Italy legal and accounting and tax considerations in 2023
Please find below taxation considerations which will apply to businesses registered in Italy. As part of our Italy company formation services, we can also supply tailored advice re Italian tax obligations.
- The standard corporate tax rate in Italy is 24% plus the regional tax on productive activities, which is usually 3.9%. For banks and other financial institutions, the corporate tax rate is 27.5%. Companies suspected of tax evasion by the Italian authorities or having recorded tax losses for three subsequent years will suffer a higher corporate tax rate of 38%;
- Non-operating entities are subject to a 34.5% corporate tax rate. These are the companies that either i) are in a tax loss position for 5 tax periods or ii) the average revenue for current and prior four years is lower than the average percentage value of assets for the current and prior 4 years;
- Capital gains are taxed at 24% corporate income tax rate. Capital gains derived from the sale of participation are eligible for a 95% exemption if
- the participation has been held for minimum continuous period between 12 and 13 months;
- the participation is classified as a financial fixed asset in the first financial statement closed after the participation was acquired;
- the company is not considered a “black list” entity;
- the company carries out a business activity.
The last two conditions must have been satisfied continuously over the last 3 years or for the whole life of the company, if shorter.
- Capital gains realized by non-resident companies on the sale of “non-qualified participations” are taxed at a 26% flat rate;
- All Italian companies must file their corporate tax returns by the 9th month following the completion of the accounting year. Late payment results in a penalty of up to 30% of the amount due;
- Italy-based companies can carry forward their business losses indefinitely, for up to 80% of the year’s taxable income;
- An annual audit of the financial statement is mandatory for all PLCs. However, LLCs will require an audit only if they i) have a capital over €120,000 or ii) have exceeded during two subsequent years two of three following thresholds: i) annual revenue from sales and provision of services over €7.3M ii) total assets over €3.65M and iii) more than 50 employees.
- Dividends paid by subsidiaries to resident companies are 95% exempt from corporate tax;
- Interest and dividend payments to non-EU companies are subject to withholding tax of 26%, unless reduced via a tax treaty;
- Royalties’ payments to non EU companies are subject to withholding tax at 30%, unless reduced via a tax treaty;
- Italy has signed double taxation treaties with more than 100 countries including the Australia, Canada, China, Singapore and USA to reduce withholding tax on payments abroad.
VAT and other taxes
- The standard VAT rate is 22% with returns being by end of April of the following calendar year. Late filing will result in a fine of up to 240% of the outstanding amount of VAT;
- A tax on financial transactions is levied on transfers of shares and other securities at a rate of up to 0.2%;
- Property tax is levied at a rate of up to 0.16% of the cadastral value of land and buildings;
- Following Italy business formation, Healy Consultants’ Compliance Department will assist our Clients with i) documenting and implementing accounting procedures ii) implementing financial accounting software iii) preparation of financial accounting records and iv) preparing forecasts, budget and sensitivity analysis.
Legal and compliance
Please find below an overview of some rules our Clients will have to follow after formation of a company in Italy.
- Although Italy does not have exchange controls, transfers over €12,500 must be notified to the Italian Central Bank. This is done to prevent money laundering activities;
- The standard working time is 40 hours a week with maximal working time fixed at 8 hours per day and 48 hours per week. All employees are entitled to at least 4 weeks of annual paid leave;
- Although Italy has no national minimum wage, employers must abide by collective agreements setting wages at the industry and/or company levels;
- Employers contribute, on average, 40% of the annual gross salary to social security and unemployment insurance. Employees, however, contribute only 10%;
- Italian employees are hired on i) open ended contracts for permanent positions or ii) fixed term contracts for temporary positions. Fixed term contracts in the private sector are i) limited to durations of up to 36 months ii) deemed as open-ended contracts after that period and iii) limited to 20% of the company’s total workforce;
- All dismissed employees are entitled to i) a notice period (except in cases of severe misconduct) and ii) a monetary compensation. All companies with more than 15 employees must also provide notice to the local Labor Office;
- Compensation for employee dismissal will be i) at least 13.5% of annual salary per year worked for the company if on an open ended contract or ii) all the gross pay due until the contract’s end if on a fixed term contract.
Other relevant compliance information
- Italian LLCs and PLCs require 1 director and 1 shareholder for incorporation, who both can be of any nationality. Please note that corporate directors are also permitted;
- Italy’s legal system is party to the New York convention on Recognition and Enforcement of International Arbitral awards. Arbitration in other countries which follow this convention will be enforceable in Italy;
- The Italian Data Protection Act bars companies from using personal information about individuals without their permission;
- Italian law bars discrimination in matters of employment on the grounds of age, gender, sexual preferences, ethnicity or race, religion and political and union views;
- Companies with more than 15 employees are required to have a work council with i) 2/3rd of the members elected by employees and ii) 1/3rd nominated by unions.