Companies’ Taxation in Italy

Two princiapal taxes are applied on companies domiciliated in Italy:

  • IRES (corporate tax) equal to 24%
  • IRAP (local tax) generally equal to a range from 3,9% to 4.82% ( depending on the Region where the company has its workers and on the business).

The determination of both the incomes started by the profit and loss araised from the official Financial Statements deposited in Chamber of Commerce. In particular, many adjustments of revenues and costs according with the Italian Fiscal Code (DPR 917/86) are applied to profit and loss in order to determinate the incomes tax.

The main adjustments on Revenues are the following ones:

  • Dividends taxable at 5%
  • Capital Gain taxable at 5%
  • Some revenues are exempt (for example the rent from apartments of the company, if the core business is not real estate, but other activities)

The main adjustments on costs are the following ones:

  • 80% not deductible for car costs (if the core busness is not transport)
  • 20% for telephone, internet costs
  • 75% for hotel and restaurants costs
  • Representative costs are deductable under the limit of 1.3% of revenues
  • Tax on property is deductible from 20% to 30%
  • Penalties and direct taxes 100%are not deductable

For what concerns IRAP, there are some limits on emplyees costs, exept for the emplyees hired without limit of time, for stages, disables. Moreover, there are some standard deduction for incomes under 180,000 (generally equal to 8,000).

Please find the following exemple:

 

IRES Determination:

Profit and loss            100,000

Adjustments:

+ 80% fuel                             6,500

+ 20% mobile costs              2,600

+ 75% hotels                              500

– 95% dividends                  (9,500)

– 95% capital gains           (25,000)

IRES Income Tax          75,100

 

IRES = 75,100 x 24% =    18,024

 

IRAP Determination:

Profit and loss            100,000

Adjustments:

+ employees costs              20,000

– standard deduction         (8,000)

IRAP Income tax =     112,000

 

IRAP = 112,000 x 4,82% = 5,398

 

 

NET PROFIT = 100.000 – 18.024 – 5.398 = 76.577