NEWSLETTER N. 3 - 2019

  • 2019 BUDGET LAW

    Please find below the tax news introduced by the Italian law no. 145 as of 30 December 2018, as published in the Official Gazette of the Republic of Italy no. 302 as of 31 December 2018 (2019 Budget Law).

  • VAT RATES

    VAT rate increases planned for 2019 in the previous budget law have been cancelled. Hence, VAT rates remain unchanged in 2019.

    In addition, VAT rate increases will be reshaped from 2020 onwards.  More specifically, the regular VAT rate of 22 percent is increased by further 0.3 percentage points in 2020 (in addition to 2.2 + 0.7 points already provided for) and by 1.5 percentage points as of 2021 (in addition to 0.1 points already provided for).

    Therefore, the regular VAT rate will increase to 25.2 percent in 2020 and to 26.5 percent as of 2021.

    The reduced VAT rate will increase from 10 percent to 13 percent in 2020.

  • 15 PERCENT FLAT TAX SCHEME

    The flat tax scheme for individuals carrying on businesses or for self-employed professionals under the Italian law 190/2014 is extended to taxable persons that generated income or fees up to EUR 65,000 in the previous years.

    The following individuals are excluded from such flat tax scheme:

    1. individuals with holdings in partnerships, associations or family businesses or that control a limited liability company or partnerships, but only if they carry on activities directly or indirectly associated to those already carried on as businesses or as a (self-employment) profession;
    2. individuals whose activity is carried on primarily vis-à-vis employers with whom employment contracts are or were in place in the previous two years or vis-à-vis taxable persons associated to such employers.
  • 20 PERCENT FLAT TAX

    As of 2020, individuals carrying on a business or a self-employed profession that generated income or fees in the range between EUR 65,001 and EUR 100,000 in the previous tax year may subject their business income or their self-employed income - as determined on a case-by-case basis - to a 20 percent substitute tax.

    The following taxable persons are excluded from such tax benefit:

    • taxable persons availing themselves of special tax schemes;
    • non-resident taxable persons, save for those resident in an EU or EEA country which achieve 75 percent of their income in Italy;
    • taxable persons that sell new real estate properties or means of transport;
    • taxable persons with holdings in partnerships, associations or family businesses or that control a limited liability company or partnerships, but only if they carry on activities directly or indirectly associated to those already carried on as businesses or as a (self-employed) profession;
    • taxable persons whose activity is carried out primarily vis-à-vis employers with whom employment contracts are or were in place in the previous two years or vis-à-vis taxable persons associated to such employers.

    Income subject to the 20 percent flat tax is not subject to withholding tax. Furthermore, taxable persons using the 20 percent flat tax are subject neither to withholding taxes nor to VAT.

  • INDIVIDUAL INCOME TAX (IRPEF) AND CORPO-RATE TAX (IRES) RATES REDUCED BY 9 PERCENT-AGE POINTS CORPORATE TAXPAYERS (IRES)

    As of the tax period following 31 December 2018, corporate taxpayers (IRES) may subject their entire declared net income to a 15 percent tax rate (regular 24 percent IRES rate reduced by 9 percentage points) as regards the part related to:

    • profits of the previous tax period placed in reserves other than unavailable reserves up to the amount equal to the sum of:
    • the investments in new tangible fixed assets destined to production facilities in Italy, equal to the amortization and depreciation deductible in the tax period and <<up to the increase of the total fiscal cost of all tangible fixed assets … >> vis-à-vis the tax period as of 31 December 2018 (excluded real estate property and vehicles used for business and for private purposes);
    • the cost of employees employed for a limited or an unlimited period of time and deployed to production facilities in Italy for most of the tax period, up to the increase vis-à-vis the personnel cost of the tax period as of 31 December 2018; in any case, there must have been an increase in the average number of employees vis-à-vis the number of employees employed as of 30 September 2018, net of the decreases in controlled or associated companies or companies belonging to the same taxable person.

    In each tax period, it is allowed alternatively either:

    • to add to the respective items of the subsequent business year the part of profits placed in reserves and the sum of investments and personnel cost that exceed the total net income declared in the tax period;
    • to add to profits placed in reserves of the subsequent business year the part of profits placed in reserves that exceed the sum of investments and personnel costs;
    • to add to the sum of investments and personnel costs of the subsequent business year the part of the sum of investments and personnel costs that exceed the profits placed in reserves.

    For companies under the tax consolidation scheme, the tax rate is reduced by the consolidating company <<up to the amount of income exceeding the losses offset>>.

    As regards limited companies under the tax transparency regime, each shareholder is entitled to the tax benefit in proportion to the shareholding owned.

    The tax benefit may be cumulated with other tax incentives, save for those establishing special flat tax regimes for income determination.

  • INDIVIDUAL INCOME TAXPAYERS (IRPEF)

    If the above conditions are met, the income of sole proprietors and partnerships is subject to individual income tax (IRPEF). Tax rates reduced by 9 percentage points, starting from the highest rate, as provided for by income tax brackets, apply to such business income.

  • NON-PROFIT ORGANIZATIONS - CORPORATE TAX RATE (IRES)

    The tax benefit under section 6 of the Italian legislative decree 601/1973 providing for a 50 percent corporate tax (IRES) rate reduction for non-profit organizations is repealed.

    The repeal is effective as of the tax period subsequent to 31 December 2018. However, in order to determine prepayments, the tax relating to the previous year is determined by applying the new provision.

  • DEDUCTION OF MUNICIPAL PROPERTY TAX (IMU) ON IMMOVABLE PROPERTY USED FOR THE PUR-POSE OF TRADE

    In order to determine business or self-employed income, the deductible amount of municipal tax on immovable property used for the purpose of trade is increased from 20 percent to 40 percent.

  • LOSSES OF PARTNERSHIPS

    The rules on losses deriving from trade companies and holdings in limited partnerships (società in accomandita semplice) or general partnerships (società in nome collettivo) are amended as follows:

    Losses are offset against the business income generated in the tax period. The difference, if any, is offset in subsequent business years up to no more than 80 percent of the business income generated in such business years, and for the entire amount covered.

    Furthermore, the five year deadline for carrying forward such losses no longer applies.

    The new provisions apply as of the 2018 tax period.

    The same provisions apply for losses of limited liability companies under the "tax transparency regime" pursuant to section 116 of the Italian Tax Code (TUIR).

    Moreover, the same rules extend to losses incurred by taxable persons adopting the simplified accounting scheme (small businesses) under section 66 of the Italian Tax Code (TUIR), which hence cannot be offset against total income to be subjected to income tax (IRPEF). However, the following transitional rules apply to such taxable persons adopting the simplified accounting scheme: 

    • losses incurred in the 2017 tax period, that are not allocated based on the previous regime, can be offset against business income as follows:
    • by no more than 40 percent of the respective income in 2018 and 2019,
    • by no more than 60 percent of the respective income in 2020,

    for the entire amount covered;

    • the losses of the 2018 tax period are offset against business income generated in 2019 and 2020 by no more than 40 percent and 60 percent of the relevant income respectively, and for the entire amount covered;
    • the losses of the 2019 tax period are offset against business income generated in 2020 by no more than 60 percent of the relevant income, and for the entire amount covered.
  • DIGITAL SERVICES TAX (DST)

    A tax on digital services is introduced.

    From a subjective point of view, DST applies to all enterprises that during a calendar year, either individually or at group level, generate:

    • a total income of no less than EUR 750 million;
    • an income from digital services generated in Italy of no less than EUR 5.5 million.

    From an objective point of view, DST applies to income from the supply of the following services to a user located in Italy:

    • placing on a digital interface of advertising targeted at users of that interface;
    • making available of multi-sided digital interfaces to users, which allow users to find other users and to interact with them, and which may also facilitate the provision of underlying supplies of goods or services directly between users;
    • transmission of data collected about users which has been generated from such users' activities on digital interfaces.

    Income from intra-group services is excluded from DST.

    DST applies to income, including costs, net of VAT and other indirect taxes, at 3 percent and is due on a quarterly basis.

    The DST implementation provisions are set forth in a decree released by the Italian Ministry of Economy and shall be effective as of the 60th day upon publication of such decree.

    The digital transaction tax on services performed through electronic means (so-called WEB TAX) under sections 1011-1019 of the Italian law no. 205/2017 is repealed.

  • 7 PERCENT SUBSTITUTE TAX FOR RETIREES

    Individuals, with retirement income paid by foreign entities, that:

    • were not resident in Italy in the previous 5 years,
    • become resident in an Italian municipality with no more than 20,000 inhabitants in Sicily, Sardinia, Calabria, Campania, Basilicata, Abruzzi, Molise and Puglia,

    may opt to subject their foreign income - of whatever nature - to a 7 percent substitute tax.

    The option is valid for the 5 subsequent years, but may be revoked.

    The more general tax benefit introduced by the previous budget law for all those becoming resident in Italy and setting forth a fixed tax of EUR 100,000 on all foreign income is kept unchanged. 

  • SUBSTITUTE TAX ON TUTORING FEES (PRIVATE LESSONS)

    Fees for private lessons and tutoring provided by teaching staff are subject to a 15 percent substitute tax, unless an option for the ordinary income tax scheme (IRPEF) is made, starting from 2019.

  • CORPORATION TAX (IRI)

    The corporation tax (IRI) regulated under section 55-bis of the Italian Tax Code (TUIR) is repealed (since it never actually entered into force).

  • INTEREST PAYMENTS

    As specified in our 1-2019 newsletter, the Italian legislative decree 142/2018 - implementing the ATAD EU directive - provided that also interest payments relating to mortgage-backed loans for rented out real estate properties are subject to the deduction limits under section 96 of the Italian Tax Code (TUIR) (30 percent of EBIT). Previously, however, such interest payments were excluded from such deduction limits under the repealed section 1 (36) of the Italian law 244/2007. In the 2019 Budget Law the previous provision under section 1 (36) of the Italian law 244/2007 is re-confirmed: Hence, interest payments for mortgage-backed loans on rented out real estate properties continue to be excluded from the deduction limits under section 96 of the Italian Tax Code (TUIR).

  • IMPAIRMENT AND LOSSES ON RECEIVABLES OF FINANCIAL INSTITUTIONS

    The deduction under section 16 of the Italian law-decree 83/2015 of 10 percent of exceeding impairment and losses on receivables of financial institutions set forth for 2018 is postponed to the tax period as of 31 December 2026. This postponement is irrelevant for the determination of corporate tax (IRES) and regional tax on productive activities (IRAP) prepayments owed for the tax period as of 31 December 2018.

    Under section 106 (3) of the Italian Tax Code (TUIR) income components derived solely from the adoption of the recording type of loss coverage provisions for expected credit losses under § 5.5 of IFRS 9 are deductible for corporate tax (IRES) and regional tax on productive activities (IRAP) purposes up to the following limits:

    • 10 percent in the tax period of IFRS 9 first-time adoption,
    • 90 percent on a straight-line basis over the following 9 tax periods.

    The above provisions shall be in force at IFRS 9 first-time adoption, even if made in a tax period prior to the entry into force of the law under review here.

  • ADOPTION OF INTERNATIONAL FINANCIAL RE-PORTING STANDARDS

    Taxable persons under section 2 of the Italian legislative decree 38/2005, whose securities are not admitted to trading may adopt international financial reporting standards.

  • ADDITIONAL (SUPER) AND HYPER DEPRECIATION

    In order to ensure the digital and technological transformation processes under the «Industria 4.0» scheme, additional (super-) depreciation for investments on new tangible fixed assets, as listed in annex A to Law 232/2016, used at existing production facilities in Italy is extended and must be made:

    • no later than by 31 December 2019,
    • or no later than by 31 December 2020, provided that the relevant order is accepted by 2019 and a prepayment of 20 percent of the purchase cost is made.

    The purchase cost increase applies as follows:

    • 170 percent for investments up to EUR 2.5 million;
    • 100 percent for investments over EUR 2.5 million and up to EUR 10 million;
    • 50 percent for investments over EUR 10 million and up to EUR 20 million.

    The cost of purchase incurred by taxable persons investing in the intangible fixed assets, as listed in annex B of Law 232/2016, is increased by 40 percent.

    In order to determine the prepayments owed for the tax period as of 31 December 2019 and for the following tax period, the taxes of the previous period are taken as a base, without taking into account the benefit granted.

  • DEDUCTION OF AMORTISATION OF ASSETS THAT GAVE RISE TO DEFERRED TAX ASSETS TRANS-FORMED INTO TAX CREDITS

    Amortisation of goodwill and other intangible fixed assets that gave rise to deferred tax assets under section 2 (55-56-ter) of the Italian law-decree 225/2010 to be recorded, and not yet deducted in the tax period as of 31 December 2017, are deductible up to:

    • 5 percent in the tax period as of 31 December 2019,
    • 3 percent in the tax period as of 31 December 2020,
    • 10 percent in the tax period as of 31 December 2021,
    • 12 percent starting from the tax period as of 2022 until 2027,
    • 5 percent in the tax period as of 31 December 2028 and 31 December 2029.

    The lower amortisation already applied remains unchanged: In such case, the difference is deductible in the tax period as of 31 December 2029.

  • NOTIONAL INTEREST DEDUCTION (NID)

    Notional interest deduction (NID) is repealed.

    However, the notional return exceeding the income of the tax period as of 31 December 2018 may be carried forward.

  • RESEARCH AND DEVELOPMENT TAX CREDIT

    The research and development tax credit under section 3 of the Italian law no. 145/2013 is amended as follows, starting from 2019.

    Generally speaking, the tax credit amount is reduced to 25 percent of the expenses incurred.

    However, it is increased to 50 percent on the proportional amount relating to expenses for:

    • employees directly employed for research and development activities;
    • agreements with universities, research institutes, innovative start-ups and innovative SMEs in order to directly carry on research and development activities.

    The maximum tax credit amount granted to each beneficiary is reduced to EUR 10 million annually.

    Such expenses include expenses for goods, supplies and similar products used for research and development activities, also for the manufacturing of prototypes and pilot plants for experimental research and development.

    In order to obtain such tax benefit, a special certification of the admitted expenses must be obtained and a technical report on the research and development projects must be filed. Such duties are effective already starting from the tax period as of 31 December 2018. 

    In order to be granted a tax credit for research and development ordered by non-resident taxable persons, expenses shall be eligible only if they relate to activities directly carried out in laboratories or facilities located in Italy.

  • TAX CREDIT FOR PLASTIC WASTE RECYCLING

    Enterprises purchasing products made of derivatives originating from separate collection of paper, aluminium or plastic packaging or from biodegradable and compostable packaging, are entitled to a tax credit equal to 36 percent of the expenses incurred in 2019 and 2020 up to a maximum of EUR 20,000 annually.

  • TAX CREDIT FOR INDUSTRY 4.0 TRAINING

    The tax credit for employee training in the technologies fields set forth under the Industry 4.0 Plan (Piano industria 4.0) applies also to expenses incurred in the tax period subsequent to 31 December 2018.

    Notwithstanding the annual limit of EUR 300,000, the tax credit is granted as follows:

    • 50 percent of the admitted expenses up to the maximum annual limit of EUR 300,000 to small enterprises;
    • 40 percent of the admitted expenses up to the maximum annual limit of EUR 300,000 to medium-sized enterprises;
    • 30 percent of the admitted expenses up to the maximum annual limit of EUR 200,000 to large enterprises.
  • 10 PERCENT TAX CREDIT (IRAP - REGIONAL TAX ON PRODUCTIVE ACTIVITIES)

    The tax credit amounting to 10 percent of the regional tax on productive activities (IRAP) owed granted to taxable persons that do not employ employees is repealed.

  • REVALUATION AND VALUE ADJUSTMENTS OF BUSINESS ASSETS

    Business assets and holdings in controlled or associated companies resulting from the annual accounts for the business year closed as of 31 December 2017 may be revalued or subjected to value adjustments under the Italian legislative decree 342/2000 once again. This does not apply if the business's main purpose is the construction or the exchange of real estate properties.

    The higher values are subjected to substitute tax as follows:

    • amortized assets at 16 percent,
    • non-amortized assets at 12 percent.

    The tax impact is effective as of the third business year following the one in which the assets are revalued, and hence as of 2021; and as of 2022, in order to determine capital gains or losses.

    However, the higher values recorded for real estate properties in the balance sheet under the value adjustments made pursuant to section 14 of the Italian legislative decree 342/2000 are effective as of the tax period starting on 1 December 2020.

    The revaluation reserve may be released through payment of a 10 percent substitute tax.

  • RECALCULATION OF PURCHASE COSTS OF HOLD-INGS AND LAND

    The purchase cost of unlisted holdings and land held by individuals may be recalculated, once again, as of 1 January 2019. To this end a substitute tax must be paid. Such substitute tax equals:

    • 11 percent on qualifying holdings,
    • 10 percent on non-qualifying holdings,
    • 10 percent on land.
  • FLAT TAX ON RENTAL INCOME (CEDOLARE SECCA)

    As to rental agreements entered into in 2019, individuals may opt to subject rental payments for C/1 real estate units up to 600 sq.m., appurtenances excluded, to a 21 percent flat tax.

  • SEPARATION OF IMMOVABLE PROPERTY USED FOR THE PURPOSE OF TRADE

    The provisions under section 1 (121) of the Italian law 208/2015 on the separation of the entrepreneur's immovable property used for the purpose of trade apply also to goods owned as of 31 October 2018, separated between 1 January 2019 and 31 May 2019.

  • INCOME TAX RELIEF ON ENERGY EFFICIENCY AND BUILDING RENOVATIONS

    Income tax relief on energy efficiency and building renovations, including the purchase of furniture and large home appliances, is extended to expenses incurred until 31 December 2019.

    The income tax relief for the cultivation of balconies and terraces (so-called <<green bonus>>) is extended throug 2019.

  • TAX SETTLEMENT (<<ROTTAMAZIONE CARTELLE SALDO E STRALCIO>>)

    Individuals may settle tax payment orders registered with the collection agent in the period 2000-2017 relating to unpaid taxes and social security contributions under section 36-bis of the Italian DPR 600/1973 by paying the principal and interest owed only (excluded late interest), reduced to:

    • 16 percent, if the household's equivalent economic status index (ISEE -indicatore della situazione economica equivalente) is below EUR 8,500;
    • 20 percent, if the household's equivalent economic status index (ISEE - indicatore della situazione economica equivalente) is above EUR 8,500 and below EUR 12,500;
    • 35 percent, if the household's equivalent economic status index (ISEE - indicatore della situazione economica equivalente) is above EUR 12,500 and below EUR 20,000;

    plus collection fees.

    In order for the tax settlement to be effective, the relevant declaration must be submitted to the collection agent no later than 30 April 2019. The sums owed must be paid in one instalment no later than on 30 November 2019 or in 5 instalments, including interest.

  • LONG-TERM SAVING PLANS (PIR)

    The rules on long-term saving plans intended to encourage investments vis-à-vis venture capital funds and SME financial instruments in multilateral trading systems are amended.

    Hence, long-term saving plans incorporated as of 2019 must ensure that the portfolio is invested as follows in each calendar year and for at least two thirds of the year:

    • at 70 percent in financial instruments issued or entered into by and between enterprises resident in Italy or in EU or EEA countries with a permanent establishment in Italy, of which at least:
    • 5 percent in SME instruments admitted to multilateral 
    • trading systems,
    • 30 percent in corporate instruments other than those included in the FTSE MIB or similar indexes on other markets;
    • 5 percent in shares of venture capital funds resident in Italy, in EU or EAA countries.

    The criteria for the implementation of such new provisions are set forth in the decree released by the Italian Ministry of Economy.

  • INCENTIVES FOR INVESTMENTS IN INNOVATIVE START-UP BUSINESSES

    Individual income tax relief (IRPEF) and corporation tax allowances (IRES) for investments in the corporate equity of one or more innovative start-ups, made either directly or through UCITS, increase from 30 percent to 50 percent.

    Whenever the entire corporate equity of innovative start-ups is acquired by corporate taxpayers (IRES), the increase to 50 percent is granted, provided that the entire corporate equity is held for at least three years.

  • USE OF CASH

    The threshold for the use of cash by individuals other than Italian citizens or individuals resident outside Italy in order to purchase goods and services related to the tourism industry in retail stores and travel agencies is increased to EUR 15,000, provided that:

    a copy of the purchaser's passport is requested by the Italian seller and a self-declaration on the fulfilment of the requirements under section 47 of the Italian DPR 445/2000 is provided by the purchaser;

    the Italian seller deposits the cash on a bank account in her/his own name on the first working day following the transaction.

  • INTERPRETATION OF DEEDS FOR THE PURPOSE OF REGISTRATION DUTIES

    The amendments to section 20 of the Italian Tax Code (TUIR) on the interpretation of deeds to be subjected to registration duties - introduced under the previous budget law - provide an authentic interpretation.

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