Operating guidelines

Corporation Tax rates and reliefs in Italy

Taxation and costs in the course of the business activity

The annual tax on government concessions

Italian companies must pay, by March 16th, each year, an annual tax on government concessions for the numbering and stamping of books and accounting records amounting to euro 309.87, if the amount of the share capital does not exceed euro 516,456.90; to euro 516.46, if the share capital exceeds this amount. The reference date for quantifying the share capital is January 1st of the year for which the payment is made. Failure to pay the annual fee is punished with the administrative sanction corresponding to 100 to 200% of the fee and, in any case, not less than euro 103.00.

VAT in Italy

Vat – Value added tax – or Iva – Imposta sul Valore Aggiunto is a consumption tax that applies to the supply of goods and services carried out in Italy by entrepreneurs, professionals, or artists and on importations carried out by anyone. In some cases, also Intra-Community acquisitions are subject to Vat.

In Italy the standard Vat rate is 22% and reduced rates are provided for several supplies of goods and services, such as 4% for listed food, drinks and agricultural products or 10% for electric power supplies for listed uses and listed drugs. Specific supplies of goods and services expressly listed in Presidential Decree n. 633/72 are exempt from Vat, for example education, insurance services, specific financial services, supply, leasing of particular immovable property.

If you are a not resident taxable persons, who plan to carry out business in Italy,  you need to fill in the ANR/3 form in order to register for Vat purposes.

In particular, this form has to be used by not resident subjects carrying on business, artistic or professional activities in another Member State of the European Union or in a third Country, which has signed a mutual assistance agreement with Italy for the purpose of indirect taxation.

Once registered in Italy for Vat purposes, non residents must declare the transactions and pay over any tax due. You can also opt to pay on a quarterly basis, provided that your Italian turnover is lower than euro 700,000.00 (if your activity is not limited to the supply of services) or euro 400,000.00 (if your activity only consists in supplies of services). Please note that, in case you choose quarterly Vat payments, interests are due (1 percent of the Vat due for each quarter).

In relation to the sales of digital services, such as telecommunications, broadcasting and electronic services, from a business to a consumer (private individuals and non-business entities, for example public authorities or charitable bodies) the Vat place of taxation is determined by the location of the consumer.

European and non-European businesses supplying electronic services or telecommunication/broadcasting services to European consumers (B2C), can fulfill the obligations relating to Vat through the web-portal Mini One Stop Shop (Moss).

The Moss is a simplification measure that allows taxable persons, supplying digital services  to non-taxable persons (B2C)  located in the EU Member States and where  they do not have an establishment, to account for the Vat due on those supplies only in  one Member State (so called Member State of identification).

Corporate Income Tax - Ires

The tax rate of the corporate income tax (Ires) is equal to 24%.

All companies with share capital, cooperatives and mutual insurance companies, European companies (Regulation EC n. 2157/2001) and European cooperatives (Regulation EC n. 1435/2003) that are fiscally resident in Italy are subject to Ires; public and private entities resident in Italy, including consortia, trusts, collective investment undertakings and non-profit organisations (ONLUS); all types of companies and other legal entities, including trusts, that are not fiscally resident in Italy, only with regard to income items of Italian origin.

Companies that for most of the reference tax period are considered to be resident in Italy for tax purposes if:

  • their registered office is in Italy
  • their actual place of management or the main object of their activity is located in Italy.

The income of Collective Investment Undertakings established in Italy and those established in Luxembourg are exempt from corporation tax in the cases provided for by law (Art. 73, paragraph 5-quinquies, TUIR).

Under Italian tax law, all income deriving from companies and other commercial entities is always considered as business income. In order to determine the taxable base for corporate income tax (Ires) purposes, the starting point is the profit or loss calculated for accounting purposes, as indicated in the financial statements. This amount must be increased or decreased in accordance with the tax provisions governing the determination of the taxable base for Ires purposes.

Under the applicable double taxation convention, non-resident companies and commercial entities are subject to taxation in Italy only in respect of income items of Italian origin as qualified and determined under Italian tax law.

The taxable base is the sum of the different categories of income provided for by Italian tax legislation, including business income deriving from permanent establishments located in the Italian territory. Items of income exempt from tax and those subject to a final withholding tax or a substitute tax are not added to the total income subject to corporate income tax (Ires).

When calculating taxable income, account must be taken of the fact that there is a wide range of costs that can be deducted from turnover. Some of these expenses are fully deductible, others partially deductible and others non-deductible.

As a general principle, all expenses incurred in carrying out the core business are fully deductible from turnover. However, if some of these expenses are incurred for both business and private purposes, the percentage of deductibility will be less than 100%. Only costs recorded in the cash flow statement can be deducted for tax purposes.

List of examples of deductible costs and extent of their deductibility:

  • depreciation: they are deductible in accordance with a ministerial decree (Ministerial Decree of 31.12.1988) that establishes the different annual deductible depreciation rates for tangible and intangible assets;
  • labour costs: all costs relating to wages, social security and health contributions paid by the company are deductible;
  • other taxes: in addition to IRAP (deductible only up to 10% of the amount paid), other taxes are deductible in the financial year in which they were paid;
  • provisions: most provisions are not deductible for tax purposes as they are not relevant for tax purposes;
  • telephone subscription costs: 80% of the amount is deductible;
  • car-related costs: if a car is used exclusively for commercial purposes, the costs are fully deductible, otherwise they can be deducted in different percentages (70% or 20%) depending on the user and the conditions of use;
    • gifts: they are fully deductible if their unit value is less than 50 Euros;
    • entertainment expenses: deductible within the following limits:
    • 1.5% of annual sales (for annual sales of less than 10 million Euros)
    • 0.6% of annual turnover (for annual sales within e 10 million and e 50 million)
    • 0.4% of annual turnover (for an annual turnover exceeding e 10 million).

Regional production tax - Irap

Italian companies and non-resident companies (only on income from Italian sources), are subject to corporate income tax (Ires), and regional production tax, Irap.

The regional tax on production (Irap) is a local tax on production activities carried out within a regional territory. The standard rate is 3.9%, but higher rates are applied, for example, for banks and financial institutions (4.65%) and insurance companies (5.90%).


Tax incentives for companies investing in Italy

Companies and sole proprietorships wishing to invest in Italy are entitled to various tax benefits, such as the deduction for contributions of risk capital (ACE), the tax credit on research and development activities, the patent box regime, super and hyper amortisation and VAT grouping rules.

ACE

ACE (Allowance for Corporate Equity) is a tax incentive introduced to promote the recapitalisation of companies and to mitigate the different tax treatment applied to debt and equity financed companies. The ACE is a tax mechanism that provides for the possibility of deducting capital used to increase the capital of companies from taxable income.

They can take advantage of it:

  • Resident companies
  • Individual resident entrepreneurs
  • Resident partnerships
  • Other resident commercial entities
  • Permanent establishments in Italy of non-resident companies

The Ace benefit involves a deduction from the tax base of the company's income; the deduction corresponds to the net increase in "new equity" used in the entity (understood as equity generated after 2010), multiplied by an annual rate determined annually (which is 4.75% for the year 2016, 1.6% for the year 2017 and 1.5% for the year 2018 and subsequent years).

According to Italian legislation, the ACE base may be:

  • carried forward to future years
  • transferred to another unit, provided that the company is part of a group
  • transformed into a tax credit to be offset against payments of regional tax on productive activities, made in five equal instalments.

The tax credit for research and development

The tax credit for research and development aims to encourage investment in this specific sector (R&D). The right to benefit from it is granted to individuals once they can demonstrate that they have invested at least euro 30,000 per year in R&D activities. The maximum annual credit per beneficiary is euro 20 million. Taxpayers must bear the eligible R&D costs between 2015 and 2020.

This benefit is available to any company, regardless of its legal form, sector of activity, accounting principles and size, including Italian companies or permanent establishments in Italy of non-resident taxpayers carrying out research and development activities on the basis of agreements with non-Italian companies resident in EU Member States, or in a European Economic Area (EEA) country or other partner countries with which an information exchange instrument is in force.

Taxpayers have to bear the costs of one (or more) of the R&D qualification activities, which consist of basic scientific research, industrial research and experimental development.

In particular, the eligible expenses are those incurred for:

  • workers involved in the above-mentioned R&D activities
  • depreciation charges related to the assets used to carry out the activities/projects
  • “extra-muros” research and development activities, i.e. activities carried out in collaboration with universities, research institutes and equivalent bodies and other companies
  • technical expertise, industrial and biotechnological patents.

The Inland Revenue recognizes a tax credit of up to 50% of the increase in annual research and development expenses, which is not included in the taxable base nor in the taxable base of the Regional Tax on Productive Activities. This increase must be calculated by comparing the average research and development expenses incurred by the taxpayer in the 2012/2014 period.

Taxpayers have the right to use the tax credit as a form of payment of income taxes or regional taxes and social security contributions.

The Patent box regime

The Patent box regime is a tax bonus introduced in order to improve the development of intellectual property by granting tax benefits to resident and non-resident taxpayers carrying out research and development (R&D) activities.

Who can benefit from it?

  • Companies
  • Individual entrepreneurs
  • Other entities, other than companies, carrying out business activities
  • Non-resident taxpayers with a permanent establishment in Italy (if they are resident in a country with which Italy has an effective tax information exchange agreement).

What are the eligible intangible assets?

  • Software protected by copyright
  • Patents (which may be granted or in the process of being granted)
  • Commercial and technical-industrial know-how
  • Other legally protected intellectual property, such as designs

What are the advantages?

There is an optional partial tax exemption from IRES and IRAP for income deriving from the direct use or licensing of qualified intangible assets. Under this regime, taxpayers can partially exclude from their tax income, for income tax and regional business tax purposes, qualified income deriving from direct use of intangible assets or licensing of intellectual property, such as royalties received by the taxpayer, net of all costs related to intellectual property. Patent Box companies have the right to deduct up to 50% of their income from such activities.

How do the tax bonus is obtained?

In order to obtain the tax benefit, there must be a direct link between R&D activities and qualified intellectual property, as well as a direct link between qualified intellectual property and qualified income. The option must be exercised annually by the owners of the right to use the Qualified Intellectual Property (owners or licensees) and is considered irrevocable for 5 years.

The Patent Box regime provides for the obligation for taxpayers to obtain an advance tax claim from the Inland Revenue, the submission of which is mandatory for the determination of the amount of the subsidized income deriving from the direct exploitation of qualified Intellectual Property.

The ruling procedure is instead optional in order to determine the capital gain in case the qualified Intellectual Property is licensed to related parties against payment of royalties or is transferred between related parties.

Super Depreciation and Hyper Depreciation

The purpose of Super Depreciation and Hyper Depreciation is to facilitate business investments by allowing companies to enjoy increased depreciation for tax purposes, in order to favour investments, particularly technological investments.

Who can benefit from them?

Companies of any kind are entitled to benefit from increased tax depreciation. The benefits are also granted to permanent establishments in Italy of non-resident investors. Super-amortisation is also applicable to purchases made by self-employed workers.

What are the eligible purchases?

For Super-amortisation the surcharge is set at 30% and is applicable in relation to purchases made from 1 January 2018 to 31 December 2018. The purchase period is extended until 30 June 2019, provided that the purchase orders have been accepted by the seller by 31 December 2018 and at least 20% of their price has been paid by the same date. In relation to purchases made up to 30 June 2018, the amortisation charge shall be increased by 40% if the purchase orders have been accepted by the seller by 31 December 2017 and at least 20% of their price has been paid by the same date.

For hyper-amortisation, the rates are increased up to 150% of their value for some "smart equipment" that can benefit from specific digital and technological transformation processes according to the model promoted by the Italian government plan "Industria 4.0". This benefit is applicable to purchases made from 1 January 2017 to 31 December 2018. The purchase period is extended until 31 December 2019, provided that the purchase orders have been accepted by the seller by 31 December 2018 and at least 20% of their price has been paid by the same date.

An additional Super-Amortisation of 40% is also introduced for certain intangible assets such as software, computer systems and platforms linked to the government's industrial growth plan called "Industrial Plan 4.0". The purchase period is the same as that for Hyper-Amortisation.

What are the advantages?

For the entire depreciation period, tax depreciation relating to the purchase of new capital goods increases their value by 30% or 150% compared to the purchase cost. Some intangible assets can also benefit from an additional 40% amortisation.

VAT grouping rules

The VAT grouping rules simplify the application of VAT rules for corporate groups and reduce the tax burden, considering the group as a single VAT taxable person.

The option is reserved to companies closely linked to the following financial, economic and organisational links:

  • they must be subject to common control, through a direct or indirect shareholding that guarantees 50% or more of the voting rights; this requirement is met even if the common controlling entity is based in a foreign country with which an information exchange instrument with Italy is in force (financial link)
  • they must carry out the same core business and the same economic activities or, alternatively, the activities must be complementary, ancillary and auxiliary to the other members of the group (economic link)
  • there must be coordination between the decision-making bodies of the entities involved (organisational linkage).

Companies can fill in the relevant form from 1st January to 30th September of each year in order to apply the VAT grouping rules from the following year. If companies fill in the form from 10 October to 31 December, the VAT grouping rule applies from the second year following the option.

Once elected for this regime, all entities that meet the requirements must join the group (All-in/All-out) and the option lasts at least 3 years.

As a result of the application of this scheme, the group itself will be considered as a single VAT taxable person. Therefore:

  • transactions between group companies will not be subject to VAT.
  • transactions between a group member and a third party will be considered by the group as an entity.

The taxation of the Italian branch

The foreign company shall comply, for the exercise of the business through the branch, with the necessary Italian provisions of application and therefore, by way of example, with the provisions relating to the keeping of accounting records, compliance with tax obligations and labour regulations, the need for licences and administrative authorisations prescribed by Italian law; all provisions applicable even if not provided for by the foreign company's national law.

The notion of permanent establishment is specifically regulated from the fiscal point of view, generally meaning that non-temporary place of business or business centre through which a non-resident commercial enterprise carries on its economic activity, producing income in the territory of another country.

The income produced by the branch, as a permanent establishment in Italy of a non-resident company, is taxable in Italy according to the rules of business income and on the basis of a special profit and loss account.

For non-resident companies, only the income produced in the territory of the State is taxable in Italy, including both income deriving from commercial activities achieved through permanent establishments and those deriving from activities carried out directly by the parent company; and also including, in particular, capital gains deriving from the disposal for consideration of shareholdings in resident companies.

For the purposes of value added tax, with regard to transactions carried out by the secondary headquarters (permanent establishment), it should be taken into account that

  1. companies resident abroad, or of foreign nationality, which can be assimilated to one of the types provided for by Italian law, are undoubtedly taxable persons for the purposes of value added tax, since the law does not lay down any requirement of residence or nationality for the purposes of this subjectivity 
  2. again according to the law, companies resident abroad, which do not fall within one of the types provided for by Italian law, have in any case passive subjectivity for VAT purposes.


Innovative Start-Ups: tax benefits and reduction of initial costs

Innovative Start-Ups (meeting the requirements of Article 25 of Legislative Decree no. 179/2012) benefit from important facilitations following registration in the special section of the Company Register.

Tax benefits linked to capital subscription

Among the facilities provided, first of all those related to the subscription of capital in Start-Up.

They apply to persons liable to personal income tax, as well as to persons liable to corporate income tax, who make a concessional investment, in one or more Start-Ups in the tax periods following the one in progress on 31 December 2016.

The reliefs apply to cash contributions recorded under the item share capital and share premium reserve of the shares or units of innovative Start-Ups, or of limited liability companies investing mainly in eligible innovative Start-Ups or SMEs.

In detail, natural persons are entitled to deduct in their annual tax return an amount equal to 30% (40% for investments relevant for 2019) of the investment made (directly or indirectly) in the capital of one or more Start-Ups within a maximum limit of €1 million per year, with a minimum investment retention period of three years.

On the other hand, companies investing in the capital of Start-Ups are entitled to deduct from their total taxable income an amount equal to 30% (40% for investments relevant for 2019) of the investment made (directly or indirectly) in the capital of one or more Start-Ups, with a maximum of euro1.8 million per year, with a minimum investment retention period of at least three years. In cases of acquisition of the entire share capital of innovative Start-Ups by IRES taxable persons, other than innovative Start-Ups, for the year 2019, a 50% deduction is due, provided that the entire share capital is acquired and maintained for at least three years.

The benefits are granted up to a total amount of contributions not exceeding euro 15 million for each Innovative Start-Up, taking into account all contributions received during the tax periods of the scheme.

The right to the benefits described above expires if, within 3 years from the date on which the investment is taken over, one of the following causes occurs:

  • the sale, even partial, of the shareholdings for consideration
  • the reduction of share capital and/or the allocation of reserves or other funds set up with share premiums on the shares or units of Start-Ups or companies that invest predominantly in Start-ups and whose units are not listed on a regulated market or an MTF
  • withdrawal or exclusion of investors
  • the loss by the Start-Up of one of the requirements for Start-up qualification.

It should be noted that, with reference to the investment in Innovative Start-Up does not constitute a cause for forfeiture of tax benefits, the loss of the requirements set forth in art. 25, paragraph 2 of Law Decree no. 179/2012 by Innovative Start-Up. Therefore, the expiry of five years from the date of incorporation, or the exceeding of the threshold of the annual production value equal to euro 5 million, the listing on a multilateral trading system, or transfers free of charge or due to the death of the taxpayer, as well as transfers resulting from extraordinary transactions as per Chapters III and IV of Title III of the Tuir (also valid for Innovative SMEs), do not constitute a cause for forfeiture of the tax benefits described above.

Incentive and loyalty plans

In accordance with art. 26, paragraph 6 of Decree Law No. 179/2012, Innovative Start-Ups (set up in the form of Spa, Srl and its subsidiaries or in the form of cooperatives), may carry out transactions on their shareholdings, if such transactions are carried out in implementation of incentive and remuneration plans involving the assignment of shares, shares and participative financial instruments (SFP), stock options and stock grants, in favour of employees (permanent, fixed-term, part-time), permanent collaborators (including project workers, whose income is qualified for tax purposes as income assimilated to that of employees) and members of the administrative body.

With reference to tax aspects, it should be noted that the income from work deriving from the assignment by Innovative Start-Ups to their directors, employees or permanent collaborators of financial instruments or any other right or incentive that provides for the assignment of financial instruments or similar rights, as well as from the exercise of option rights granted for the purchase of such financial instruments, does not contribute to the formation of the taxable income of the aforementioned parties, both for tax and contribution purposes.

The transfer of the financial instrument to the issuer or to a group company (subsidiaries, associated companies and "sister" companies) represents a cause for forfeiture of the tax benefits linked to the incentive plan.

For Start-Ups, the possibility of allocating financial instruments and option rights with tax incentives, in particular, ceases to be one of the requirements for being considered innovative. The cessation of the possibility of allocating financial instruments and option rights with the incentive tax regime (due to expiry of the terms or loss of the requirements) does not in itself mean that the possibility of applying the favourable tax regime to those already allocated no longer exists. In other words, financial instruments and option rights already assigned at the date of termination of the Start-Up provisions will continue to benefit from the favourable tax regime, even if option rights are assigned whose vesting period for exercising the right is after that date.

If the assignee is the issuing company or other group company, the remuneration in kind represented by the normal value of the financial instrument at the time of the assignment granted under the incentive plan, represents fringe benefits and is qualified as employee income.

For the sake of completeness, it is however represented that, both in the case of forfeiture and in the case of tax benefits, the transfer to a third party always constitutes taxable income and its qualification is that of different income equal to the difference between the tax cost and the consideration received.

Work for equity

The so-called "work for equity" was introduced into Italian system by Legislative Decree no. 179 of 2012 for Innovative Start-Ups and was then extended to innovative SMEs, set up in the form of a Spa, Sapa, Srl and its joints or in a cooperative form.

This term refers to the remuneration of consultants, professionals and, in general, suppliers of works and services (other than employees and permanent collaborators), through the allocation of shares, quotas or participatory financial instruments.

The assignment of the above financial instruments may take place by means of contributions of work, contributions of services, joint contributions of work and services, or by extinction of accrued receivables.

With reference to fiscal aspects, it should be noted that shares, quotas and participative financial instruments issued for the contribution of works and services rendered in favour of Start-Up, or receivables accrued as a result of the performance of works and services, including professional services, rendered towards the same, do not contribute to the formation of the total income of the party making the contribution, at the time of their issue or at the time when the offsetting that takes place.

Moreover, by virtue of the principle of derivation of the contribution base from the tax base, the compensation is also excluded from being subject to contributions.

Other benefits for the Innovative Start-Up

Finally, the legislator has granted Innovative Start-Ups additional tax benefits, in addition to reductions in the amounts due to the Company Register and exemptions from company law:

  • exemption from stamp duty and secretarial fees due for registration in the Commercial Register and from the annual right to chambers of commerce
  • exemption from the discipline of shell companies
  • greater ease in offsetting VAT credits due to the fact that it is mandatory to affix a compliance visa only for the use of credits exceeding 50 thousand euros instead of the ordinary limit of 5 thousand euros
  • the right to extend by twelve months the period of so-called "carry forward" of losses and, in cases of reduction below the legal minimum, the right to defer the decision on recapitalisation by the end of the following financial year
  • measures to support internationalisation
  • more possibilities in crisis management in the Innovative Start-Up business
  • simplified, free and direct access to the Central Guarantee Fund, the government fund that facilitates access to credit by granting guarantees on bank loans.


Accounting in Italy

In Italy all companies are required to keep books and accounting records and to keep all original documents sent and received in order. Accounting documents must be kept for at least ten years.

Accounting records may be kept directly by the company at its headquarters or by third parties outside the company, for example at the firm of Chartered Accountants.

Two main compulsory accounting systems are available depending on the characteristics of the company and the amount of income declared in the previous year: an ordinary one and a simplified one (suitable for small entities with a simple organisation).

The ordinary accounting system is mandatory:

  • for companies providing services with a turnover of more than euro 400,000 per year;
  • for other companies with a turnover of more than euro 700,000 per year.

The following company registers and books may be mandatory depending on size and activity:

  • the daily book;
  • the general ledger;
  • VAT registers;
  • the inventory book;
  • the register of shareholders' meetings;
  • the book of meetings of the Board of Directors (if any);
  • the book of meetings of the Board of Statutory Auditors (if applicable).

The books and accounting records are kept in accordance with the provisions of the Italian Civil Code and tax regulations and may also be kept in electronic form.

Companies with share capital are also required to draw up the financial statements and enter them in the Company Register within 30 days of its approval by the shareholders. In addition to the ordinary model provided for by the Italian Civil Code, for "small" and "micro" companies, abbreviated forms are provided for the preparation of the Financial Statements. The Financial Statements must be presented and approved by the Shareholders' Meeting within 120 days of the end of the financial year (180 days in special situations and under certain conditions).


Auditing companies

In Italy, the appointment of an auditing firm is mandatory for:

  • the S.p.A;
  • S.r.l. that exceeds two of the following limits for 2 consecutive years:total assets equal to Euro 4,400,000;
    • revenues from sales and services equal to 8,800,000 Euros;
    • average number of employees in the financial year 50; or
    • if the S.r.l. controls a company subject to statutory audit;
  • all companies that prepare consolidated financial statements;
  • listed companies;
  • banks, securities brokerage companies, fund management companies, regulated financial institutions.

The statutory audit of the financial statements must be carried out in the manner prescribed by law.

Italian law and Italian auditing principles

In Italy, the statutory audit may be entrusted to a Board of Auditors, a single auditor ("Sindaco Unico"), an auditing company ("società di revisione") or an external auditor ("revisore"). Under certain conditions, the audit may be carried out by the Board of Statutory Auditors, which may be entrusted with both supervisory activities, including compliance with the law and the articles of association, and the statutory audit.

Alternatively, the statutory audit of the financial statements (including quarterly audits) may be entrusted to an auditor or an external auditor. The engagement of two different bodies is mandatory for listed companies and for companies required to prepare consolidated financial statements.

 

 

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