Italy Tax & Business Guide - Deloitte

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Basic facts
Population 58.1m Inflation 2.1% (2006)*
Main languages Italian, German, French GDP per head US$31,900*
Currency Euro (ƒ) GDP growth 1.9% (2006)*
Economic communities European Economic Area, EU, OECD, WTO
GDP sources 2.0% agriculture, 29.0% industry, 69.0% services
*Economist Intelligence Unit estimates.
Political environment

Italy is a parliamentary democracy. Executive power lies with the cabinet, which is nominated by the prime minister and must be approved by parliament.

Romano Prodi of the left-of-centre Unione coalition is the prime minister.
Foreign trade and investment
Exports US$416.4bn (2006)* Imports US$427.9bn (2006)*
*Economist Intelligence Unit estimates.

Leading export markets: The EU, US, China and Russia.

Major exports: Machinery and mechanical equipment, textiles, transport equipment and chemical products.

The Italian government holds a generally favourable view of foreign investment. Foreign companies may apply for a variety of incentives on an equal footing with local firms.
Business and financing
Business forms Joint stock company (societá per azioni, or SpA)

The joint stock company (societá per azioniÛSpA) is the form usually chosen by medium-sized and large companies; the limited liability company (societá a responsabilitá limitataÛSrL) is usually adopted by smaller entities. An SrL may be established with a minimum capital of ƒ10,000. Capital must be fully paid up for an SrL or an SpA with a single shareholder.
Labour environment
Unemployment rate 6.8% (2006)* Minimum wage Fixed by collective bargaining
*Economist Intelligence Unit estimate.

Minimum wages are fixed by nationwide collective bargaining between the three labour confederations and the employersÌ association in each industry.

Mandatory social charges paid by employers vary, depending on the employeeÌs job and the number of employees in the company. Foreign nationals pay the same social contributions as Italians.

Only foreigners from non-EU countries must obtain a residence permit from the local police headquarters immediately upon arrival. Prospective employers of non-European Economic Area (EEA) nationals must secure a work permit from the Ministry of Labour and supply proof that the foreign employee has unique qualifications not possessed by an unemployed Italian.
Taxation
Corporate tax
Main rate 33%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Italian-source income. A company is considered to be resident when its legal seat, place of effective management or main business purpose is situated in Italy for the greater part of the tax year. The corporate tax (IRES) is charged at 33% on business income, and the regional tax on productive activities (IRAP) is payable at 4.25%.

A minimum taxable income for corporate income tax purposes must be reported under rules applying to non-operating companies (such as holding companies).
Individual tax
Progressive rates to 43%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on Italian-source income. An individual is considered resident when the person is registered in the Italian civil registry or has a residence (place of habitual abode) or domicile (centre of vital interests) in Italy for the greater part of the tax year. Income tax is charged at progressive rates rising to 39%, with a solidarity contribution of 4%, yielding an effective tax rate of 43%.
Capital gains
Generally taxed as income

Capital gains of companies are generally taxed at 33%, but there is a partial exemption for gains (84% from 2007 onwards) on the disposal of participations in other companies, subject to certain conditions. Gains of individuals from the disposal of non-business immovable property within five years of acquisition/construction are taxed as miscellaneous income. However, the gain is exempt where the property was used as the taxpayerÌs main dwelling. Gains of individuals on the sale of shares and derivatives are taxable, but a 60% exemption is available for certain business participations, subject to certain conditions.
Indirect tax
Standard rate 20% Lower rates 10%, 4%, 0%

The standard rate of value-added tax (VAT) is 20%. A 10% rate applies to some foodstuffs, live animals, certain fuel supplies, catering, some transport and some housing. The 4% rate applies to certain foodstuffs, agricultural inputs, medical supplies, and books and newspapers. Exemptions include financial, insurance and medical services. Exports are taxed at 0%. Registration for VAT is compulsory for businesses, with no minimum registration level.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Two advance payments of corporate tax are required. The first is payable when the balance for the previous year is due and the second is due in the 11th month of the tax year. The balance of tax due is payable by the 20th day of the sixth month following the end of the tax year. Salaries and professional fees are subject to deduction of tax at source.
Additional tax information
Withholding taxes Dividends 0%, 12.5% or 27%, Interest 12.5% or 27%, Royalties 22.5%. The rates may be reduced under an applicable tax treaty.
Tax treaties Italy has concluded more than 90 tax treaties.
Dividends Dividends are taxable but with a 95% exemption for corporate shareholders and a 60% exemption for individual entrepreneurs under certain conditions.
Revenue protection There is transfer-pricing, thin-capitalisation and offshore subsidiary (CFC) legislation.
Groups Income tax consolidation for domestic groups (50% minimum holding requirement) and all-in/all-out option for consolidation of foreign affiliates. VAT grouping for resident companies (50% minimum holding requirement).
Incentives Accelerated depreciation; tax relief for investments in specific sectors of the economy/territories.
Other taxes Capital duty, Stamp duty, Transfer duty, Real estate tax, Registration tax, Import duties, Regional/municipal additional tax on individuals.