in resident companies (exceptions: shares with indeterminate rights in companies listed on the exchange; income from bonds listed on the stock exchange, other similar securities and derivative instruments);
• Income from participation in Italian organizations that apply tax transparency
(ie where members are taxed and not the company itself; eg partnerships).
The tax base is equal to the total aggregate income derived in Italy as described above, excluding tax-exempt income and income taxed at source or on the residual amount of the tax liability.
It should also be mentioned that the income described above, which is received in Italy from companies and other organizations that are not residents, including trusts, both with and without formation of a legal entity, is subject to corporate income tax (IRES).
Income generated by non-resident companies is considered commercial income and includes:
• return on invested capital and losses of invested capital associated with assets that are used in business activities carried out in Italy (even if they were formed without the participation of permanent establishments);
• dividends paid by resident companies;
• income from activities carried out in Italy and assets located there;
• return on invested capital received as a result of the sale of shares in resident companies;
• land income attributable to land and buildings located on Italian territory.
An important circumstance is that the provisions of international tax agreements take precedence over internal rules, therefore, in cases where the provisions of such agreements are more beneficial for the taxpayer, he may require their application.
8. Tax obligations
Throughout the year, the taxpayer must comply with a set of obligations, which depends on the category of the taxpayer and applicable taxes. It should be noted that almost all tax declarations and fiscal notices must be submitted to the competent authorities only in electronic form.
Compliance with rules related to direct taxation
In accordance with Italian law, for purposes related to the payment of taxes on personal income and corporate income, taxpayers must submit an annual tax return to calculate the amount and pay taxes for the relevant fiscal year and in advance for the current fiscal year.
The tax return is prepared according to a standard form, which is annually approved by the tax authorities.
Individuals and partnerships file their annual tax return by the end of September of the following tax year, and limited liability companies within nine (9) months after the end of the relevant tax period (usually coinciding with the financial reporting deadline).
Tax payments are made in advance (in two installments) and in the residual amount for the past year. The first amount payable for the current financial year and the balance relating to the previous financial year are paid by the last day of the sixth month after the end of the relevant tax period. It is possible to defer payment until the last day of the seventh month, but in this case an additional payment at a rate of 0.4% is required. The second advance payment for the current year must be made before the last day of the eleventh month after the end of the relevant tax period.
IRAP
An annual IRAP tax return must be filed and filed by the same deadlines as income tax returns.
VAT
The annual VAT return for the calendar year must also be submitted before the end of April of the next tax year. It should show the totals of incoming and outgoing transactions, the amount of tax payable, deductions, payments made, tax payable on the basis of such payments or the application of discounts.
Starting from January 1, 2017, taxpayers are required to send
the following VAT information to the Italian tax authorities:
• Quarterly VAT payment report - within the following time frames, respectively, for each quarter:
- for the 1st quarter: by May 31;
— for the 2nd quarter: until September 16 (only in 2018 — until October 1, 2018);
— for the 3rd quarter: until November 30;
- for the 4th quarter: until February 28 (or 29) of the next year.
