Nov 1

Taxation in italy


The Italian Constitution includes three major articles dealing with fiscal matters.

  1. ARTICLE 3: confirms the equality of all citizens before the law.
  2. ARTICLE 23: establishes that no service can be subject to the payment of tax unless this is required by law.
  3. ARTICLE 53: establishes that each tax payer is required to contribute to public expenditure in accordance with the ability to contribute.

The tax system is based on the principle of application of progressive tax rates. Because fiscal registration is highly technical in nature Parliament normally approves legislation establishing the basic outlines of new fiscal laws and authorises the Government to issue detailed legislation.

Tax laws normally deal only with the future. Such laws can have retroactive effect only if they serve to interpret existing legislation.


There is no case law in Italy. However when the interpretation of a law is particularly unclear the decisions of the Court, although not binding, are considered as an authoritative guideline.



Very often the tax authorities have issued circulars with the correct interpretation of tax laws and giving directives to the tax offices.


There is no general anti avoidance legislation in Italy but there are some specific anti avoidance provisions countering practices that have caused a leakage of tax revenue. The principal anti avoidance measures are as follows:

  1. equalisation tax on dividends (imputation systems);
  2. limitation of the amount of any loss carried forward subsequent to a merger;
  3. limitation on allowance expenditure under certain types of financial lease;
  4. legislation on income of controlled companies in tax friendly legislations.

There are no general clearance procedures. However it is possible to obtain a written confirmation from the Ministry of Finance, either directly or through a local tax office, of the tax treatment of a proposed specific transaction.
The two main classes of resident tax payers covered by the income tax laws are corporations and individuals.
Residents, corporate or individual, are taxed on income from any source (world wide income).
A resident corporation is considered to be an entity having its legal or administrative headquarters or its principal business purpose in Italy.
The following individuals are considered resident:

  • those registered in the records of the office of resident population (anagrafe);
  • those who have the principal centre of their affairs and interests located in Italy or who reside there for most of the year (at least 183 days in the year).

Non residents, whether corporations, individuals or partnerships are taxed only on income that has its source in Italy.

Italian taxes are divided in two main categories: direct and indirect taxes.


  • Corporate income tax (imposta sul reddito delle persone giuridiche – IRPEG) at the fixed rate of 35%
  • Personal income tax (imposta sul reddito delle persone fisiche – IRPEF) at present applicable at the following rates







Up to € 15.000




From € 15.000 up to € 29.000




From € 29.000 up to € 32.600




From € 32.600 up to € 70.000




From € 70.000



  •  Local tax on productivity ( Imposta regionale attività produttive – IRAP) a tax applied to companies, partnerships and independent workers and professionals calculated on the value of production considered as sums paid to employees and associates. The 2003 rate is 3.75%, the 2004 rate will be 4.25%.


  • Value added tax (V.A.T.). The base rate is 20%
  • Local tax on property (imposta comunale sugli immobili – I.C.I.) which varies from area to area
  • Transfer registration tax which varies according to the transaction to which it applies
  • Stamp Tax that varies according to transactions to which applies

Taxable income for individual tax payers
Income is considered under five categories:

  • CATEGORY A income from property: income from land or building registered in the national property register. This is a notional income and is payable whether or not income has been received
  • CATEGORY B income from capital which includes interest on loans, deposits, current accounts and bonds, dividends and similar income from participation in companies, compensation on guarantees given.
  • CATEGORY C income from personal services which includes income from employment and income from independent work and royalties.
  • CATEGORY D income from business activities which includes all income derived from the operation of a business enterprise that is the business income of those engaged habitually even if not exclusively in a commercial activity even if the business is not organised in the form of an enterprise.
  • CATEGORY E other income which includes gains arising from operations carried out with speculative intent, income from independent work or business activity not habitually carried out, income from ownership of land and building other than that determined by the application of the notional income, income from property located outside Italy, prizes and winnings in lotteries, any other income not specifically covered by the legislation.

The normal fiscal year for individuals begins on January 1st and ends on December 31st. The fiscal year for companies can begin and end on any date but only in special circumstances can it be other than twelve months and normally it cannot be longer than fourteen months.