Italy

The major recent changes in the Italian tax rules that occurred in the last 12 months are the following:

• Approval of several corporate income tax (CIT) provisions.

• Introduction of value-added tax (VAT) and other taxes modifications.
• New administrative penalties regime.
• Enhancement of Tax Control Framework (TCF) and cooperative compliance regime.
• Approval of different regulations in the area of tax credits and incentives.

Please note that Italy tax updates are generally expected to occur between November and December in connection with the Budget Law and approval of related implementing laws.

Approval of several CIT provisions

The Legislative Decree 192/2024 (Revision of the Income Tax Regime – Individual Tax / Corporate Income Tax - CIT) introduced a number of different provisions on CIT matters. Below are the main measures:

• Reduction of book to tax differences.
  • Capital account contributions: elimination of the option to defer taxation. Effective date: contributions received in the fiscal year 2024;
  • Short-term and long-term contracts and projects: the accounting evaluation method adopted, namely "completed contract" or "percentage of completion," will also be relevant for tax purposes, provided it aligns with accounting principles.
  • Unrealized foreign exchange gains and losses: exchange rate differences, for the FY 2024, will be immediately relevant for tax purposes, without the need to account deferred taxes including all the exchange rate differences noted at December 31, 2024.
• Regulation of book to book differences: the income and asset components, arising from these differences, are fiscally relevant according to the applicable accounting principles, except when they are inconsistent with previous deduction and taxation rules applied. Possibility to realign the differences resulting from evaluations of assets and liabilities and from past variations, either using the global balance method, applying the standard CIT and regional tax rates (i.e. 24% + 3,9%), or individually, using substitute rates of CIT (18%) and Regional Production Tax (3%). Effective: FY 2024.
• Realignment of the higher values arising from extraordinary transactions: possibility to realign the aforementioned higher values for M&A carried out from January 1, 2024 by paying a step up tax of 21% in a single payment (CIT 18% and Regional Production Tax 3%, replacing the previous rates of 12-14-16%) with reference to the year in which the operation was carried out.
• Tax Suspension Reserves Release: it is possible to release tax suspension reserves existing in the financial statements as of December 31 2023, by paying a substitute tax of 10% in four equal annual installments.
• Tax Loss Carryforward (NOLs): different conditions and limits to tax loss carryforward have been introduced in case of change of control and change of actual business purposes. For intragroup transactions, the carryforward loss limits do not apply. Effective for: transactions implemented in the FY 2024. Transitional regime is applied for all the tax assets acquired up to the tax period ending on December 31, 2023.
• Demerger with spin-off (DWSO): the new tax regulation of the demerger pursuant to Article 2506.1 of the Italian Civil Code allows for a tax neutral regime, even in case of the demerger of individual assets, activities, or liabilities, and not only in case of such assets and liabilities were representing a going concern (business), like in the past.
• Contributions: additional contributions of minority shares, distinct from the initial contribution that allowed the control, can benefit from the controlled realization regime (and thus achieve tax neutrality). It is also possible to create a “family-run” holding company with more than one shareholder, as well as making underperforming contributions. The deductibility of the related capital loss, equal to the difference between the increases in the capital of the transferee company and the recognized tax cost of the contributed share, is allowed. It is expressly provided that the goodwill value is included in the business contribution and, consequently, in the value of the share received by the contributor.
• Liquidation: with the reform intervention, the result of each FY in ordinary liquidation will be determined definitively, no longer temporary.
• Regime of Italian shell companies: the rates to be applied to the tax base of buildings, participations, and financial credits for calculating the presumed revenues have been halved, as well as the rates for calculating the minimum revenues whereas the operational test has not been passed.

The 2025 Budget Law introduced the following main Corporate Income Tax measures:

• Reduced CIT rate for companies reinvesting profits in qualified fixed assets (so called “IRES Premiale”): reduction of the CIT rate from 24% to 20%, for the fiscal year 2025 only, for companies that respect certain conditions. Please refer to the specific section for more details.
• Additional deduction for labor costs: this measure introduced by 2024 Budget Law only FY 2024 has been extended also for Fiscal Years (FYs) 2025, 2026, and 2027.
• Stock-option deduction: the deduction of negative components charged to the income statement related to stock option plans occurs at the time of actual allocation to beneficiaries. It applies to FYs 2025 and followings.
• Step up of participations (listed and non-listed) and agricultural lands: for FY 2025 and following is possible to step up of the tax cost of participation and land, by paying a substitute tax of 18%.
• Electronic payments for entertainment, meal, and lodging expenses’ deduction: payments and the related reimbursements of aforementioned costs must be made electronically to be deductible for CIT, Regional Production Tax, and Individual Tax purposes.
• Change of goodwill and other intangible assets deduction which gave rise to DTA converted into Tax Credit: deduction related to said intangible assets has been postponed.

The deadlines for filing corporate income tax (IRES) and regional production tax (IRAP) returns is by the end of the tenth month following the fiscal year-end (i.e. 31 October for calendar year). 

Introduction of VAT modifications and other taxes provision modifications

Please find here below the main VAT news:

• Application of VAT exemption regime provided by art. 8, paragraph 1, letter c), Presidential Decree no. 633/1972 in case of the supply of vehicles: the VAT exemption regime provided for by art. 8, paragraph 1, letter c), Presidential Decree no. 633/1972, is applicable in the case of transfer of motor vehicles (in relation to which art. 19-bis1, paragraph 1, letters c) and d), Presidential Decree no. 633/1972, provides for a partial deduction of VAT (i.e. 40%), except from specific cases) towards “usual exporters” (within the limits of the “plafond”) only when the provider is able to prove the recipient's right to fully deduct the input VAT(the Supreme Court published the case no. 15679/2024).
• Obligation of the electronic memorisation and transmission of the considerations’ data: the operator should ensure the integration and the interaction between the process related to the daily considerations’ registration and the process of electronic payment. Said system’s update should be implemented by the operators within January 1, 2026. Penalties might be applied in case the operators do not comply with the above mentioned provision (2025 Budget Law).
• VAT treatment of training services: the VAT taxability of training services provided to entities authorized to provide labor pursuant to article 4, Legislative Decree no. 276 of 2003 (so called “agenzie per il lavoro”, expressly authorised companies whose activity is temporary work provision, by training entities and companies financed via the so called “bilateral fund” established pursuant to article 12, paragraph 4, Legislative Decree no. 276/2003) (2025 Budget Law).
• VAT deduction of the transactions costs incurred in the context of leveraged buy-out merger operations (also “MLBO”): the Supreme Court has opened to the possibility to deduct input VAT on the so-called "transaction costs" incurred by special purpose vehicles ("SPV") in the context of merger leveraged buy out ("MLBO") operations. The Supreme Court judges, overturning the constant practice of the Italian tax authorities on the matter, have stated that the VAT paid on such costs is deductible since they represent for the SPV preliminary costs to the performance of an economic activity (cases no. 22608/2024 and 22649/2024).
• Extension of the reverse charge mechanism: the reverse charge mechanism is extended to the provision of services carried out through procurement contracts, subcontracting, assignment to consortium members or business relationships characterized by a prevalent use of labor and capital goods owned by the client, rendered to companies that carry out transport and handling of goods and logistics services (2025 Budget Law).
• VAT credit offset with other taxes: the Italian tax authorities provided clarifications regarding, inter alia, changes in the procedure of tax credit offset according to article 17, Legislative Decree no. 241/1997 (Circular Letter no. 16/E, dated June 28, 2024).
• Warranty obligation for fiscal representatives and non-EU taxpayers intending to carry out intra-EU transactions in Italy: with two new ministerial decrees dated 4th and 9th December 2024, the Ministry of Finance has implemented the new obligations introduced by legislative decree no. 13 of February 12, 2024 in relation to the obligations for fiscal representatives and non-EU taxpayers intending to carry out intra-EU transactions in Italy.
• Secondment of staff - taxable for VAT purposes from January 1, 2025: as a result of art. 16-ter, Decree-Law no. 131/2024 (added by conversion law no. 166/2024), the current reference legislative provision, i.e., art. 8, paragraph 35, Law no. 67/1988, will be repealed starting from personnel loans and secondments stipulated or renewed from January 1, 2025.
• Re-engineering of the electronic export clearance system: as from December 2, 2024, the Customs Authority, as part of the re-engineering project for the export clearance IT system, has implemented new telematic formats for the transmission of the export customs declarations.
• Modifications of VAT rates:
  • Extension of the application of the 5% VAT rate to the provision of mountaineering courses carried out by Alpine guides independently;
  • Increase in the VAT rate from 10% to 22%, within the management, warehousing and temporary storage of urban and special residues, for the disposal in landfill and the incineration without efficient energy recovery of urban waste and special waste.
• Payment of VAT in case of the elimination of stock for entities adopting Italian GAAP.
• Tax on sweetened soft drinks (‘sugar tax') is postponed to July 1, 2025, and tax on the consumption of single use manufactured goods (‘plastic tax‘) is postponed to July 1, 2026.

New administrative penalties regime

Starting from September 1, 2024, a new regime of administrative penalties has been introduced on tax violations. In general terms, taxpayers should benefit from a reduction of penalties, and self-disclosure procedures are encouraged.

Enhancement of Tax Control Framework (TCF) and cooperative compliance regime

Additional certainty is granted to taxpayers under the cooperative compliance regime regarding transparency with the tax authorities. In particular:

• assessment terms are significantly reduced;
• rewards are enhanced with regards to the penalty regime;

A certification of the TCF has been introduced to apply for the regime.

Entities that are part of a group can opt for the cooperative compliance regime in case at least a group entity meets the size requirements and the group has implemented a certified TCF.

Subjects not eligible can apply for an optional regime, provided that a certified TCF is in place.

A Code of Conduct is introduced to define and regulate mutual commitments between the tax authorities and taxpayers.

Tax credits and incentives

The main changes introduced by the 2025 Budget Law in terms of incentives for businesses include:

1. The limitation of the use of the tax credit for investments 4.0 and the simplification and strengthening of the Transition bonus 5.0.
2. Confirmation for 2025 of the tax credit for investments in the single ZES, also for companies operating in the agricultural, fishing and aquaculture sectors.
3. Recognition of a capital contribution for entities that have joined the procedure for repaying the tax credit for investments in research and development activities (so-called “fiscal amnesty”).
4. Extension, until 2027, of the tax credit for the listing of SMEs.