Italy Tax Regime

Italy taxes corporate profits through two levies: the national corporate income tax (IRES) at 24% and the regional production tax (IRAP), generally 3.9%, on a broadly value-added base — giving a combined burden of roughly 28%. Resident companies are taxed on worldwide income; non-residents on Italian-source income. A 95% participation exemption (PEX) on qualifying dividends and share gains, a suite of innovation and capital-investment incentives (the Transition 4.0/5.0 credits and an IP super-deduction), and an extensive treaty network sit within a system that is detailed and documentation-heavy.

Individuals are taxed under the personal income tax (IRPEF) on a three-band progressive scale to 43%, plus regional and municipal surcharges, with flat substitute taxes on financial income and several attractive flat-tax regimes for inbound new residents. A company is resident if its legal seat, place of effective management or main business is in Italy for most of the tax period.

1.1 Sources of law and treaties

The Income Tax Code (TUIR), the IRAP and VAT decrees and the annual Budget Law govern the system, administered by the Revenue Agency (Agenzia delle Entrate). EU directives, an extensive treaty network and the OECD multilateral instrument apply, and the Revenue Agency's circulars and rulings guide interpretation.

1.2 Recent developments

The most consequential recent and pending changes are:

A reduced 20% IRES rate (from 24%) for fiscal year 2025 only, for companies meeting conditions on reinvesting profits in fixed assets and maintaining employment.

Implementation of the OECD Pillar Two regime — an income inclusion rule and a domestic income inclusion rule (fiscal years from 31 December 2023), an undertaxed-profits rule (from 31 December 2024) and a qualified domestic minimum top-up tax — for groups with consolidated revenue of at least EUR 750 million.

The Transition 5.0 plan layering an energy-efficiency-linked tax credit over the Transition 4.0 investment credits, and an IP-cost super-deduction replacing the former patent box.

A raised new-resident flat tax (EUR 200,000 on foreign income) and continuing impatriate and pensioner regimes.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Residence and the two business taxes

A company is resident if its legal seat, place of effective management or principal business is in Italy for the greater part of the tax period; residents are taxed on worldwide income and non-residents on Italian-source income. Italian business profits bear two taxes: IRES (the national corporate income tax) on net income per the financial statements as adjusted for tax, and IRAP (the regional production tax) on a value-added-style base. The two have different bases, and IRAP in particular disallows most financing costs and provisions.

2.2 IRES

IRES is levied at 24% on adjusted net income. For fiscal year 2025 only, a reduced 20% rate applies to companies that meet conditions on reinvesting a portion of profits in qualifying new fixed assets and maintaining or increasing employment. Specific rates and rules apply to banks and financial institutions, including a temporary surtax in recent budgets.

2.3 IRAP

IRAP is a regional tax on the net value of production, broadly the company's gross margin, computed differently for manufacturing, banks, financial institutions and holding companies. Interest, most provisions and extraordinary items are excluded from the base, while labour costs are fully deductible for open-ended employees. Regions may vary the 3.9% standard rate by up to 0.92%, and profits of foreign permanent establishments are excluded.

2.4 The participation exemption (PEX)

Under the PEX regime, 95% of capital gains on qualifying shareholdings are exempt from IRES (only 5% is taxable, an effective charge of about 1.2%), and dividends from qualifying holdings are likewise 95% exempt. The shareholding must be held for at least twelve months, classified as a financial fixed asset from the first holding period, in a subsidiary that is resident in a non-blacklisted jurisdiction and carries on a genuine commercial activity. PEX underpins Italian holding structures.

2.5 Income determination and depreciation

Taxable income starts from the statutory accounts adjusted for tax, with depreciation at coefficients set by ministerial decree, and specific rules on provisions, bad debts, entertainment, vehicles and interest. The former notional-interest (ACE) allowance was repealed, with relief redirected to the reinvestment-IRES and investment-credit measures. Inventory, long-term contract and lease rules complete the framework.

2.6 Interest limitation

Net interest expense is deductible up to 30% of tax-EBITDA, with indefinite carryforward of disallowed interest and a five-year carryforward of unused EBITDA capacity, implementing the EU anti-tax-avoidance directive. Excess interest within a tax-consolidated group can be used against other members' capacity.

2.7 Losses

Tax losses carry forward indefinitely, but their annual use is capped at 80% of taxable income (losses of the first three years of activity may offset 100%). Anti-abuse rules restrict the carryforward of losses following a change of control combined with a change of the company's main activity.

2.8 Tax consolidation

Italian groups can elect domestic tax consolidation (consolidato fiscale) where the parent holds more than 50% of a subsidiary's capital and voting rights: the group computes a single IRES base by aggregating members' results, allowing immediate offset of profits and losses and pooling of interest capacity. A worldwide consolidation option exists but is rarely used; IRAP is not consolidated.

2.9 Controlled foreign companies

The CFC rules attribute to an Italian controlling entity the income of a foreign controlled company that is both low-taxed (an effective foreign tax below half the notional Italian tax, with a simplified 15% test) and earns predominantly passive income, unless the company carries on a genuine economic activity. The rules counter the accumulation of passive income in low-tax jurisdictions.

2.10 Transfer pricing

Cross-border related-party transactions must be priced at arm's length under rules aligned with the OECD Guidelines, with master-file and local-file documentation that, if compliant and timely, protects against penalties, and country-by-country reporting above the EUR 750 million threshold. Advance pricing agreements and a patent-style cooperative-compliance framework are available, and the authorities audit transfer pricing actively.

2.11 Incentives and special regimes

Italy's incentive landscape centres on the Transition 4.0 and 5.0 plans — tax credits for investment in digital and energy-efficient capital goods and in research, development and innovation — and an IP-cost ‘super-deduction’ (a 110% deduction for qualifying R&D linked to eligible intangibles) replacing the former patent box. A tonnage-tax regime taxes qualifying shipping on a presumptive tonnage basis, and a substitutive tax allows a step-up of asset values on reorganisations (mergers, demergers and contributions in kind) that are otherwise tax-neutral.

2.12 Pillar Two

Italy transposed the EU minimum-tax directive by the 2023 Global Minimum Tax Decree: an income inclusion rule and a domestic income inclusion rule (fiscal years from 31 December 2023), an undertaxed-profits rule (from 31 December 2024) and a qualified domestic minimum top-up tax designed for the OECD safe harbour, for groups with consolidated revenue of at least EUR 750 million, with transitional country-by-country and other safe harbours and detailed implementing decrees.

3.1 Residence and rates

An individual is resident if, for most of the year, they are registered with the resident population, or have their domicile or habitual abode in Italy. Residents are taxed on worldwide income under IRPEF on a three-band progressive scale — 23%, 33% and a top rate of 43% — plus a regional surcharge (broadly 1.23%–3.33%) and a municipal surcharge (up to about 0.9%). Employment income is collected through withholding.

Indicative; surcharges vary by region and municipality. As-of June 2026.

3.2 Substitute taxes on financial income

Most financial income — interest, dividends and capital gains on securities — is taxed outside IRPEF at a flat substitute rate of 26% (reduced to 12.5% for government bonds and equivalents). The substitute regime simplifies the taxation of investment income, and a separate flat regime (the regime forfettario) taxes small self-employed taxpayers below a turnover threshold at 15% (5% for new businesses).

3.3 Flat-tax regimes for new residents

Italy offers several regimes to attract inbound individuals: a non-domiciled-style flat tax of EUR 200,000 per year on all foreign income for new residents (with a reduced amount for family members), a 7% flat tax on foreign income for foreign-pension retirees relocating to small southern municipalities, and an ‘impatriate’ regime exempting a substantial portion of Italian employment and self-employment income of qualifying inbound workers. These are significant draws for mobile high-net-worth individuals and talent.

3.4 Wealth-style and succession taxes

Italy levies no general net wealth tax, but resident individuals pay IVIE on foreign real estate (broadly 1.06%) and IVAFE on foreign financial assets (0.2%). Inheritance and gift tax is comparatively light — 4% to 8% above generous per-heir allowances depending on the relationship — making Italy attractive for succession planning.

Dividends paid to non-residents bear 26% withholding (reduced to 1.2% for EU/EEA corporate shareholders and eliminated under the Parent-Subsidiary Directive, and reduced by treaty). Interest generally bears 26% (12.5% on government bonds), and royalties bear an effective 22.5% (30% on 75% of the gross), reduced by treaty and the EU Interest-and-Royalties Directive. Representative outcomes:

5.1 Anti-deferral, pricing and financing

The CFC rules (Section 2.9), transfer-pricing rules (Section 2.10) and interest-limitation rules (Section 2.6) form the core of Italy's outbound and inbound framework, attributing low-taxed passive foreign income, requiring arm's-length pricing and capping financing deductions. Anti-hybrid rules neutralise deduction/non-inclusion and double-deduction mismatches in line with the EU directives.

5.2 General anti-avoidance, exit tax and disclosure

Italy's abuse-of-law rule (abuso del diritto) allows the authorities to disregard arrangements that lack economic substance and are designed essentially to obtain undue tax advantages, subject to procedural safeguards. An exit tax charges latent gains when a company transfers its residence or assets abroad (with EU instalment options), and mandatory-disclosure (DAC6) rules require reporting of certain cross-border arrangements.

5.3 Foreign tax relief

Double taxation is relieved by the PEX exemption for qualifying dividends and gains and, otherwise, by a credit for foreign tax limited to the Italian tax on the foreign income, computed on a per-country basis with limited carryforward and carryback. Treaties allocate taxing rights and provide a mutual-agreement procedure.

6.1 Value-added tax

VAT (imposta sul valore aggiunto, IVA) is charged at a standard rate of 22%, with reduced rates of 10%, 5% and 4% for specified goods and services, and exemptions for financial, insurance, medical and education services. Italy operates mandatory electronic invoicing and a split-payment mechanism for supplies to public bodies, and the EU cross-border, reverse-charge and one-stop-shop rules apply.

6.2 Registration, property and stamp taxes

Registration tax applies to deeds and certain contracts and to real-estate transfers (with mortgage and cadastral taxes), at rates depending on the asset and parties. The municipal property tax (IMU) is levied annually on real estate (the principal residence is generally exempt), and stamp duty applies to documents and to financial statements and securities accounts.

6.3 Social security and other

Employer and employee social-security contributions are substantial and fund pensions and welfare. Italy also levies excise duties, a financial-transaction tax on certain share transfers and derivatives, and various local and sector taxes; IRAP (Section 2.3) functions as an additional layer of business taxation. There is no general net wealth tax on Italian assets.

7.1 Filing and payment

Tax is administered by the Revenue Agency under self-assessment. Companies file the annual income-tax return (Redditi SC) and the IRAP return electronically, generally by the end of the ninth month after the year-end, and pay tax in two advance instalments plus a balance. Individuals file the Redditi PF (or the simplified 730), and VAT is settled monthly or quarterly with an annual return.

7.2 Audit, rulings and limitation

The ordinary assessment period runs to the end of the fifth year after the filing year (extended where no return is filed). The Revenue Agency conducts desk and field audits and offers a cooperative-compliance (tax control framework) regime for large taxpayers and a ruling (interpello) procedure for certainty on the treatment of transactions. Late-payment interest and penalties apply, mitigated by voluntary correction (ravvedimento operoso).

7.3 Disputes

A taxpayer challenges an assessment before the tax-justice courts of first and second instance (Corti di giustizia tributaria), with a final appeal to the Court of Cassation; a mandatory pre-litigation settlement and judicial-conciliation mechanisms encourage resolution. The mutual-agreement procedure and EU dispute-resolution mechanisms address cross-border double taxation.

Indicative deadlines. As-of June 2026.

9.1 Entity choice and presence

Business is typically conducted through an S.p.A. (joint-stock company) or the more flexible S.r.l. (limited-liability company), or through a branch of a foreign company taxed on its Italian permanent establishment. Both IRES and IRAP apply to a branch as to a subsidiary, but the participation-exemption and group-consolidation rules differ between the two, so the choice affects loss use, exit taxation and the efficiency of profit repatriation.

9.2 Holding and financing structures

Italian holding companies rely on the 95% PEX exemption for dividends and share gains and on domestic tax consolidation (consolidato) to pool results, while financing is constrained by the 30%-of-EBITDA interest cap and by the repeal of the notional-interest (ACE) allowance. Inbound acquisition debt and intra-group financing are scrutinised under transfer pricing, and the substitutive tax on reorganisations allows a planned step-up of asset bases on mergers, demergers and contributions.

9.3 A worked illustration

A manufacturing company with EUR 5 million of profit pays IRES at 24% (EUR 1.2 million) plus IRAP at 3.9% on its broader production base, for a combined burden near 28%. Electing the 2025 reinvestment regime (a reduced 20% IRES, on conditions) or claiming the Transition 5.0 credits and the IP super-deduction can reduce the effective rate for qualifying investment and innovation.

9.4 Compliance and practical points

Italy operates mandatory electronic invoicing and pervasive digital reporting, a three-tier dispute system through the tax-justice courts, and an active audit practice on the PEX conditions, transfer pricing and the abuse-of-law doctrine. Cooperative-compliance and ruling (interpello) routes provide certainty for larger taxpayers, and timely transfer-pricing documentation protects against penalties.