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 (IRES) 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 IRES provisions

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

• Reduction of book-to-tax differences:
• Capital account contributions: Elimination of the option to defer taxation, effective for contributions received in fiscal year (FY) 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.
• Unrealised foreign exchange gains and losses: Exchange rate differences for FY 2024 will be immediately relevant for tax purposes without the need to account deferred taxes, including all the exchange rate differences noted at 31 December 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. It is possible to realign the differences resulting from evaluations of assets and liabilities and from past variations, either using the global balance method, applying the standard IRES and regional tax rates (i.e. 24% + 3.9%), or individually, using substitute rates of IRES (18%) and regional production tax [IRAP] (3%). Effective: FY 2024.
• Realignment of the higher values arising from extraordinary transactions: It is possible to realign the aforementioned higher values for mergers and acquisitions carried out from 1 January 2024 by paying a step up tax of 21% in a single payment (IRES 18% and IRAP 3%, replacing the previous rates of 12%, 14%, and 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 31 December 2023 by paying a substitute tax of 10% in four equal annual instalments.
• Tax loss carryforward (net operating losses [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 transaction implemented in FY 2024. For intragroup transactions, the carryforward loss limits do not apply. A transitional regime is applied for all the tax assets acquired up to the tax period ending on 31 December 2023.
• Demerger with spin-off (DWSO): The new tax regulation of demergers 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 cases where 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 realisation 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 recognised 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 fiscal year 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 IRES measures:

• Reduced IRES rate for companies reinvesting profits in qualified fixed assets (so-called ’IRES Premiale‘): Reduction of the IRES rate from 24% to 20%, for FY 2025 only, for companies that respect certain conditions. Please refer to the Taxes on corporate income section for more details.
• Additional deduction for labour costs: This measure introduced by the 2024 Budget Law for only FY 2024 has been extended also for 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. This applies to FY 2025 and beyond.
• Step-up of participations (listed and non-listed) and agricultural lands: For FY 2025 and beyond, it is possible to step-up 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 IRES, IRAP, and individual tax purposes.
• Change of goodwill and other intangible assets deduction that gave rise to deferred tax assets converted into tax credit: Deduction related to said intangible assets has been postponed.

The deadlines for filing IRES and 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 and other tax developments:

• 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 characterised by a prevalent use of labour and capital goods owned by the client, rendered to companies that carry out transport and handling of goods and logistics services.
• 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 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 Generally Accepted Accounting Principles (GAAP).

• Tax on sweetened soft drinks (‘sugar tax') is postponed to 1 July 2025, and tax on the consumption of single use manufactured goods (‘plastic tax‘) is postponed to1  July 2026.

New administrative penalties regime

Starting from 1 September 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 and 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:

• The limitation of the use of the tax credit for investments 4.0 and the simplification and strengthening of the transition bonus 5.0.
• Confirmation for 2025 of the tax credit for investments in the single Special Economic Zone (SEZ)  for companies operating in the agricultural, fishing, and aquaculture sectors.
• Recognition of a capital contribution for entities that have joined the procedure for repaying the tax credit for investments in research and development (R&D) activities (so-called ’fiscal amnesty’).
• Extension until 2027 of the tax credit for the listing of small and medium-sized enterprises (SMEs).