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Business Taxation for Expats in Italy

Submitted: March 2014

The authority responsible for Italian tax is the Agenzia delle Entrate (ADE); their website contains a limited amount of information in English.

Registration

For expats, a common form of business structure in Italy is the limited liability company, of which there are three types available.

The main type is the società a eesponsabilità limitata (SRL), which is mainly used for industrial or commercial ventures employing up to 50 employees. SRLs are quite expensive to set up and maintain. The two smaller and less expensive versions of limited liability companies are the simplified limited liability company (SSRL), and the limited liability company with reduced capital (SRLCR). The main difference between the two is that the SSRL is designed for young entrepreneurs; it can only be incorporated by one or more shareholders under 35 years old. Both must have a standard set of bylaws and can have a minimum share capital of €1.

Forming any one of these three company types means that your liability is limited to your equity in the company. The business income is taxed at the corporate tax rate.

Another possible choice is a sole proprietorship, however with these your liability extends to your own personal assets.
Italy is infamous for the complexity of its bureaucracy; trying to start and register a business by yourself is a daunting task, especially if you are not fluent in Italian. There are specialist agencies (certificati agenzie) that can be hired to undertake the process on your behalf. For more information on Italian business strucures, see Expats Owning and Operating a Business in Italy.

Corporate Income Tax

The Italian tax year for companies runs from 1 January to 31 December. If a company’s accounting year is different from the tax year, its tax return period will be based on that year. Companies resident in Italy are liable for corporate income tax (IRES) on their worldwide income, and regional tax (IRAP) on any added value produced by their activities in Italy.

The IRES rate is 27.5%. There is an increased rate of 36% for banks and certain other financial institutions. The IRAP rate varies regionally, but is generally around 4%-4.5%.

Companies must pay social security contributions based on the total amount of the wages and salaries paid out to its employees. The rates vary between 30%-34% depending on both the type of employee, and the type of business the company is engaged in.

Capital gains are generally treated as ordinary income, and taxed as such. Dividends received from other resident companies are 95% exempt from tax.

Companies must file their Italian corporate income tax returns electronically by the end of the ninth month of the year following the fiscal year in which the income was generated. This means that for companies with a fiscal year from 1 January to 31 December, the deadline is 30 September. IRES and IPAP must generally be paid in full by the 16th day of the sixth month following the end of the fiscal year.

Advance payments of corporate and trade tax must be made in instalments twice a year. For companies with a fiscal year from 1 January to 31 December, the first payment of approximately 40% of the previous year’s tax must be made by 16 June. The second payment of approximately 60% of the previous year’s tax must be made by 30 November. Penalties apply for late filing of returns, and for late payment of tax.

 

 

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