Taxation on corporations in Italy

Taxable persons: All income of companies resident in Italy (having for the greater part of the year their legal seat, place of management or main business purpose in Italy) is taxed in Italy. Foreign companies having their place of effective management in Italy for the greater part of the tax period are deemed to be resident in Italy.

Calculation: IRES' taxable base is the worldwide income shown in the profits and loss account prepared according to Italian or IFRS GAAP and adjusted according to tax law. The ordinary IRES rate is 27.5%.

Filing and payment: The system is based on self-assessment. IRES tax return must be filed within seven months from the end of the financial year. IRES is payable in advance with a balance payment.

Tax consolidation: Domestic consolidation may be exercised by controlling companies and controlled companies included in the consolidation. All taxable income of controlled companies is aggregated and taxed at the level of the controlling company, regardless of the level of shareholding. Worldwide consolidation may be exercised by a resident controlling company provided that certain conditions are met.

Participation exemption: Gains on the alienation of shares, financial instruments treated as shares and interests in partnerships may be 95% exempt from tax, provided that certain conditions are met.

Deductibility of interest expenses: Interest expenses are deductible in each tax period up to the amount of the interest revenues. The exceeding amount is deductible only up to the amount equal to 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA).

Option for flow-through taxation: Resident companies, the share capital of which is held by resident companies, can opt to be treated as partnerships for tax purposes, if each shareholder holds voting rights and profits entitlement of at least 10% and no more than 50%. The option may be exercised by non-resident shareholders if certain requirements are met.

Inter-company dividends: Dividends paid by a resident company to another resident company are 95% exempt from taxation. The same rate applies for dividend paid by a non-resident company included in the countries' white list. Black list dividends are fully taxed.

Regional tax, registration duties and VAT

Companies are also subject to a regional tax (IRAP), levied on the net value of the production derived in each Italian region. The IRAP rate may vary according to regional law and to the business field. The standard rate is 3.9%. With reference to certain business fields, the rate could be increased approximately up to 1%.

Registration tax (from 0.5% to 15%) is due on deeds and contracts which are subject to registration in public registers or which are voluntarily registered in such registers. In general, if a transaction is subject to VAT, registration tax is a lump sum of €168 (US$213). The transfer of shares, bonds, others securities and currencies is no longer subject to transfer tax. Registration tax and stamp duty may apply, at a flat rate.

VAT applies to the supply of goods and services within Italy by a taxable person (including companies) and to the importation of goods by anyone. The general rate is 20%. Reduced rates range from 10% to 4%.

Non resident companies

Non resident companies are taxed in Italy on the basis of the different categories of income produced in Italy, unless they conduct their business in Italy through a permanent establishment which would be otherwise taxed similarly to a company. Italy has signed treaties to avoid double taxation with more than 60 countries.

Dividends paid to a non-resident company, are in principle subject to a 27% final withholding tax, to be reduced under the applicable double tax treaty or claimed for a maximum of 4/9 to the Italian Tax Authorities in case of taxes effectively paid in the relevant country of residence.

Dividends paid to a company, subject to corporation tax in a country belonging to the European Union, to the European Economic Area and included in the countries' white list, are subject to 1.375% final withholding tax. Attention should be paid to the application of (i) treaties against double taxation; and (ii) the EC Parent Subsidiary Directive.

Controlled Foreign Companies (CFC) and Associated Foreign Companies

The CFC legislation applies to all resident taxable entities having qualified participation in foreign entities resident in countries not included in the countries' white list. If CFC rules apply, the Italian resident shareholder is taxed on its share of the CFC's profits, regardless of the distribution of dividends.

Indirect tax regime applicable to real estate property transactions

VAT (20%) and €168 registration tax apply to transfer of commercial buildings between a constructor, within four years from the construction or restructuring made by it, as transferor and any entity, as transferee. Proportional mortgage and cadastral taxes also apply (4%). For transactions fulfilling specific requirements, reduced rate, or exemptions, may apply.

Società d'investimento immobiliare quotata (SIIQ)

The SIIQ is an optional civil and tax regime applicable to ordinary joint stock companies that will fulfil certain requirements related to business activity (the prevailing activity must be the rental of real estate properties) and shareholding rules.