Personal taxation in Bologna
Effective personal income tax rate
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Residents are taxed on worldwide income; nonresidents are taxed only on Italian-source income.
For income tax purposes, an individual is deemed to be resident if he/she is registered at the civil registry or is domiciled in Italy for more than 183 days in a year.
Joint filing is possible under specific circumstances.
An additional 3% solidarity surtax on income exceeding EUR 300,000 is payable until the 2017 fiscal year.
The personal income tax is progressive, rising to a top rate of 43% for income exceeding EUR 75,000. The other rates are: 23% on income up to EUR 15,000; 27% on EUR 15,001-EUR 28,000; 38% on EUR 28,001-EUR 55,000; and 41% on EUR 55,001-EUR 75,000.
Deductions and allowances
Deductions for dependents, employment income, social security contributions and other specific expenses (e.g. family charges, medical expenses) are available in calculating taxable income.
Individual income tax is imposed on employment income, income from independent activities, income from capital, business income, income from immovable property and other miscellaneous income.
Capital gains derived by an individual on the disposal of Italian immovable property generally are taxed as miscellaneous income, but are exempt from tax if the individual held the property for more than five years. Gains derived from the sale of a principal residence are not subject to tax. For capital gains on the disposal of shares, see “Rates,” below.
Other taxes on individuals
Stamp duty is levied on legal and banking transactions at varying rates.
The taxable amount generally is represented by the value of the assets and rights inherited. Rates are
Individuals working in Italy generally are subject to social security contributions, with rates depending on the sector and the employee’s job title. Social security in respect of the state pension fund borne by the employee generally is equal to 9.19%, plus 1% over EUR 46,123 up to a cap of EUR 100,324) for employees who started contributing to an obligatory social security scheme after 1 January 1996. For those who started contributing before that date, contributions are calculated on the total amount of employment income received.
Net wealth/net worth tax
Financial assets held abroad by a resident individual (i.e. bank accounts, participations, etc.) are taxed at 0.2% of the market value. Immovable property outside Italy owned by a resident individual is subject to tax at a rate of 0.76% of the original cost or market value of the property (cadastral value of the property owned in an EU or EEA country). A lower 0.4% rate may apply to principal residences.
A negligible fixed registration tax is levied on contributions of cash in exchange for shares. Contributions of other assets may trigger registration tax at various rates.
Real property tax
Property owners, whether or not resident in Italy, are liable for a property tax on buildings and land owned in Italy for their own use or as investments. The tax comprises three different elements: IMU (wealth tax), TASI (tax for services) and TARI (tax on refuse). The basic rate of IMU is 0.76% of the taxable value of the property, but the competent municipality can increase or reduce the basic rate by up to 0.3%. IMU generally does not apply to an individual’s main residence. TASI rates range from 0% to 3.3% depending on the municipality in which the property is situated. The TARI rates also vary depending on the municipality.
An additional 10% tax is levied on bonuses, stock options and variable payments paid to directors operating in the financial sector. The tax is payable only on the portion of variable compensation exceeding the fixed remuneration.
Compliance for individuals
Penalties and interest apply for late filing, failure to file and tax avoidance and evasion.
Filing and payment
All taxpayers, both resident and nonresident, who derive income subject to individual income tax must file an annual tax return, except for individuals deriving exempt income or income subject to a final withholding tax and other specific categories of income.
Corporate taxation in Bologna
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Resident companies are taxed on worldwide income; nonresident companies are taxed only on Italian-source income.
Taxation of dividends
See “Participation exemption,” below.
A company is resident for tax purposes if its legal seat, place of effective management or main business activity is in Italy for the greater part (i.e. at least 183 days) of the fiscal period. A foreign company that holds a controlling participation in an Italian company is deemed to have its place of effective management in Italy and, therefore, to be resident in Italy for corporate tax purposes if the foreign company is controlled by an Italian resident or managed by Italian residents representing the majority of its board of directors.
Losses may be carried forward and offset against corporate taxable income. However, 20% of taxable income in any year cannot be offset by carried-forward losses and will be subject to corporate tax in accordance with the “minimum tax” rule. Losses incurred by a company during its first three taxable periods may be carried forward and used to fully offset corporate taxable income, but only if the losses relate to a new business activity (e.g. the losses may not have been incurred in the course of a merger or business contribution). The carryback of losses is not permitted.
Incentives are available in the form of capital grants, “easy-term” loans or tax credits. Some incentives are granted automatically if specified requirements are met; others require the completion of evaluation procedures. Certain incentives must be negotiated.
The corporate tax (IRES) rate is 27.5%, plus the regional tax on productive activities (IRAP, generally 3.9%)—see “Other taxes on corporations” below. “Non-operating” entities are subject to a 38% corporate tax rate. (Italy’s stability law for 2016 provides for a reduction of the corporate income tax rate from 27.5% to 24% as from 1 January 2017. For banks and other financial institutions, the tax rate will remain 27.5%.)
Alternative minimum tax
There is no AMT, but a presumptive taxable income applies to non-operating companies under certain conditions—see “Taxable income,” above.
Taxable income for a resident company or an Italian branch of a foreign company is business income, which consists of net income earned in a financial period. Business income encompasses all income derived by the company or branch, e.g. income from a trade, passive income (e.g. dividends, interest and royalties) and capital gains. Taxable income is based on the results shown in the profit and loss (P&L) account, with certain adjustments.
Holding company regime
There is no specific holding company regime, although as described above, dividends and capital gains on the sale of a participation may benefit from a 95% exemption.
Capital gains generally are treated as ordinary income and taxed at the 27.5% corporate income tax rate. Capital gains derived from the sale of participations, however, are 95% exempt from taxation if the following requirements are met: (1) the participation has been held for a minimum continuous period that may range between 12 and 13 months; (2) the participation is classified as a financial fixed asset in the first financial statement closed after the participation was acquired; (3) the company in which the participation is held is not considered a “black list” entity for purposes of Italy’s controlled foreign company (CFC) regime; and (4) the company in which the participation is held carries out a business activity (this requirement will not be met if assets are represented primarily by real property not used in the business activity). The last two conditions must have been satisfied continuously over the last three years or the life of the company, if less.
Domestic and foreign-source dividends paid by subsidiaries to Italian resident corporate taxpayers are 95% exempt from corporate income tax. However, the exemption does not apply if the foreign subsidiary is resident in a listed tax haven country and, in some cases, where the dividends are distributed by a black list country through an interposed nonblack list country. There is no holding period or minimum ownership percentage to qualify for the 95% exemption. (See also under “Capital gains,” above.)
Other taxes on corporations
Stamp duty is levied on legal and banking transactions, at varying rates.
Mandatory social charges are payable by the employer and vary depending on the employee’s job and the size of the workforce.
IRAP, or the regional tax on productive activities, is levied on the net value of the production derived in each Italian region by resident companies. IRAP is calculated on the “net added value” of production as defined by the relevant tax rules (but basically derived from statutory accounts).
The transfer of real property situated in Italy is subject to transfer tax (registration, mortgage and cadastral tax) and/or VAT, with the rate depending on the property transferred, the status of the transferor and other factors.
A negligible fixed registration tax is levied on contributions of cash in exchange for shares. Other assets
Real property tax
The municipal authorities levy tax on the possession of immovable property at various rates, depending on the municipality. Under certain conditions, construction companies are not subject to the real property tax.
Compliance for corporations
Tax consolidation is available to domestic groups, i.e. an Italian parent company and its resident subsidiaries that are under its direct or indirect control. The control requirement is met when the parent company holds more than 50% of the share
The tax rules include a comprehensive set of penalty and interest provisions for failure to pay and failure to file, with the relevant amounts generally determined based on the specific violation (above specific thresholds, tax violations are criminal offenses).
Advance rulings relating to transfer pricing may be obtained from the tax authorities. Such rulings also may apply to dividends and royalties. A ruling may be requested from the authorities to avoid application of the CFC and the non-operating company regimes or anti-abuse provisions or to obtain the correct interpretation of an unclear tax provision.
Taxpayers may use the calendar year or a financial year.
A company must file the annual corporate income tax returns (IRES and IRAP) electronically within nine months following the end of the financial year.
Other taxation in Bologna
Value added tax
Filing and payment
From fiscal year 2016, taxpayers are required to submit a VAT return electronically by the end of February of the following calendar year. For 2015, if the taxpayer does not submit its VAT return by the end of February 2016, it must submit an annual VAT declaration by the same deadline.
The standard VAT rate is 22%, with reduced rates of 4%, 5% (applicable as from 1 January 2016) and 10%. VAT exemptions apply to financial services, medical services, gaming and gambling, export sales and the contribution of assets to a company (e.g. purchases of capital goods).
VAT is levied on the supply of goods and services, and on imports.
A taxpayer carrying out taxable supplies in Italy is required to register for VAT purposes.
Controlled foreign companies
Under the CFC regime, profits of a nonresident entity are attributed to an Italian resident where the resident controls, directly or indirectly, the nonresident entity and the nonresident is considered a black-list entity—i.e. an entity resident in a jurisdiction (other than an EU or EEA country that has concluded an exchange of information agreement with Italy) with a nominal corporate income tax rate lower than 50% of the Italian rate—for purposes of Italy’s CFC rules. The CFC regime also is applicable when the foreign entity is not considered a black-list entity, if the entity is subject to an actual tax rate lower than 50% of the Italian rate and more than 50% of its income is passive or derived from intercompany services.
A country-by-country reporting obligation has been introduced requiring certain multinational entities to submit an annual report showing the amount of their revenue, gross profit, taxes paid and accrued and other indicators of actual economic activity.
The business income of a resident enterprise arising from transactions with nonresidents that directly or indirectly control the resident company, are under the control of the resident company or are controlled by the same entity that controls the resident company is assessed on the basis of the arm’s length value of the goods transferred, services rendered or services received.
Other specific anti-abuse provisions may apply. These primarily target tax havens, losses and interest expense carryforwards in the case of extraordinary transactions (e.g. mergers and demergers), withholding tax exemptions under EU directives and the assessment of Italian tax residence for foreign entities.
Dividends paid to a nonresident corporation generally are subject to a 26% final withholding tax (with a potential refund of the foreign tax paid on the dividend by the recipient, up to 11/26ths of the Italian withholding tax) unless the rate is reduced under a tax treaty or the dividends qualify for an exemption under the EU parent- subsidiary directive. A domestic final withholding tax of 1.375% (to be reduced to 1.20% as from fiscal year 2017) applies to dividends distributed to shareholders resident in the EU and to qualified shareholders resident in a European Economic Area (EEA) country.
Technical service fees
Fees paid to a nonresident for the use of industrial, commercial or scientific equipment located in Italy are subject to a final 30% withholding tax, unless reduced under a tax treaty. Management fees are exempt from withholding tax.
Italian-source interest payable to a nonresident generally is subject to a 26% final withholding tax. Interest derived from a direct/indirect investment in government bonds and similar securities is subject to a 12.5% substitute tax (domestic exemptions apply). The withholding tax may be reduced under a tax treaty or eliminated under the EU interest and royalties directive.
Royalties paid to a nonresident company are subject to a 30% withholding tax calculated (generally) on 75% of the gross royalty, resulting in an effective tax of 22.5%. The withholding tax may be reduced under a tax treaty or eliminated under the EU interest and royalties directive.
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