Corporate Income Tax
Companies doing business in Italy are subject to a number of taxes, including the corporate income tax (IRES), the regional tax on productive activities (IRAP), withholding tax, VAT, registration tax, social security taxes, transaction tax and stamp duty.
The current corporate tax rate (“Imposta sui Redditi delle Societe”) in Italy is 27.5%.
Individuals and partnerships must file an annual tax return by the end of September of the following tax year, while limited liability companies must file the tax return within nine (9) months of the end of the company’s fiscal year.
Companies must also make advance payments of their corporate and local tax liability equal to a specified percentage of the tax paid for the preceding year.
Income Tax Rate
- 0 – €15,000: 23%
- €15001 – 28000: 27%
- €28001 – 55000: 38%
- €55001 – 75000: 41%
- Over €75000: 43%
Note that up to the fiscal year 2016, an additional 3% tax will apply on income exceeding EUR 300,000.
Persons (individual person, partnership, company with share capital or institution) making taxable supplies of goods and services under the Italian Value Added Tax (VAT) regime are required to apply for an Italian VAT number before commencing business.
The current VAT rate is 22%, however the rate is scheduled to increase to 24% in 2016, 25% in 2017 and 25.5% in 2018.
Italy imposes withholding tax (WHT) on certain classes of income earned by non-residents:-
- Dividends: 26% (unless participation exemption applies)
- Royalties: 30% on 70% of the amount, resulting in an effective tax rate of 22.5%
- Interest: Final WHT of 26%. Interest paid to non-residents on deposit accounts with banks and post offices is exempt.
A reduced rate may be available under an applicable Double Tax Treaty.
Examples of other major taxes:
- Corporate tax surcharge for hydrocarbons and energy companies whose revenue exceed EUR 3 million and declared taxable income higher than EUR 300,000 in the previous fiscal year. = 6.5%
- Resident and nonresident companies are subject to a regional tax on productive activities (“imposta regionale sulle attività produttive”, or IRAP) on their Italian-sourced income. For non-residents, IRAP only applies when the activities are conducted over a period of at least three months through a permanent establishment. IRAP is imposed at a standard rate of 3.9% for manufacturing companies, however higher rates apply for banks and financial entities, companies granted concessions rights and public administration entities
- Municipal (“Imposta Munici- pale Unica”) and other taxes are charged on the possession of buildings, buildable areas and agricultural lands situated within the Italian territory, intended for any use, including property used in performing company activities. The tax is usually calculated by applying the basic rate of 0.76% to the tax assessment basis, however rates vary by region.
Time to prepare and Pay Taxes
Employers Social Security and statutory contributions
Aggregate contributions range from approximately 36% to 45% of the aggregate remuneration accrued in the relevant year.
Employees Social Security and statutory contributions
Contributions for the employees are approximately 9% of aggregate remuneration accrued in the relevant year.
Foreign companies operating in Italy may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Italy are: Individual income tax (IIT) for employees in Italy, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.
A remote payroll in Italy is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Italy. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Italy is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.
Local Payroll Administration
In some cases, a company will register their business in Italy under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Larger companies with a commitment to Italy may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage an Italian payroll and can fulfil all tax, withholding tax and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Italian employment laws.