Italy

In Italy, the value-added tax (VAT), known as Imposta sul Valore Aggiunto (IVA), is a consumption tax applied to the sale of goods and the supply of services. It also applies to the importation of goods into Italy and intra-community acquisitions of goods from other EU member states. The standard VAT rate in Italy is set at 22%, but reduced rates of 4%, 5%, and 10% are applied to specific categories of goods and services. For example, the reduced 4% VAT applies to essential goods such as food and agricultural products, while the 10% rate applies to electricity and other listed utilities. The 5% rate covers certain health services and items related to children's products, among others. Exemptions from VAT exist for certain transactions, such as exports and intra-community supplies, which are not subject to VAT under Italian law. However, specific procedural requirements must be met for exemptions, including submitting declarations to Italian tax authorities. Businesses engaging in such transactions must maintain accurate records to comply with Italian VAT laws, as failure to adhere to these regulations may result in significant penalties.

Corporate Income Tax (IRES):
The standard IRES rate is 24%. Italian resident companies are taxed on worldwide income; non-residents are taxed only on Italian-sourced income.

Regional Production Tax (IRAP):
In addition to IRES, companies are subject to IRAP (Imposta Regionale sulle Attività Produttive). IRAP is assessed on the net value of production (valore della produzione netta), not on net income, so it is a separate tax on a different base and cannot be added to IRES to give a single combined rate. Regions may vary the IRAP rate within the limits set by law, and the rate also differs by sector of activity and category of taxpayer.

FY2025 incentive (expired): A reduced IRES rate of 20% applied for FY2025 only, to companies meeting statutory reinvestment and employment conditions measured against profit earned in FY2024. The Legge di Bilancio 2026 did not renew it, and a company incorporated in 2026 cannot meet the FY2024 condition in any event, so it pays the standard rate.

Pillar Two – Global Minimum Tax (GMT):
Italy enacted Legislative Decree no. 209 (GMT Decree) on 28 December 2023, implementing EU Directive 2022/2523. The IIR applies to Italian parent entities with respect to foreign low-taxed constituents for fiscal years beginning on or after 31 December 2023. The QDMTT applies to fiscal years beginning on or after 31 December 2023 and the UTPR to fiscal years beginning on or after 31 December 2024 (art. 60 D.Lgs. 209/2023).

Italy’s personal income tax (PIT) is a progressive tax that applies to individuals based on their income. The PIT rate ranges from a lower threshold of around 23% to a top marginal rate of 43% for individuals earning higher incomes. The tax applies to income from various sources, including wages, pensions, business income, and income from real estate. Taxpayers must file their returns by 30 September or 30 November, depending on their tax status and whether they file electronically or on paper. Estimated tax payments are required during the year, with two installments due on 30 June and 30 November. The final balance of any taxes owed is due by 30 June of the following year. Italy also provides several deductions and allowances that can lower a taxpayer's overall liability, including deductions for dependent family members, mortgage interest, and certain medical expenses. Tax residents in Italy are taxed on their worldwide income, while non-residents are only taxed on their income sourced from within Italy. Additionally, special tax regimes are available for expatriates and high-net-worth individuals who move to Italy.

In Italy, capital gains tax (CGT) applies to both corporate entities and individuals on profits realized from the sale of certain assets, such as real estate, shares, and other financial instruments. For corporations, capital gains are subject to the standard corporate income tax (CIT) rate of 24%. However, Italy offers a participation exemption regime (PEX), which allows businesses to benefit from a 95% tax exemption on capital gains from the sale of shareholdings where four cumulative conditions are met: uninterrupted possession from the first day of the twelfth month before the disposal; classification among financial fixed assets in the first balance sheet closed during the holding period; the participated company not being resident or located in a preferential tax regime, that condition holding uninterruptedly for the period the statute requires; and the participated company carrying on a commercial enterprise, which is conclusively presumed absent where its assets consist mainly of property not used in its own business, and which must have been satisfied from the beginning of the third tax period before the disposal. This exemption is designed to promote long-term investment in businesses. For individuals, capital gains from the sale of financial assets are taxed at a separate rate of 26%, although lower rates may apply to gains from other assets, such as real estate, depending on how long the asset was held. Additionally, Italian tax law provides exemptions for capital gains arising from certain activities, such as the sale of a primary residence. Taxpayers are required to report their capital gains on their annual tax returns, and failure to do so can result in penalties and interest on unpaid taxes.

Italy imposes an inheritance and gift tax on the transfer of wealth through inheritance or gifts. Both inheritance and gifts are taxed at a flat rate of 8%, although lower rates or exemptions may apply depending on the relationship between the donor and the recipient. For example, direct family members such as spouses and children benefit from a significant tax-free allowance, with the first EUR 1 million exempt from inheritance tax. Transfers of assets to more distant relatives or unrelated individuals may be subject to higher tax rates or lower exemptions. Italy also has specific rules governing the transfer of business assets, which may qualify for favorable tax treatment if the recipient continues to operate the business for a specified period. In order to minimize tax liabilities, individuals engaging in estate planning in Italy often seek to take advantage of these exemptions and allowances. It is important to properly document the transfer of assets to avoid any disputes with the Italian tax authorities. Additionally, Italy participates in international agreements that may affect the taxation of cross-border inheritances and gifts, ensuring that individuals are not taxed twice on the same transfer of wealth.