Running a business in Italy means understanding the country’s tax obligations from day one. The Italy company tax rate consists of two main components: a 24% corporate income tax (IRES) and a 3.9% regional production tax (IRAP). Combined, this results in a total corporate tax rate of 27.9%, which is higher than the 2025 European average of 21.5%.

These rates directly impact your bottom line and business decisions. Smart business owners need current information about Italy’s tax landscape to make informed financial choices and stay compliant with local regulations.

Italy corporate tax rate

IRES = (Accounting profit+Increases−Decreases) x 24%

 

The corporate income tax rate in Italy stands at 24% for most businesses. This rate applies to your company’s taxable income calculated from your annual financial statements. All corporate entities in Italy are liable to pay this tax on their worldwide income.

Italy’s 24% rate remains competitive compared to other major European economies. France applies 25% on profits above €250,000, while Germany reaches effective rates near 30%.

The 2025 budget law introduces a temporarily reduced IRES rate of 20% for companies that reinvest profits into qualified assets. Businesses must allocate 80% of their 2024 net profits to a special equity reserve and make qualifying investments in Industry 4.0 or Transition 5.0 assets. 

Limited liability companies and other corporate entities can benefit from this reduced rate by meeting the reinvestment requirements. Joint stock companies investing in automated production lines or robotics often find this incentive attractive. Service companies upgrading IT infrastructure may also qualify.

Corporate tax payments occur through advance installments during the year. Companies pay 40% of the prior year’s tax by June 30th, with 60% due by November 30th.

Regional tax (IRAP)

IRAP=Value of production × 3.9%

Regional production tax applies to the net value of production generated within Italy, regardless of company headquarters location. The standard rate sits at 3.9%, but regions can adjust this rate within legal limits by up to 0.92%. This flexibility allows regions to tailor tax rates to their economic needs.

IRAP calculation focuses on the value of production rather than profit margins. The tax base is determined without considering employee salaries, management compensation, and rental expenses. Both profitable and loss-making companies are subject to IRAP obligations. IRAP is payable by companies, partnerships, and professional firms conducting production or service activities in the region. Unlike corporate income tax (IRES), IRAP is also payable by partnerships and has a different taxable base calculation.

Each of Italy’s 19 regions and 2 autonomous provinces can modify IRAP rates. Financial institutions and mutual insurance companies face higher rates, often reaching 4.65% or more. Entities not subject to IRAP include investment funds and pension funds.

Companies operating across multiple regions must calculate IRAP separately for each territory. A logistics company with warehouses in three regions would file separate IRAP returns for each location. Taxable income must be allocated based on employee costs at each site. Many businesses consider IRAP an unfair tax, as it is disconnected from the principle of taxable capacity.

Small businesses below specific thresholds may qualify for simplified calculations or reduced rates. Startup companies sometimes receive temporary IRAP reductions.

Global minimum tax

Italy implemented the OECD’s Pillar Two global minimum tax starting in 2024. This affects companies with consolidated global revenue exceeding €750 million in at least two of the previous four fiscal years. Italy enacted Legislative Decree No. 209 on December 27, 2023, implementing the EU Directive 2022/2523 regarding the global minimum tax. The global minimum tax establishes a 15% minimum effective tax rate for large multinational and domestic groups in Italy. The global minimum tax framework includes the Income Inclusion Rule (IIR) applicable to Italian parent companies with foreign low-taxed entities.

The 15% minimum rate applies to each jurisdiction where large groups operate. Italy can collect top-up taxes when Italian parent companies have subsidiaries in low-tax jurisdictions. The Qualified Domestic Minimum Top-Up Tax (QDMTT) is applicable for fiscal years beginning on or after December 31, 2023, for multinational groups operating in Italy.

Technology companies with intellectual property in low-tax jurisdictions often see the biggest impact. Manufacturing companies typically face less exposure because their effective tax rates usually exceed 15%.

The system includes exceptions and safe harbors for minimal operations and jurisdictions with clearly adequate tax rates.

Corporate tax overview

Italy’s corporate tax system combines IRES, IRAP, and withholding tax obligations. Corporate tax obligations require companies to handle national and regional compliance requirements simultaneously.

Monthly and quarterly filing obligations create ongoing administrative tasks. VAT returns and withholding tax on salaries require regular attention throughout the fiscal year. Companies in Italy must file their annual corporate income tax return electronically within the last day of the tenth month following the end of the tax period. Additionally, companies in Italy are required to contribute to the social security system for their employees. Tax compliance in Italy involves adhering to various tax regulations set by the Italian government.

National tax consolidation allows Italian companies under common control to file combined returns. This provides cash flow advantages when group companies have mixed profitability. The substitutive tax on reorganizations allows companies to elect partial or full recognition for tax purposes on financial accounting values of assets.

Transfer pricing documentation applies to related-party transactions above specific thresholds. Companies must maintain economic analyses supporting intercompany pricing decisions.

Corporate tax rate competitiveness

Italy’s 24% rate becomes more attractive through various incentives and special regimes. Income derived from intellectual property is subject to concessions for IRAP and IRES because it falls under the category of ‘other income’.This represents one of several preferential tax regimes available to Italian businesses.

The tax credit for research and development activities is granted, for the period 2026–2031, at the rate of 10% of eligible expenses, within the limits established by the applicable legislation.The credit may be used for offsetting (tax compensation) in three equal annual instalments, starting from the tax period following that in which it was accrued.

The ACE deduction provides relief based on equity increases, reducing the tax cost of equity financing. Investment incentives target southern Italy and specific industries. Companies in designated Special Economic Zones (SEZs) in Southern Italy can receive tax credits for initial investments.

Digital transformation incentives offer accelerated depreciation for Industry 4.0 and Transition 5.0 investments. Startups receive comprehensive tax benefits during early operations. Some qualifying organizations may be tax-exempt under specific conditions outlined by the Italian Revenue Agency.

Indirect taxes

VAT at 22% affects most business transactions in Italy. Reduced rates of 4-10% apply to essential items, food, medical supplies, and tourism services. VAT returns in Italy are required to be filed quarterly, although companies with higher turnover may need to file monthly returns.

Companies with an annual turnover exceeding €65,000 must register for VAT. Businesses must obtain a VAT number if engaging in taxable activities in Italy. Companies failing to register for VAT may face penalties for late filing or underpayment of taxes.

Electronic invoicing through the government’s SDI platform is mandatory for all domestic transactions. This system automatically transmits data to tax authorities.

Import VAT applies to non-EU goods but can often be recovered through regular VAT returns. The Import One-Stop Shop system simplifies this process.

Capital gains treatment

Corporate capital gains face the standard 24% tax rate. Capital gains realized under the Participation Exemption (PEX) regime contribute to the formation of the taxable income of the IRES taxpayer only to the extent of 5% of their amount.The exemption requires a minimum 12-month holding period and applies to shares in operating companies rather than investment vehicles. This encourages long-term business investments.

Real estate capital gains follow standard corporate tax rules unless properties qualify for specific exemptions or replacement provisions.

Passive income taxation

Interest, royalties, and similar passive income face 26% withholding tax. Double taxation treaties may reduce rates for foreign investors.

Passive income also counts toward corporate income tax calculations at 24%. Companies must file regular withholding tax returns and remit collected amounts.

The withholding tax applies at the payment source, creating immediate compliance obligations for paying companies.

Tax residency and foreign companies

Tax residency determines the scope of tax obligations for businesses operating in Italy. Resident companies face taxation on their worldwide income, while foreign companies typically pay tax only on Italian-source income.

Companies establish Italian tax residency if their legal seat, place of effective management, or main object of business is located in Italy. This determination affects both the tax period and the calculation method for annual tax obligations.

Foreign companies with permanent establishments in Italy must maintain separate accounting records and file returns based on their profit and loss account for Italian operations. These entities often face additional compliance requirements compared to purely domestic operations.

Get expert legal assistance for Italian tax matters

Italian company tax rate system requires specialized knowledge and careful planning. Tax laws change frequently, and compliance mistakes can result in significant penalties that harm your business operations.

Aprigliano International Law Firm provides comprehensive legal services for businesses operating in Italy. Our corporate and commercial law practice offers personalized service for tax matters, business investments, and all commercial activities in Italy.

We assist clients with incorporating Italian companies, drafting commercial contracts, and handling investment structures that optimize tax efficiency. Our team understands both Italian tax regulations and international business requirements.

Contact Aprigliano International Law Firm today to discuss your Italian tax and business operations in Italy. Our experienced team provides the legal support necessary for successful business operations in Italy.

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