Italy

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Tax Policy

TAX POLICY

Income Tax Rate 43%

Corporate Tax Rate 31.4%

Sales Tax / VAT Rate 20%

Individual's income tax

Taxation of an individual's income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable.

In 2011 the tax rate for an individual is between 23%-43%, In addition to direct taxation (IRPEF), there is also a regional tax of 0.9%-1.4% and a municipal tax of 0.1%-0.8%.

There are reduced rates of tax and tax exemptions available to certain income earners.

Income tax rates 2011

Tax (%)

Tax Base (EUR)

23%

0 - 15,000

27%

15,001-28,000

38%

28,001-55,00

41%

55,001-75,000

43%

75,001 and over

 

Corporate tax (IRES)

The corporate tax (IRES) rate in Italy is 27.5%, plus IRAP of 3.9% (or 4.9%) or an additional 5.5% corporate income tax charge. Please read below.

As a rule, corporate income tax (named IRES from 2004) is payable by all resident companies on income from any source, whether earned in Italy or abroad. Non-resident companies are subject to IRES only on income earned in Italy. Both resident and non-resident companies are subject to regional income tax (IRAP), but only on income arising in Italy. The corporate income tax rate (IRES) is 27.50%. Companies involved in trade and manufacturing are also subject to a regional tax on productive activities (IRAP) at the rate of 3.90% although regional authorities may increase or decrease the standard rate by up to one percentage point. It is envisaged that IRAP will be gradually eliminated in the near future.

An additional 5.5% corporate income tax charge (IRES – i.e. IRES 27.5% + 5.5%) is levied on companies (i) having revenues higher than EUR 25 million in the relevant fiscal period, and (ii) carrying on their activities in one of the following fields:

- research and exploitation of hydrocarbon

- oil refining, production and sale of petrol, gasoline, gas, lubricating oil, liquefied gas of petrol and natural gas

- production and sale of electricity.

Company tax returns, which cover both IRES and IRAP, must be filed within nine months of the statutory year end by electronic transmission. An advance tax payment is payable by the 16th day of the sixth month of the accounting period equal to approximately 40% of the previous year's income tax liability. A second advance payment of about 60% is due by the end of the 11th month of the company's financial year, i.e. 30 November. Any remaining amount would be due by the 16th day of the sixth month after the end of the period.

For income tax purposes the company can chose either a calendar or a fiscal year.

Local taxes

Real estate tax (ICI) is payable annually in two instalments (June and December) on the value of real estate property owned by companies. It has a variable rate ranging from 0.4% to 0.9% on property value, depending on each county council's assessment.

Registration tax is levied on the registration of any written contract or deed. The percentage varies depending on the type of deed. A higher rate of 7% applies to contributions or transfers of real estate. Registration tax is not applicable if the contract is subject to VAT, except for real estate rental contracts whereby VAT and 1% registration tax are applicable.

Other taxes

From 2008 onwards, stamp duty on the transfer of shares, bonds and similar securities has been repealed.

Payments due by vat registered entities

VAT registered persons are required to effect all tax and social security payments electronically, whether or not an intermediary is involved, by means of a standard form (F24).

Capital Gains

For individuals and companies capital gains are generally added to the regular income.

The rate of tax payable on capital gains from shareholding is 12.5% for non-qualifying shareholding of up to 25% in a unlisted company.

For the purpose of calculating a capital gain, the gain is decreased in line with the rate of increase in inflation, from the date of purchase to the date of sale. In regard to capital gains in a corporation, identical relief is allowed at the rate of increase in the Index.

Companies pay 27.5% tax on capital gains. In sale of participation, 95% is tax exempt, subject to certain conditions.

Withholding tax

Domestic companies making certain types of payments (e.g. interest, royalties, professional fees, etc) are required to withhold taxes at various rates. Italian legislation has implemented the EC Directive 2003/49/CE (Parent/subsidiary Directive). Under the Directive, no withholding tax is payable on interest and royalties paid to EC resident companies that have held at least a 25% interest in the payee company for a continuous 12-month period.

In general, dividends distributed to non-residents are subject to a final withholding tax of 27%. For dividends paid to residents of EU countries and those listed in the "white list", a special withholding tax rate of 1.375% applies. This rule applies only to profits earned starting from fiscal year 2008. Any dividends paid that represent profits from previous fiscal years will be subject to previous years' rules.

In line with the EC Parent/subsidiary Directive, no withholding tax is levied on dividends paid to a parent company in another EU Member State if both the parent and the subsidiary are qualifying companies under the Directive and the parent has held at least 10% of the capital of the subsidiary continuously for at least one year.

Exchange control/anti-money laundering

There are no exchange controls in Italy. However, banks and financial institutions are required to monitor any deposit/withdrawal over EUR 12,500 for anti-money laundering purposes. This duty has recently been extended to audit firms, professionals, etc.

Reporting Dates and Payment

The tax year in Italy ends on December 31st. Advance payments of tax are made on the following basis.

·        An Individual - An individual whose only income is from a salary is not obligated to file an annual tax return. His employer deducts tax from the employee and transfers the payment immediately to the tax authorities on a monthly basis.

·        A Self-Employed Individual is obliged to pay 100% of the tax forecast for a year, or an amount that is the equivalent of 98% of the tax paid in the previous year, whichever is the lower, The pre-payment is made in two installments. 40% of the total is paid by June 20th and the remaining 60% is paid on November 30. The date for filing an annual return for an individual is July 31. Fines are imposed for arrears in filing an annual return at the rate of 120% - 240% of the tax, depending on the length of time that the return is in arrears.

·        A Limited Company - A limited company is obligated to submit Financial Statements within 30 days of the date of approval of the Statements.

·        Up until the date of approval of the Statements, the Company is obligated to pay the amount of tax due for the previous year as well as 40% of the advance on account of the tax forecast for the current year.

Value Added Tax rates

The standard VAT rate in Italy is 20%. Other rates applied are 4% and 10%. Items exported or destined for export are not subject to VAT. A specific VAT regime is applied to real estate transactions for sales, purchases or rentals negotiated by companies.

VAT is levied on transfers of goods and services by enterprises in the course of their business or professions within Italy and on all imports into Italy.

As an alternative to the nomination of a VAT Representative (that remains the only procedure allowed for extra-EU companies), non-resident EU companies can apply for a "Direct VAT Identification". This enables the non-resident to settle any VAT payment directly in Italy or claim back any VAT credit. The direct VAT identification procedure is intended to facilitate the payment of Italian VAT liabilities by the non-resident. This procedure was discontinued with effect from 25 September 2009 in cases where a non-resident EU company has set up a permanent establishment in Italy.

From 1 January 2010, the basic "place of supply" rule for supplies to "VAT registered persons" is that such supplies are deemed to be made where the customer is established and the related VAT is due in accordance with the so-called "reverse charge" procedure.

The reverse charge also applies to services which must be reported on Intrastat forms. Previously, only intra-Community supplies of goods had to be included on Intrastat forms. From 1 January 2010, services subject to reverse charges also have to be included, subject to some exceptions. The normal reporting period is a calendar month.