Italy

Applicable rates

Italian corporate entities are subject to a corporate income tax, known as imposta sul reddito sulle società or IRES, and to a regional production tax, known as imposta regionale sulle attività produttive or IRAP.

The standard rates are as follows:

• 24% for IRES.
• 3.9% for IRAP.

Specific rules apply for bank and financial entities.

Different IRAP rates are applicable for certain entities (i.e. banks and financial entities, insurance corporations, entities with a determined governmental exclusive right to provide services).

Regions have the power to slightly increase or decrease IRAP rates.

Reduced CIT rate for companies  reinvesting profits in fixed assets (so called “IRES Premiale”) 

Reduction of the CIT rate from 24% to 20%, for the tax period following the one in progress as of  December 31, 2024 (FY 2025 for companies with calendar fiscal year), for companies that jointly (i) allocate 80% of the profits of the FY ending December 31, 2024, to a specific retained earning reserve, (ii) reinvest 30% of them in the purchase of new 4.0 and 5.0 fixed assets (it must be at least equal to the 24 per cent of profits by FY December 31, 2023, and the minimum threshold is EUR 20,000), (iii) have maintained stable employment levels in 2024, (iv) increase them by at least 1% in 2025, and (v) the company has not resorted to the wage guarantee fund (CIG) during the fiscal year in progress as of December 31, 2024.

General rules

IRES

The IRES taxable base is determined according to the worldwide taxation principle, which states that, regardless of the location/jurisdiction where the income is produced, to the extent that the income is legally attributable to an Italian resident entity, the income is taxed in Italy. IRES is charged on the total net income reported in the financial statements of the company as adjusted for specific tax rules. Non-resident companies are taxed only on Italian-source income.

IRAP

There are different methods of computation for the IRAP taxable base, depending on the nature of the business carried out by the taxpayer. Provisions for liabilities and risks, as well as extraordinary items, cannot be taken into account when determining the IRAP taxable base.

For sales and manufacturing companies, the IRAP taxable base is broadly represented by the company’s gross margin in its financial statements. In addition to the non-deductible items mentioned above, interest income and expense and provisions for bad debts are excluded for the purposes of the IRAP taxable base.

For banks, the IRAP taxable base is broadly defined as follows:

• Intermediation margin reduced by 50% of dividends.
• 90% of amortisation costs relating to fixed tangible and intangible assets.
• 90% of other administrative expenses.
• Net value of adjustments and reassessments for bad debts.

Special rules apply to financial institutions, other than banks, and holding companies.

IRAP is levied on a regional basis, and regions are allowed to increase or decrease the standard IRAP rate up to 0.92%. Companies with facilities in different regions must allocate their overall taxable base to the different regions on the basis of the employment costs of personnel located at the various sites. Facilities become relevant to the calculation of IRAP if they have been established for more than three months. Italian companies with PEs abroad, as well as shipping companies qualifying for the tonnage tax regime (see Tonnage tax below), are not subject to IRAP on the income earned through these PEs.

The deduction of labour costs for IRAP purposes depends on the type of hiring contract. In particular:

• Full deduction for costs related to employees hired with an open-ended contract.
• Deduction limited to contributions for compulsory insurance against accidents (i.e. Istituto Nazionale Infortuni sul Lavoro or INAIL) for temporary employees.

Global minimum tax

On December 28, 2023, the Legislative Decree no. 209 implementing EU Directive 2022/2523 has been published.

Income Inclusion Rule (IIR)

The Decree provides for a IIR applicable to parents (ultimate parent entity [UPE], intermediate parent entity [IPE], or partially owned parent entity [POPE]) located in Italy with respect to foreign located and stateless low-taxed constituent entities (LTCEs). The Decree also provides for a domestic IIR applicable, under the rule order, by an Italian parent to itself and to Italian located constituent entities that are LTCEs. IIR and domestic IIR applies to fiscal years beginning on or after 31 December 2023.

Undertaxed Profits Rule (UTPR)

The Decree, in line with the Global Anti-Base Erosion (GloBE) rules and the Directive, provides for the UTPR as a separate charging provision. The UTPR will be effective for fiscal years beginning on or after 31 December 2023.

Qualified Domestic Minimum Top-Up Tax (QDMTT)

The QDMTT is applicable for fiscal years that begin on or after December 31, 2023. The same is provided for multinational groups in the initial phase of internationalisation and for large-scale domestic groups. The Illustrative memorandum affirms that the QDMTT is intended to be qualified and designed as a permanent safe harbour.

As regards the accounting standards, the Decree adopts the Local Accounting Standard with the UPE's accounting standard as a last resort rule. The substance-based income exclusion (SBIE) is expected to apply equally to the QDMTT as it does the IIR.

Safe Harbours

On May 21, 2024, the Ministry of Economy and Finance issued a Decree providing further details on the application of the Transitional Safe Harbours. The decree only addresses the Transitional Safe Harbours (QDMTT and Simplified Calculations Safe Harbours are not included). Most of the decree addresses the Transitional Country-by-Country Reporting (CbCR) Safe Harbour, and it includes the additional rules from the December 2023 Organisation for Economic Co-operation and Development (OECD) Administrative Guidance.

Please also refer to PwC’S Pillar Two Country Tracker.

Substitutive tax on reorganisations (mergers, de-mergers, contributions in kind)

Corporate restructurings, such as mergers, de-mergers, and contributions in kind, are, in principle, tax neutral even if, for financial accounting purposes, the transaction results in the recognition of higher values of the assets or of goodwill. Companies may elect to obtain partial or full recognition for tax purposes of the step-up in the financial accounting values of assets or of the goodwill arising from the corporate restructurings, provided they pay a substitutive tax.

Tonnage tax

Italian tax resident shipping companies, as well as non-resident shipping companies operating in Italy through a PE, can qualify for and then elect to be subject to the Italian tonnage tax regime. The regime basically allows for the determination of presumptive income based on the net tonnage of the qualifying ships (tonnage income). The tonnage income is subject to IRES only.

To qualify for the tonnage tax, ships must: (i) have a net tonnage of more than 100 net tons (NT); (ii) be used for goods transportation, passenger transportation, salvage, towing (subject to certain conditions) and other services; and (iii) operate in international shipping as defined by the rules disciplining Italian International Registry. Specific rules apply in the case of bare boat charter. In particular, the ship will always be subject to the Tonnage Tax, while the specific net income will be subject to the analytical taxation provided for by the ordinary rules (IRES 24%). A Tax credit will be recognized in order to avoid double taxation. Chartered ships with crew are included in the tonnage tax regime if their global net tonnage is less than 50% of the total net tonnage.

Tonnage income is calculated on the basis of the ship’s net tonnage. The daily income is determined according to the following rate system:

It is necessary to consider all days of possession / ownership of the ship, even when it is stopped for repairs.

No deductions and tax losses offset are allowed from tonnage tax income.

Income and expenses from the following activities are all deemed to be covered by the tonnage income determined as previously discussed:

• Transport of goods.
• Transport of passengers.
• Salvage and towing (subject to certain conditions).
• Other services that need to be performed on the high seas.
• Charges related to the above-mentioned activities (e.g. administrative and commercial expenses, insurances fees).
• Other operations performed in close connection with the transportation operations (e.g. loading and unloading (subject to certain conditions).
• Other minor activities.

Capital gains or losses arising from the transfer of ships that have been acquired by a company while under the tonnage tax regime are also deemed to be included in tonnage tax income. In the event of options exercised from FY 2016, if the taxpayer sells a ship already owned before the tonnage tax application, a capital gain determined according to the rules of Article 158 of the Italian Income Tax Code (TUIR) is added to the taxable income. In such case, the capital gain is equal to the lower of (i) the difference in the market value of the vessel and the non-amortised cost of the same, recorded on the last day of the year preceding the one in which the option is exercised, and (ii) the difference between the consideration received and the cost not amortised at the time of the sale. In any case, the taxable amount cannot be lower than the 'net latent capital gain' calculated as the difference between the market value of the vessel and the non-amortised cost of the same both before the tax period in which the option is exercised decreased by the tonnage income determined until the time of transfer.

In the event of an option exercised before FY 2016, the sale of a vessel purchased before tonnage tax can generate a capital gain or a loss to be added to the tonnage tax; this amount is equal to the difference between the consideration received and the non-amortised cost of the last antecedent fiscal year to that of the first application of the tonnage tax.

An election for the tonnage tax regime should be made for all of a company’s or group’s qualifying vessels. So called ‘cherry picking’ is not allowed. Election for the tonnage tax regime is on a voluntary basis, but, once elected, it remains in effect for ten years. The election is silently renewed at the end of the ten-year period.