Busines Taxation

Companies doing business in Italy are subject to a number of taxes, including the corporate tax (IRES), the regional tax on productive activities (IRAP), value-added tax (VAT), withholding tax, social security taxes and stamp duty. The imputation system for dividend income was abolished and replaced by the partial exemption method in 2004.

Taxable income and Rates

Corporate income tax is levied on both retained and distributed profits at a rate of 33%. Taxable income for banks, insurance companies and other financial intermediaries is calculated differently, according to their activities for both IRES and IRAP purposes.

A minimum taxable income for corporate income tax purposes must be reported under rules applying to non-operating companies (such as holding companies).

In particular, resident companies, commercial partnerships and permanent establishments of non-resident entities are deemed to be non-operating if their total turnover (other than extraordinary turnover) and increase in inventory are lower than the aggregate amount of:

2% of the value of participations in resident and non-resident companies;

6% of the value of real estate and ships owned or leased by the entity; and

15% of the value of other business assets owned or leased by the entity.

If an entity is deemed to be non-operating, its income may not be lower than the sum of the following amounts:

1.5% of the value of the participations in resident and non-resident companies;

4.75% of the value of real estate and ships owned or leased by the entity; and

12% of the value of other business assets owned or leased by the entity.

Italian companies controlled (directly or indirectly) by companies listed in a stock exchange market are not subject to the minimum taxable income rules.

IRAP is levied on the net value of the production derived in each Italian region by resident companies. The ordinary tax rate is 4.25%, although this rate may be increased or decreased by up to 1 percentage point.

Real estate investment trusts (SIIQs) may be established with effect from June 30th 2007. Profits distributed as dividends to shareholders (except pension funds and collective investment funds) will be subject to a 20% tax. Profits not distributed as dividends will be subject to taxation at the normal rate.

There are no excess-profits or alternative minimum taxes in Italy.

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