Corporate Income Tax (IRES) - Key Concepts from Lecture Notes
LEGAL SOURCES
ITALIAN CONSTITUTION (1947 – in force since 1948)
TUIR (ART. 72 ONWARDS)
Italian Presidential Decree No. 917 of December 22nd, 1986
Legislative Decree of December 12, 2003, No. 344, implementing Delegation Law of April 7, 2003, No. 80, introduced the Corporate Income Tax (IRES), almost entirely amending DPR No. 917/1986. The decision to adopt a new numbering of the articles in the Income Tax Consolidation Act (TUIR) stems from the extensive amendments, which required substantial changes to its structure and internal subdivision.
ITALIAN CIVIL CODE (ART. 2423 ONWARDS)
OIC – IAS/IFRS
National Accounting Standards and International Accounting Standards.
WHO? WHICH? WHEN?
IRES (CIT) is due from:
Joint-stock companies, limited partnerships, limited liability companies, cooperatives, mutual insurance societies, as well as European companies and European cooperatives resident in the territory of the State;
Public and private entities, including trusts, resident in the State, whose exclusive or main activity is the exercise of commercial activities;
Public and private entities, including trusts, resident in the State, that do not have commercial activity as their exclusive or main activity;
Collective investment organizations for savings;
Companies and entities of any type, including trusts, with or without legal personality, not resident in the territory of the State.
RESIDENCY AND EXCLUSIONS
From the fiscal year following the one in progress on 29 December 2023 and from 2024 for entities with a tax period coinciding with the calendar year, residency in Italy is deemed if, for the greater part of the tax period, at least one of:
The legal office, or place of effective management (where strategic decisions are made), or principal place of ordinary management (where day-to-day management is carried out).
Foreign companies with Italian subsidiaries: residency criteria include direct/indirect holding by Italian tax resident persons or board composition mainly of Italian resident individuals.
Excluded from IRES:
State bodies and administrations, and major local entities (Regions, Provinces, Municipalities, unions of Municipalities).
Law 27.12.2019 n. 160 Art. 1, para. 721 provides that for IRES exemption, the exercise of state functions by public entities (Art. 74, para. 1, letter a) of TUIR) includes the educational activities of non-state universities legally recognized and authorized to issue academic degrees with legal value, provided they are not constituted as commercial companies.
OBJECTIVE SCOPE
Article 72 of TUIR defines IRES basis as income falling within the categories in Article 6 of TUIR:
Income from land (redditi fondiari)
Income from capital (redditi di capitale)
Income from employment (redditi di lavoro dipendente)
Income from self-employment (redditi di lavoro autonomo)
Business income (redditi d'impresa)
Other income (redditi diversi)
These income categories determine the scope of the IRES tax.
TAX PERIOD
Tax is due for a fiscal period, which is an autonomous tax obligation unless otherwise stated in Art. 80 (carryover of IRES excesses) and Art. 84 (carryover of tax losses).
The tax period is the fiscal year or management period, as established by law or in the articles of incorporation.
If the fiscal year/management period is not determined by law or articles, or is set for more than one year, the tax period defaults to the calendar year.
Article 110, para. 5 of TUIR requires annual adjustment of certain income components if the fiscal period is shorter or longer than twelve months:
Real estate income (Art. 90)
Depreciation of tangible fixed assets (Art. 102, para. 1)
Maintenance expenses (Art. 102, para. 6)
Depreciation of freely devolvable assets (Art. 104)
Credit devaluation and provisions for credit risk (Art. 106)
Provisions for maintenance expenses for ships and aircraft (Art. 107, para. 1)
Provisions for restoration or replacement of freely devolvable assets of public works concessionaire companies (Art. 107, para. 2)
DETERMINATION OF IRES AND STRENGTHENED DERIVATION PRINCIPLE (GENERAL OVERVIEW)
Determination steps (Articles 75-80 of TUIR; for capital companies/resident commercial entities, Chapter II, Sec I):
Quantification of the taxable base
Calculation of gross tax by applying the relevant rate
Deduction of tax credits
Deduction of withholdings, other tax credits, prior excesses, and advance payments
For non-commercial entities registered in the National Single Register of the Third Sector, rules of the Third Sector Code apply (when not overridden by transitional provisions of Legislative Decree 117/2017).
Subject Criteria for Tax Base Determination:
Capital companies and resident commercial entities: Articles 81-142 of TUIR
Resident non-commercial entities: Articles 143-150
Non-resident commercial and non-commercial entities: Articles 151-154
STRENGTHENED DERIVATION PRINCIPLE (ART. 83, TUIR)
The total income is determined by adjusting the profit or loss from the Income Statement for the year with increases/decreases from applying the criteria in Title II, Chapter II, Sec I, of the TUIR (Derivation principle).
For entities that prepare financial statements in accordance with IAS/IFRS and for entities other than micro-enterprises under Art. 2435-ter Civil Code that have not opted for ordinary financial statements, the qualification, timing, and classification criteria of their accounting standards apply, even overriding subsequent TUIR provisions.
The principle embodies substance over form, i.e., income components are derived from the financial statements’ economic substance as per applicable accounting standards.
STRENGTHENED DERIVATION PRINCIPLE (CONTINUED)
IAS decrees can limit/deactivate the principle in some respects; the rules also apply to OIC adopter companies.
Summary of applicability (as of June 22, 2022):
IAS adopters and resident corporations with IAS/IFRS financial statements determine tax base using their accounting standards’ qualification, timing, and classification criteria (override of some TUIR rules).
Micro-enterprises (except those with ordinary financial statements) determine civil-law result before taxes per the Civil Code with simplifications, and apply TUIR provisions of Title II, Chap II, Sec I (simple derivation).
Micro-enterprises with ordinary financial statements use strengthened derivation from June 22, 2022.
Micro-enterprises without ordinary financial statements: strengthened derivation does not apply.
FINANCIAL STATEMENT
The financial statement is prepared by the administrators at the end of the fiscal year; it represents the company’s financial position and economic performance.
It relies on Civil Code results for tax purposes.
Composition:
Balance Sheet (Assets and Liabilities) – Art. 2424, 2424-bis C.C. (equity and financial position)
Income Statement (Revenues and Costs) – Art. 2425, 2425-bis C.C.
Explanatory Notes – Art. 2427 C.C.
OBLIGATION TO PREPARE FINANCIAL STATEMENTS
Corporations (Art. 2423, 2423-bis, 2423-ter C.C.): Balance Sheet; Income Statement; Notes to Financial Statements (Public document).
Sole Proprietorships and Partnerships: Free format; Balance Sheet and Income Statement (Internal document).
RECIPIENTS OF THE FINANCIAL STATEMENTS
Internal: Entrepreneurs, Shareholders, Administrators, Employees.
External: Financiers, Suppliers, Clients, Tax Authorities.
THE FUNCTION OF FINANCIAL STATEMENTS
Informative Function: convey management, assets, and strategic decisions.
Control Function: tool for shareholders to monitor administrators.
Characteristics required for public-interest purposes: reliability, neutrality, clarity; uniform content/structure for corporations.
FINANCIAL STATEMENT – GENERAL PRINCIPLES
General Clauses – Art. 2423 C.C.: clarity, truthfulness, and accurate representation of financial position and economic results.
Clarity: intelligibility and comprehensibility.
Truthful and Accurate Representation: faithful representation of the reported situation.
FINANCIAL STATEMENT – PREPARATION
Principles (Art. 2423-bis C.C.):
Prudence
Continuity
Competence
Separate Valuation
Consistency
Valuation should reflect prudence and business continuity; profits realized by the closing date may be indicated; revenues/expenses pertain to the year; risks/losses considered even if known after closing; homogeneous elements valued separately; avoid changing valuation criteria year-to-year; exceptional deviations allowed with Notes.
BALANCE SHEET FORMAT (Stato Patrimoniale)
Counterposed Sections Format:
Assets (Attivo) vs Liabilities (Passivo)
Subsections include: A. Receivables from shareholders; B. Fixed assets; C. Current assets; D. Prepayments and accruals; etc.
INCOME STATEMENT FORMAT (Conto Economico)
Step-by-Step Format:
Values A: Production Value
B: Production Costs
C = A - B
D: Financial Income/Expenses
E: Value Adjustments of Financial Assets
F: Extraordinary Income/Expenses
G = C ± D ± E ± F (Result Before Taxes)
H: Income Taxes for the Year
I = G − H (Net Profit/Loss)
NOTES TO THE FINANCIAL STATEMENTS (ART. 2427, C.C.)
Purpose: enhance understandability and clarity; provide deviations, supplementary information, valuation criteria, movements, and other details for proper understanding.
NATIONAL AND INTERNATIONAL ACCOUNTING STANDARDS
National standards (OIC) issued/updated by the Italian Accounting Standards Board (OIC) – Art. 9-bis of Legislative Decree No. 38/2015.
International standards (IAS-IFRS) issued by IASB under Regulation (EC) No. 1606/2002.
ENTITIES APPLYING IAS-IFRS (IAS ADOPTERS)
Obligated entities (Art. 4 of Legislative Decree No. 38/2005):
Companies issuing financial instruments admitted to trading on regulated markets; banks and other financial intermediaries with listed securities; insurance/reinsurance companies issuing instruments on regulated markets and not preparing consolidated financial statements.
Authorized entities: consolidated financial statements or other forms as specified; exceptions in Art. 4.
ENTITIES DIFFERENT FROM IAS ADOPTERS
Micro-enterprises: Art. 2435-ter, Civil Code; not issuing securities on regulated markets; thresholds: assets ≤ €175,000; revenue ≤ €350,000; employees ≤ 5; may use simplified notes (no notes to financial statements) but must disclose commitments, guarantees, and related-party transactions at the bottom of the balance sheet; exempt from Art. 2423, para. 5 (derogation from ordinary rules) and from Art. 2426, para. 1, no. 11-bis (derivatives not reportable).
Small enterprises: assets ≤ €4.4m; revenue ≤ €8.8m; employees ≤ 50; may prepare abbreviated format; no cash flow statement; no amortized cost valuation for receivables/payables/ debt securities.
Medium and large enterprises: assets > €4.4m or revenue > €8.8m or employees > 50; prepare ordinary form.
SUMMARY (COMPARATIVE OVERVIEW)
IAS/IFRS adopters: IAS; OIC adopters; Micro/Small/Mid/Large thresholds summarized as follows:
MICRO: Assets ≤ €175k; Revenue ≤ €350k; Employees ≤ 5
SMALL: Assets ≤ €4.4m; Revenue ≤ €8.8m; Employees ≤ 50
MEDIUM & LARGE: Assets > €4.4m; Revenue > €8.8m; Employees > 50
For micro/other categories, derivation rules differ (simple vs strengthened) depending on ordinary financial statements.
POSITIVE INCOME COMPONENTS
1. Revenues
2. Positive contingent assets
3. Capital Gains
4. Active Interests
5. Final Inventories
6. Revenue from Real Estate Management
Revenues (Art. 85, TUIR)
Revenues consist of proceeds from sale of finished products and services; from raw/subsidiary materials; shares/quotas in participations; bonds and similar securities not constituting financial fixed assets; and other enumerated income (e.g., indemnities, monetary contributions or values in kind under contracts; contributions due for the fiscal year by law).
Paragraph 2 includes the “normal value” of goods for sale and similar used personally or allocated to shareholders not for business use (not applying to services).
P.EX (Participation Exemption) – 95% Exemption on Capital Gains
Applies to capital gains on sale of shareholdings by Italian companies; conditions:
Shareholding held uninterruptedly for at least 12 months prior to sale
Investment classified under financial fixed assets in the first tax period of uninterrupted ownership
Subsidiary carries on a commercial activity (investments in real estate-management activities are not eligible)
Majority of subsidiary’s income is not generated in a tax haven or privileged regime
The third condition must be met at sale time and in the three preceding years; the fourth condition must be met since the start of the shareholder period.
If conditions are not met, capital gains are ordinarily taxed.
Dividends
Dividends received by Italian resident companies from Italian or non-tax haven countries are exempt from IRES to the extent of 95% of the amount.
No exemption for dividends from entities resident in tax haven jurisdictions.
To avoid standard taxation on dividends from foreign entities resident in tax havens, Italian parent companies may elect a substitute tax regime (9% to 6% tax rates) on distributed profits and retained reserves. For calendar-year entities, the substitute tax is due by 30 June 2024 and the option is required in the tax return. This substitute tax increases the tax value of the participation for determining capital gains.
Positive Contingent Assets (Art. 88)
Positive contingent assets include: revenues/income received related to expenses/losses deducted earlier; higher-than-previous income; or the non-existence of previously deducted expenses.
These generally rebalance previously deducted negative components.
Assimilated Positive Contingent Assets (par. 3)
Indemnities for damages other than goods for sale; monetary or in-kind income from contributions or donations (excluding those under f), g), h) of Art. 85).
Non-taxable Positive Contingent Assets
Shareholder contributions in cash or in kind; waivers by shareholders of credits (to the extent they surpass fiscal value) may be treated as a positive contingent asset; debt reductions in bankruptcy or equivalent foreign procedures are not treated as positive contingent assets.
Capital Gains (Art. 86)
Scope: gains from assets related to the business but not inventory goods
Realization through transfer for consideration, compensation, or allocation to non-business purposes
Taxation possible over five fiscal years for assets held at least three years
Active Interests
Recognized in the year they accrue; measured on amortized cost (effective interest) with updating; late payment interest taxed on a cash basis when it is received.
If the interest rate isn’t written, use the legal rate (Art. 89, para. 5).
Final Inventories
Valuation not by specific costs or Art. 93 rules; minimum value determined by grouping goods by nature and value; tax value can reflect LIFO, weighted average, FIFO, or other allowed methods used in financial statements.
Revenue from Real Estate Management
Civil law regime vs Tax regime: civil law operates under amortizable assets; tax regime differentiates between instrumental assets, goods used in production/exchange, and patrimonio (investment properties).
Instrumental Assets, Patrimonio
Instrumental assets for business operation: revenues, depreciation, costs
Goods whose production/exchange is direct activity: costs, revenues, inventories
Patrimonio (investment properties): property income treated differently for tax purposes
NEGATIVE INCOME COMPONENTS
1. Depreciation of Tangible Assets (Art. 102)
2. Leased Assets
3. Maintenance Expenses
4. Purchase, leasing, and rental costs for cars and related costs
5. Amortization of Intangible Assets
6. Expenses Relating to Multiple Years
7. Passive Interests
8. Passive Contingencies
9. Capital Losses
Labor Cost
Depreciation of Tangible Assets (Art. 102)
All fixed assets used in the business (except land) are depreciable for tax purposes.
Maximum depreciation rates are set by a Ministerial Decree (Dec 31, 1988); rates differ by asset type and sector.
Tax depreciation is allowed from the period the asset is first placed in use; in the first tax period, the rate cannot exceed half the normal rates.
An optional “super/hyper depreciation” regime existed until FY 2019 to incentivize certain asset purchases.
Depreciation Details (Summary)
Start of depreciation: the fiscal year the asset becomes operational.
Depreciation rates: set by ministerial decree; reduced by 50% in the first year.
Mixed-use assets (e.g., cars, motorcycles, cell phones): reduced deductible depreciation; cap on tax value (Art. 102, para. 9, and Art. 164, TUIR).
Assets with unit cost ≤ €516.46: fully deductible in the fiscal year (Art. 102, para. 5).
Leased Assets (Finance/Operating Leases post-2014)
For finance leases signed from Jan 1, 2014: lease payments net of implicit interest are deductible as follows:
Movable assets: not less than half of fiscal depreciation period
Immovable assets: not less than 12 years
Vehicles with limited deductibility (Art. 164, para. 1, letter b): within the limits relevant to depreciation quotas
If the contract duration is shorter, deductions extend over a longer period; implicit interest deductible under art. 96 TUIR.
Asset Redemption vs Non-Redemption (OIC vs IAS adopters)
OIC adopter: asset recorded in balance sheet; IAS adopter: not applicable (asset already owned).
Non-redemption: OIC adopter: no effect; IAS adopter: gain/loss recognized on asset ownership.
Contract transfers: OIC adopter: trigger potential gains; IAS adopter: gain recognized on owned asset.
Maintenance Expenses (Art. 102, para. 6)
Deductible maintenance/repair/modernization costs not capitalized, within 5% of total cost of all depreciable assets at the start of the year.
Excess deductible over 5% is deductible in equal installments over the following 5 fiscal years.
Routine maintenance contracts with third parties remain deductible as before.
Newly established companies: the year’s initial total cost is considered in the first year.
Maintenance Costs – Example (illustrative)
Example table illustrating historical cost vs maintenance base vs deductible limits over years; shows 5% limit and annual carryover of excess where applicable.
Purchase, Leasing, and Rental Costs for Cars
Company cars: 100% deductible
Cars not predominantly used for tax purposes: 20% deductible
Cars predominantly used for business: 70% deductible
Personal or rented cars used for a business trip: deductible per distance or under statutory limits
Capital gains/losses are recognized in the same proportion as tax-deductible depreciation relative to total depreciation
Amortization of Intangible Assets (Art. 103)
Rights to use intellectual works, patents, processes, formulas: deductible up to 50% of cost
Trademarks and goodwill: deductible up to 1/18 of cost or 1/5 (per Legislative Decree no. 185/2008 realignment)
Concession rights and other registered rights: deductible based on usage period or contract/law
Expenses Relating to Multiple Years (Art. 108)
Studies/basic research: single-year deduction
Advertising/promo: single-year deduction
Representation expenses: deductible according to ministerial decree based on company size
Other multi-year charges: deductible according to allocable portion for the year
For newly established companies: full deduction or installments from first year of revenue generation; potential balance-sheet discrepancies may allow amortization within five years after incurrence
Passive Interests (Art. 96)
Applies to passive interests and assimilated financial charges, and to related financial income from accounting principles; includes elements from several laws and decrees; for entities working with Public Administration, active interests also include statutory interest on arrears
Procedure (Excluding Banks/Insurance)
Step I: determine net passive vs active interests (A-B) and subtract prior-year active income (C) to get D
Step II: baseline 30% of ROL; apply against D and previous-year ROL (FIFO, up to 5 years) to obtain F; apply further reductions against ROL amounts as needed
Gross operating income (ROL) definition for main business activity (difference between revenue and production costs, excluding specific items) used to compute the 30% limit
For IAS adopters, equivalent income statement items are used
Carryforward Rules
If passive interests are not deductible in a year, they may be carried forward indefinitely to offset future positives, subject to the 30% ROL limit and the excess of active income
If active interests/ROL exceed limits, the excess can be carried forward and potentially used over up to five years (depending on the ROL threshold)
Other Details – Passive and Contingencies
Passive Contingencies (Art. 101, para. 4): arise from failure to achieve or recover revenues previously recognized; or expenses/losses related to prior revenues; and lack of existence of previously recorded assets
Capital Losses (Art. 101, para. 1): losses on non-operational assets; tax relevance mainly on realization (sale or compensation) and requires certain elements to be deductible
Labor Cost (Art. 95): general deductibility of employee compensation; includes special cases such as accommodations, housing for employees, travel meal costs, compensation for directors, profit-sharing, redundancy incentives, social utilities; executives’ compensation treated as assimilated income under Art. 50(1)(c-bis)
A REAL EXAMPLE FOR FINANCIAL STATEMENTS – ITA AIRWAYS (FY 2023)
Consolidated balance sheet – assets: detailed categories such as non-current assets (fleet, rights of use, intangible assets, financial assets, etc.) and current assets (inventories, trade receivables, cash, etc.).
Consolidated balance sheet – liabilities/equity: share capital, reserves, profits/losses, provisions for liabilities, current and non-current liabilities, lease liabilities, tax liabilities, derivatives.
Consolidated income statement – revenues, operating costs, depreciation/amortization, financial items, taxes, and net result.
The example illustrates IAS/IFRS presentation and the structure of a large airline’s financial statements (assets, liabilities, equity, income statement, notes).
TAX CALCULATION – BASICS
The IRES taxable base is determined under the worldwide taxation principle: income produced abroad but attributable to Italian resident entities is taxed in Italy; non-residents taxed only on Italian-source income.
IRES rate: 24\%; plus, for financial intermediaries a surcharge: 3.5\% on IRES (i.e., additional rate).
There are exemptions, surcharges, and special regimes (see below: non-profit reductions, ZES incentives, shell company surcharge).
TAX ADJUSTMENTS
General principles: adjustments reflect relevance (Principio di inerenza) and accrual (Principio di competenza).
Four types of variations:
Increases in positive components
Increases that reduce/eliminate negative components
Decreases that remove/reduce positive components
Decreases in negative components
Tax adjustments can be used to increase taxable income when required by tax law, or to reduce taxable income when tax law allows; some rules protect taxpayers (neutral rules) and some protect authorities.
TAX ADJUSTMENTS – ACCRUAL PRINCIPLE AND TIMING
Accrual principle: the economic event giving rise to an income component is critical; revenues are recognized when economically realized; costs are recognized when related revenues are generated (matching principle).
Cash principle: recognition occurs when cash flows occur; this may conflict with accrual principle.
The accrual principle can create temporary differences (deferrals, capitalized costs, etc.) and permanent differences (exempt income or exempt investments).
Violations of accrual can affect deductibility in the period and may lead to refunds or carry-forwards depending on statute rules.
TAX CALCULATION – AN EXAMPLE
Pre-tax profit scenario: 200,000; with adjustments: +50,000; IRAP deduction: 2,000; resulting taxable base: 200{,}000 + 50{,}000 - 2{,}000 = 248{,}000\,€
IRES rate: 24\%\text{ (0.24)}; IRES due: 248{,}000 \times 0.24 = 59{,}520\,€
This example demonstrates reconciliation of statutory accounting results to tax base using fiscal variations and deductible contributions.
INCOME TAX RETURN
The return involves forms RF (for positive components, non-analytical components, etc.), RN (taxable income), and RF series capturing adjustments; RF4-RF32 illustrate the detailed components and variations; the RF forms feed into the final tax liability on Form RU (return) and related schedules.
The presentation shows the Italian process of calculating and reporting taxable income and adjustments in the CIT return.
TAX RATE AND SPECIAL PROVISIONS
Base IRES rate: 24\%; Surcharge for financial intermediaries: 3.5\% on IRES; Exclusions apply to certain entities.
50% Reduction for Non-Profit Entities (Art. 6 of DPR 601/73): applies to social assistance entities, educational institutes, etc., provided the activity is non-profit and in line with EU/italian provisions; substantiation of actual activities prevails over stated purpose.
50% Reduction for New Initiatives in Special Economic Zones (ZES): Law 178/2020; benefits apply to investments in new activities in ZES, for six fiscal years; conditions include staying operational in ZES for at least ten years and retaining jobs for ten years; failure to meet conditions results in loss of benefit and obligation to repay.
IRES Surcharge on Shell Companies: 10.5% surcharge applied to the IRES rate for shell companies.
DEDUCTIONS
From gross IRES, deductions per Article 78 of TUIR include:
19% of charitable donations up to €1,500 to amateur sports associations (Art. 15, para. 1, letter i-ter of TUIR)
19% of cash donations to the State Bond Amortization Fund (Art. 15, para. 1, letter i-novies of TUIR)
Additional deductions are available for:
Energy-efficient renovations
Investments in innovative startups
TAX CREDITS
Tax credits must be deducted (e.g., investment funds, foreign taxes, etc., as listed in Form RU)
ACE – A FOCUS ON DEDUCTIONS (ACE) AND RECENT CHANGES
As of the fiscal year following 31 December 2023, the ACE regime is repealed, but unused ACE credits from previous years can be used until fully utilized.
ACE previously provided a deduction equal to the net increase in the equity employed multiplied by a set rate (1.3% from FY 2019). The base increase included equity contributions and retained earnings, minus certain reductions (dividends, investments in controlled companies, intra-group acquisitions, etc.). If the allowance exceeded the taxable base, the excess carried forward.
TAX CREDITS – OVERVIEW
Foreign tax credit: credit for foreign-source income taxed abroad; limit is the lower of foreign tax incurred and the portion of the IRES liability attributable to foreign-source income; carry back/forward up to eight years; separate treatment per country for multi-country income.
Other credits include: investments in new capital assets, R&D, ERP-related IT investments, Zone-specific credits, Patent Box regime, etc. Details are provided in subsequent sections.
TAX CREDITS – INVESTMENTS IN NEW CAPITAL ASSETS
Assets included in Annex A (so-called assets 4.0) offer different rates depending on the year and cost; for investments between 2023-01-01 and 2025-12-31 (or up to 2026-06-30 with conditions):
20% for investments up to €2.5 million
10% for investments between €2.5 million and €10 million
5% for investments between €10 million and €20 million
Intangible assets in Annex B (including cloud computing) have different rates under Law No. 234/2021: for FY 2023 20%; FY 2024 15%; FY 2025 10%.
A separate ERP-related credit applies to investments in ERP that enable process optimization, energy reduction, or production efficiency; rates for such investments: 35% up to €2.5 million; 15% up to €10 million; 5% up to €50 million.
TAX CREDITS – R&D (RESEARCH AND DEVELOPMENT)
R&D tax credit available to all enterprises for eligible activities (fundamental, industrial, and experimental development per EC guidance): 20% of eligible costs (12% in FY 2020), with ceilings: €4 million per year (€3 million in FY 2020).
The 2021 Budget Law extended higher rates for two years in southern regions; the 2022 Budget Law extended through 2031 but with rates reduced to 10% (annual cap €5 million).
Eligible costs include: personnel costs; depreciation charges; lease costs; outsourcing contracts for eligible R&D; depreciation related to industrial property; consultancy; materials and supplies used in R&D.
TAX CREDITS – SOUTHERN ITALY ZONES (ZES)
Credit for investments in Southern Italy Special Economic Zones (ZES) provides a variable rate depending on size of company and region; nominal rates: large companies 15% in Abruzzo; 30% in Molise, Basilicata, Sardinia; 40% in Campania, Puglia, Calabria, Sicily; higher rates for medium/small companies due to EU-based definitions. The credit applies to new capital goods, land, and building construction.
NEW PATENT BOX REGIME
Law Decree no. 146 (Oct 21, 2021), amended by the 2022 Budget Law, shifted from a profit-based incentive to a cost-based incentive (effective 2021).
Costs for R&D activities related to IP (software, patents, designs, models) can be recognized for tax purposes at 110% of the relevant expenditure for both IRES and IRAP; R&D costs with related parties are not eligible.
The election for the new Patent Box is irrevocable for five fiscal years and must be renewed annually in the CIT return with proper documentation.
WITHHOLDINGS
A base WHT rate of 26% applies on yields on loans and securities paid by Italian resident entities to both Italian and non-Italian residents; rate can be reduced under DTTs, EU directives, or special regimes. Interest on government bonds has a 12.5% domestic WHT.
Deduction/offset options for withholdings (Article 79 TUIR, Article 22):
Deduct the withholdings from the tax related to the period of income accrual, or from the tax related to the period in which the withholdings were applied.
Withholdings after the income tax return submission are deductible from the tax related to the period in which they were applied.
Withholdings on interest and finance activities (DPR 600/73 and DL 546/81) are deductible in the tax period in which the related income contributes to total income, even if not received.
The deductible amount is proportional to the portion of income contributing to total income.
PREVIOUS EXCESSES AND ADVANCE PAYMENTS
Excess tax from the previous tax period and advance payments are deducted from the tax due.
If total foreign taxes paid, withholdings, and advance payments exceed tax due, a taxpayer may:
Apply the excess to reduce tax for the following period
Request a refund when filing the return
Use the excess in compensation under Art. 17 of Legislative Decree 241/97
Transfer of IRES excesses: Art. 43-bis of DPR 602/73 allows transfer of credits requested for a refund; transfer must be documented and notified to tax authorities; transferee can use excesses for vertical compensation (IRES) and horizontal compensation (other debts) within applicable limits.
PAYMENT OF TAXES
Advance payments: generally equal to the net tax liability of the previous period; due during the current tax period; split into two installments: 40% by the end of the sixth month after year-end and 60% by the end of the 11th month after year-end.
For taxpayers under the Synthetic Index of Tax Reliability: advance payments are split into two equal installments.
Settlement payments: due by the end of the sixth month after the year-end to which they refer.
Tax payments must be made via the F24 form electronically to the tax authorities.
OFFSETTING OF TAXES
Offsetting of payables/receivables (not claimed as a refund) arising from different taxes is allowed up to a yearly limit of €2,000,000.
To offset credits exceeding €5,000, a “conformity mark” by a qualified professional is required on the return.
Filing of the F24 form must go through the tax authorities’ Entratel system for offsetting tax liabilities with other tax credits.
No offsetting is allowed for unpaid taxes resulting from official payment notices and exceeding €1,500.
Since 1 July 2024, a general prohibition on offsetting has been introduced for expired tax rolls or enforceable assessments exceeding €100,000.
KEY NOTATION AND GUIDANCE TIMELINE
Some items (e.g., IAS adoption, derivation rules, and new regimes) are effective from June 22, 2022 (date of the strengthened derivation principle implementation for many entities).
ACE repeal effective post-2023; remaining ACE credits usable until exhausted.
ZES and Patent Box regimes have specific time frames and eligibility windows for investments/claims.
PRACTICAL TAKEAWAYS
IRES is a tax on company profits with a broad base defined by financial statements adjusted for tax rules; the tax base is adjusted via a mix of positive and negative components with rules for qualifications, timing, and classification (strongly influenced by accounting standards for many entities).
The strengthened derivation principle brings accounting principles to the core of tax computation, enabling substance-over-form interpretation, particularly for IAS adopters.
The tax system integrates a wide set of deductions, credits, and incentives (ACE/ZES/Patent Box/R&D/ERP-related credits) designed to stimulate investment and growth, with specific eligibility criteria and time frames.
Compliance requires careful reconciliation between financial statements and tax returns, including the use of forms RF/RN and the relevant credit/offset rules, plus documentation for any offsetting and transfers.
LEGAL SOURCES
ITALIAN CONSTITUTION (1947)
TUIR (Italian Presidential Decree No. 917/1986, amended for IRES)
ITALIAN CIVIL CODE (ART. 2423 ONWARDS)
OIC – IAS/IFRS (National and International Accounting Standards)
WHO? WHICH? WHEN?
IRES (CIT) is due from: Joint-stock companies, limited partnerships, limited liability companies, cooperatives, mutual insurance societies; Public and private entities (including trusts) resident in Italy, or non-resident entities with or without legal personality.
RESIDENCY AND EXCLUSIONS
Residency in Italy: Deemed if, for the greater part of the tax period, at least one of the legal office, effective management, or principal ordinary management is in Italy (from FY 2024).
Exclusions: State bodies, administrations, major local entities, and non-state educational universities if not constituted as commercial companies.
OBJECTIVE SCOPE
IRES basis (Art. 72 TUIR) includes income from land, capital, employment, self-employment, business, and other income (Art. 6 TUIR).
TAX PERIOD
The tax period is typically the fiscal/management year, defaulting to the calendar year if not specified or set for over one year.
DETERMINATION OF IRES AND STRENGTHENED DERIVATION PRINCIPLE
Determination Steps: Quantification of taxable base, calculation of gross tax, deduction of tax credits, withholdings, prior excesses, and advance payments.
Strengthened Derivation Principle (Art. 83, TUIR): Total income is determined by adjusting the Income Statement's profit/loss using TUIR criteria. For IAS/IFRS adopters (and certain OIC adopters from June 22, 2022), accounting standards' qualification, timing, and classification apply, even overriding some TUIR provisions. This prioritizes economic substance over form.
FINANCIAL STATEMENT
Prepared by administrators, representing financial position and economic performance.
Composition: Balance Sheet (Art. 2424 C.C.), Income Statement (Art. 2425 C.C.), and Explanatory Notes (Art. 2427 C.C.).
General Principles: Clarity, truthfulness, accurate representation; prudence, continuity, competence, separate valuation, consistency (Art. 2423-bis C.C.).
NATIONAL AND INTERNATIONAL ACCOUNTING STANDARDS
OIC: National standards by the Italian Accounting Standards Board.
IAS-IFRS: International standards by IASB, mandatory for listed companies, banks, and major financial/insurance intermediaries.
ENTITIES DIFFERENT FROM IAS ADOPTERS
Micro-enterprises: Assets \le \text{€}175 \text{k}, revenue \le \text{€}350 \text{k}, employees \le 5; may have simplified notes or no notes, with specific disclosure rules.
Small enterprises: Assets \le \text{€}4.4 \text{m}, revenue \le \text{€}8.8 \text{m}, employees \le 50; may use abbreviated format.
Medium and large enterprises: Prepare ordinary form.
POSITIVE INCOME COMPONENTS
Revenues (Art. 85, TUIR): Proceeds from sales, services, materials, contributions. Includes "normal value" of goods used personally.
Participation Exemption (P.EX): 95% exemption on capital gains from shareholdings meeting specific conditions (e.g., 12-month holding, commercial activity, non-tax haven residency).
Dividends: 95% IRES exemption for dividends from Italian or non-tax haven entities. Specific substitute tax regime (9% to 6%) for tax haven dividends.
Positive Contingent Assets (Art. 88): Income related to previously deducted expenses/losses; non-taxable for shareholder contributions or debt reductions in bankruptcy.
Capital Gains (Art. 86): Gains on non-inventory business assets; can be taxed over five years if held at least three years.
Active Interests: Recognized when they accrue, measured at amortized cost.
Final Inventories: Valued by grouping goods; tax value uses financial statement methods (LIFO, FIFO, etc.).
NEGATIVE INCOME COMPONENTS
Depreciation of Tangible Assets (Art. 102): Allowed for fixed assets (except land) from first use, capped at 50% in the first year. Specific rules for mixed-use assets and low-value assets (\le \text{€}516.46).
Leased Assets: Deductible lease payments (net of implicit interest) over specified periods (e.g., half of fiscal depreciation for movables, 12 years for immovables for finance leases after Jan 1, 2014).
Maintenance Expenses (Art. 102, para. 6): Deductible up to 5% of total depreciable assets; excess carried forward for five years.
Purchase, leasing, and rental costs for cars: Deductibility varies by use (100% for company cars, 20% for not predominantly business, 70% for predominantly business).
Amortization of Intangible Assets (Art. 103): Varies by asset (e.g., 50% for patents, 1/18 for goodwill).
Expenses Relating to Multiple Years (Art. 108): Advertising, representation, and other multi-year charges have specific deduction rules.
Passive Interests (Art. 96): Deductible up to 30% of Gross Operating Income (ROL); excess can be carried forward indefinitely.
Passive Contingencies (Art. 101, para. 4): Arise from unrecovered revenues or losses related to prior revenues.
Capital Losses (Art. 101, para. 1): Losses on non-operational assets, deductible upon realization.
Labor Cost (Art. 95): Generally deductible, with special rules for certain benefits.
TAX CALCULATION – BASICS
Worldwide Taxation Principle: Italian resident entities are taxed on worldwide income; non-residents on Italian-source income.
IRES Rate: 24\%; +3.5\% surcharge for financial intermediaries.
TAX ADJUSTMENTS
Reconcile financial statement results to the tax base based on relevance (Principio di inerenza) and accrual (Principio di competenza) principles.
Create temporary or permanent differences to increase or decrease taxable income.
TAX RATE AND SPECIAL PROVISIONS
Base IRES Rate: 24\%. Surcharge for financial intermediaries and shell companies (10.5\%$).
Reductions: 50% for non-profit entities (Art. 6 of DPR 601/73) and new initiatives in Special Economic Zones (ZES) for six years with conditions.
DEDUCTIONS & TAX CREDITS
Deductions: Specific donations (19% up to €1,500 to sports associations, etc.).
Tax Credits: Available for foreign taxes, investments in new capital assets (Annex A for Industry 4.0, Annex B for intangibles, ERP-related IT), R&D (20% of eligible costs with caps, extended in Southern regions), Southern Italy ZES, and the new Patent Box regime (110% recognition of R&D costs for IP). The ACE regime is repealed post-2023, but unused credits are carryforwardable.
WITHHOLDINGS, PREVIOUS EXCESSES AND ADVANCE PAYMENTS
Withholdings: Generally 26% on interest/securities yields (reduced by DTTs). Deductible from tax related to income accrual/application period.
Excesses/Advance Payments: Deducted from tax due; excess can be carried forward, refunded, or used for offsetting.
PAYMENT OF TAXES
Advance Payments: Generally two installments (40% and 60%) of previous year's net tax liability.
Settlement Payments: Due by the end of the sixth month after year-end.
Payments via F24 form electronically.
OFFSETTING OF TAXES
Allowed for payables/receivables up to €2,000,000 yearly. Requires "conformity mark" for credits > €5,000$$. Restrictions apply for unpaid taxes or large expired tax rolls.