Global Tax Alert | 28 April 2014

Italian Government reduces IRAP rate and enacts other tax measures

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On 24 April 2014, the Italian Government released Law Decree no. 66 (Decree) which was published in the Official Gazette on the same day. The Decree confirms some tax measures announced by the Italian Prime Minister on 12 March 2014.1 The Decree entered immediately into force on the day of its publication in the Official Gazette but the Parliament will have 60 days to convert it into a permanent law and pass potential amendments.

The main tax measures included in the Decree are the following:

  • Reduction of the Italian regional tax on productive activities (IRAP) by 10%
  • Increase of the flat tax on financial income from 20% to 26%
  • Acceleration of the payment related to the 2013 one-off step up tax
  • Introduction of an individual income tax (IRPEF) bonus

IRAP reduction

The standard IRAP rate currently levied at 3.9% is reduced to 3.5%.

The standard rates for financial institutions and insurance companies are reduced from 4.65% and 5.9% to 4.2% and 5.3% respectively.

The rate reductions will be effective as of fiscal years starting after 31 December 2013.

Increase of the flat tax on financial income

The 20% flat tax currently applicable to dividends, interest, and certain capital gains will increase to 26% as of 1 July 2014. Interest and capital gains on Italian Government Bonds remain taxable at the reduced 12.5% rate.

Acceleration of the payment related to the 2013 one-off step up tax

The Decree introduced an important amendment to the one-off asset step up regime introduced by the 2014 Stability Law.2 This regime includes an opportunity for Italian companies to step up the tax basis of qualifying assets reported in the 2013 balance sheet through the payment of a 12% or 16% substitute tax.

Pursuant to the 2014 Stability Law the substitute tax should have been paid in three annual installments starting from the deadline for the payment of the corporate income tax balance related to fiscal year 2013 (i.e., starting from 16 June 2014 for calendar year companies).

The Decree now establishes that the substitute tax shall instead be paid all at once by the deadline for the payment of the corporate income tax balance related to fiscal year 2013 (thus within 16 June 2014 for calendar year companies).

Introduction of an IRPEF bonus

As of May 2014, qualifying Italian employees and quasi-employees with a gross annual income up to €24,000 will receive a bonus for IRPEF purposes in the amount of €80. Taxpayer with an income up to €26,000 will receive a lower amount. The bonus is recognized in the form of a tax credit that should be immediately computed by the employers and paid to the employees in their monthly pay. The provision applies only for fiscal year 2014.

Endnotes

1. For additional information on the increase of the flat tax, see EY Global Tax Alert of 14 March 2014, Italy announces increase of tax on financial income and decrease of IRAP, dated 14 March 2014.

2. For additional information on the step-up regime, see EY Global Tax Alert, Italy issues significant tax measures including new step-up opportunities and provisions for Digital Economy companies, dated 29 January 2014.

For additional information with respect to this Alert, please contact the following:

Studio Legale Tributario in association with Ernst & Young, Milan
  • Domenico Borzumato, ITS
    +39 02 851 4503
    domenico.borzumato@it.ey.com
  • Marco Magenta, ITS
    +39 02 851 4529
    marco.magenta@it.ey.com
  • Marco Ragusa, FS
    +39 02 851 4926
    marco.ragusa@it.ey.com
Studio Legale Tributario in association with Ernst & Young, Bologna
  • Mario Ferrol, ITS
    +39 335 122 9904
    mario.ferrol@it.ey.com
Ernst & Young LLP, Italian Tax Desk, New York
  • Emiliano Zanotti
    +1 212 773 6516
    emiliano.zanotti@ey.com
  • Andrea De Nigris
    +1 212 773 0478
    andrea.denigris@ey.com
  • Fabio Rousset
    +1 212 773 9302
    fabio.rousset@ey.com

EYG no. CM4376