Taxes in Europe Database v2
Testo unico delle imposte sui redditi (Tuir) approvato con Decreto del Presidente della Repubblica 22 dicembre 1986, n. 917
Total net income, comprising net profits as shown in the profit‑and‑loss account, or the statement of the company's income. Profits already subject to withholding tax are not included in the base of assessment. Non‑commercial resident companies and non‑resident companies with a permanent establishment in Italy which carry out commercial activities covered by separate accounts are authorised by law, on certain conditions, to keep simplified accounts.
The annual allowance for tax purposes is determined by applying the rates periodically set by the Ministry of Finance to the depreciable base.
The rate (3-7%) depends on the kind of property and on the sector of the taxpayer's activity (Art. 102(2) TUIR).
The rate (10-25%) depends on the kind of property and on the sector of the taxpayer's activity (Art. 102(2) TUIR).
The rate (3-15%) depends on the kind of property and on the sector of the taxpayer's activity (Art. 102(2) TUIR).
Depreciation rate = 5.56-50%
Land is not depreciable since is not considered subject to wear.
There is a sort of earning stripping rule according to which interest deduction is allowed within the limit of the interest income; the exceeding part is deductible within the limit of 30% of the EBITDA. Please note that any exceeding part (undeductible interest or unused 30% EBITDA can be carried forward).
The allowance for corporate equity (ACE) working through a deduction from total net income of an amount equal to the notional yield of the increase in equity compared to that existing at the close of the tax year in progress at December 31, 2012.
The allowance for corporate equity is applied after the deduction for previous losses.
The reference rate for the notional yield deduction is determined by a Decree of the Minister of Economy and Finance each tax year.
The rate is set at 3% for tax years 2011, 2012 and 2013.
The rate is set at 4% for tax year 2014, 4.5% for tax year 2015, 4.75% for tax year 2016.
The increase of equity capital that assumes relevance to the effects of this discipline is the increase compared to equity capital at 31 December 2010 as identified by the balance sheet (according to national or international accounting standard principles).
The part of the notional return that exceeds the total net income declared, can turn into a tax credit IRAP, in addition to being used in increasing the amount deductible from income tax periods. For companies that are quoted on regulated markets of EU member states and member States SEE, the increase in the equity, in any tax year for admission to these markets and in the next two, has increased by 40 percent. In any case, the limit of assets as a maximum base Ace year is applied. The effectiveness is subject to the prior approval of the European Commission, as the measure it is not applicable to all businesses.
Exclusion causes of losses carry-forward (art. 84(3) TUIR)
Although, it is allowed to carry losses forward if the company respect same “live” rates (such as amount of proceeds or amount of salary cost or number of employees)
The following items are exempt:
Tax rate on interest received
Individuals 12.5% – 27%.
Companies: Interest is included in taxable income on an accrual basis (unless exempt) and taxed accordingly (e.g. corporation tax IRES: 27.5%).
Outgoing dividends withholdings tax: 0%-20%
Outgoing interest payments withholding tax: 0% - 20%.
Groups of companies may benefit from tax consolidation and consortium relief. These regimes allow the offsetting of profit and losses of members of a group of companies. Just the consolidation relief is shown above.
Loss carry forward
The above mentioned loss carry forward applies to corporations. Losses of partnerships and entities using the generally accepted accounting principles can be carry forward for 5 years.
Controlled Foreign Companies
Threshold for capital or voting power held directly or indirectly by resident in a non-resident company
“Control” is defined with reference to Art. 2359 of the Civil Code, under which another entity is deemed to be controlled if:
In addition to controlled companies, the CFC legislation is also applicable to “affiliated companies”, i.e. where an Italian resident entity directly or indirectly holds 20% (10% in the case of listed companies) or more of the voting rights of an entity resident or established in a state or territory having a privileged tax regime.
CFC rules apply if foreign tax rate is lower than
CFC rules apply if the controlled foreign companies are located in States or territories included in Ministerial Decree 21 November 2001.
From 1 July 2009, the scope of application of the CFC rules has been extended to controlled companies localized in states or territories different from those included in the black list, if both of the following conditions are met:
Individuals 12,5% – 27%.
Outgoing dividends withholdings tax
27%. 12.5% in case of savings shares. 1.375% on profit distributions realized on or after 1 January 2008 provided that the beneficial owner of the dividends is a company subject to corporate income tax and resident in EU or in an EEA country that allows an adequate exchange of information.
Outgoing interest payments withholding tax
0% on government bonds and bonds issued by banks and listed companies having a maturity of at least 18 months. 12.5% on loan interest. 27% in all other cases.
Tax is due by tax periods, in each of which a separate tax liability is incurred. The tax period shall consist of the fiscal year or management period of the company or entity, as fixed by law or by the act of incorporation. Failing that, or in case it has been fixed at two or more years, the tax period shall be the calendar year.
By direct payment to the tax collector's office within the same deadline set for filing a return. By the fifth month after the end of the accounting year a payment on account must be made against the tax due for the following year, for an amount equal to 60 % of 100 % of the tax due for the preceding period. By the 11th month, a further advance payment of 40 % of 100 % must be made.
Collection may be by means of assessment books on certain conditions.
- Capital gains realized on participations in companies with or without legal personality are exempted [95%; 50.28% for non-commercial entities] on condition that:
1) the participation
2) the subsidiary
- Capital gains and losses are treated symmetrically: capital losses realized on participations eligible for the tax exemption regime are not deductible
- The participation exemption regime is compulsory and applies for the entire holding period of the participation. If the participation is not recorded as financial asset as of the first year of recording (if, for example, the participation is recorded as investment), the participation exemption regime is not applicable for the entire holding period
- Conditions sub 2 must hold uninterruptedly at least for 3 years before capital gains are realized
- The regime applies to participations held in both resident and non-resident companies
- The exemption is not granted if the subsidiary:
- The taxpayer may nevertheless provide evidence through the ruling procedure that the income of the subsidiary has been taxed at least once: in this case the capital gain is exempted
- The method used to eliminate economic double taxation of dividends has changed: the “exemption method” has replaced the “imputation method”
- Dividends paid to companies are 95% tax exempted (5% subject to the corporate income tax)
- The new dividend tax regime applies to both domestic dividends and foreign source dividends
- Dividends paid to individuals with a participation held in a business capacity are 50.28% tax exempted (49.72% subject to progressive personal income tax)
Domestic consolidation system:
- Recognition of group consolidation for tax purposes is a required integration of the tax system following:
- The adopted model refers to one single taxable base and one single tax return (Fiscal Unit)
- The consolidated tax base is computed as the algebraic sum of all taxable incomes of the controlling and of the controlled companies that have opted for the consolidation
- All income of the controlled companies that have opted for tax consolidation is included in the tax base of the controlling company regardless of the percentage of shareholding held by the latter
- Main features:
they are resident in countries with which double taxation conventions are in force
they carry out business activity in Italy through a permanent establishment to which the participations in each controlled company are actually connected
- Tax losses accrued during tax years preceding the exercise of the option for tax consolidation can be used only by companies which they refer to, according to ordinary rules
Worldwide consolidation system:
- The system of worldwide tax consolidation follows the French model and allows cross-border loss compensation in order to remove obstacles to cross-border economic activity and eliminate double taxation
- The regime is optional. The option can be exercised only by the controlling company or by the “entity of highest level” that is liable to corporation tax and resident in the territory of the State
- The option for tax consolidation must be exercised with respect to all companies belonging to the group (the “all in, all out” principle does apply)
- Once exercised, the option is irrevocable for five years; successive renewals are granted for a minimum period of three years
- Companies may opt for the tax transparency system, already in force for partnerships. This system provides for the taxation of the company income in the hands of each shareholder proportionally to its share of profits and regardless of whether profits are distributed or not
- The transparent company must be liable to the corporation tax and resident in the territory of the State; shareholders can be either resident or non-resident companies liable to the corporation tax and holding a participation in the capital of the transparent company of not less than 10% and not exceeding 50%
- Companies with non-resident shareholders may opt for tax transparency only if profits distributed to these shareholders
- The option must be exercised by all the companies and communicated to the Tax Administration by the end of the accounting period (of the transparent company) in which it is exercised
- The option covers three accounting periods (including the one in which it is exercised) and is irrevocable
- The option is valid also in the event of the entry of new shareholders so long as the required conditions are met by these shareholders
- The income of the transparent company is entered in the name of each shareholder at the date of closure of the accounting period of the transparent company
- Advance withholding taxes paid on the income of the transparent company, the related tax credits, and any advance payment are deducted from the tax due by the individual shareholders, according to their share of profits
- Tax losses of the transparent company relating to periods in which the option is effective are entered in the name of the shareholders proportionally to the respective shareholding and within the limits of their share of the accounting net equity of the transparent company
- The option for the tax transparency system is provided for also in the case of limited liability companies owned by individuals on condition that:
Thin capitalization: abolished by the budgetary law for 2008.
Interests paid deductions:
- Interests paid are deductible up to the value of interests received; the exceeding interests are deductible up to the 30% of ROL (Reddito Operativo Lordo). ROL can be defined as earning before interests, taxes and amortizations. Please note that any exceeding part (undeductible interest or unused 30% EBITDA can be carried forward).
- An optional lump sum tax regime based on the tonnage and age of the ships
- Resident companies operating international traffic by ships registered in the International Shipping Register can benefit from this regime. Also ships used for national traffic can accede to this optional lump sum tax regime.
- For each ship taxable income is given by the daily profits calculated on the basis of a per-tonnage daily income adjusted by and age-related coefficient
- For the purpose of calculating taxable income only actual operating days are considered and no deductions are allowed
- Once exercised, the option must be valid for ten years and it is irrevocable
Assets from prepaid taxes transformed into tax credits
Active deferred taxes deriving from a) impaired credits as provided for by Article 106, paragraph 3, of the Income Tax Consolidation Act (T.U.I.R.); b) goodwill and intangible assets are qualified as amortizable when their relevant negative items may be written off over several tax periods; c) tax losses – with respect to the portion relating to writing off of income negative items (impaired credits, goodwill- and intangible assets amortization) – wholly transformed in tax credit to be used as an offset when filing Form F24.
Transformation applies on condition that a loss is made in the last financial year amounting to the product between the said loss and the ratio of assets from prepaid taxes to sum of equity and reserves. In other words, prepaid taxes are transformed into tax credits proportionate to ratio of loss for the period to equity.
Transformation of a quota of prepaid taxes into tax credits implies that the amount of tax loss – computed by setting it against taxable income of the subsequent tax periods – be subtracted from that quota of tax loss which gave rise to prepaid taxes transformed into tax credits.
Patent Box (art. 1 par. 37 - 45 L. 23.12.2014 n. 190)
The Law of Stability 2015 introduced an optional system of preferential taxation of income derived from the use of some types of intangibles achieved by corporations and business entities engaged in research and development through external companies provided that are not group companies (cd. patent box). The new regime, with effect from 1 January 2015, allows the companies concerned to benefit exclusion from the tax base of income tax and IRAP of a share (50% from 2017), the income derived from ' use of intellectual property, trademarks and patents, processes, formulas and information relating to experience acquired in the industrial, commercial or scientific experience. For the first two tax years (2015 and 2016), the measure of the incentive is reduced, in that it is expected the tax reduction of a share of income of 30% and 40%. The option is valid for five years and is irrevocable. There's a ruling procedure, optional in the case of intercompany transactions.