Italy Corporate Tax Guide 2026 — IRES (24%) and IRAP (3.9%)

Overview of Italian Corporate Tax

Companies resident in Italy are subject to two main corporate taxes: IRES (Imposta sul Reddito delle Società) — the national corporate income tax at a flat rate of 24%, and IRAP (Imposta Regionale sulle Attività Produttive) — a regional production tax at a standard rate of 3.9% (varies by region up to 4.82% for certain sectors). The combined statutory rate is approximately 27.9%, though the effective rate varies significantly due to IRAP's different tax base (IRAP is calculated on net production value, not taxable income).

A company is considered resident in Italy if, for most of the tax year, its registered office (sede legale), place of effective management (sede dell'amministrazione), or main business purpose (oggetto principale) is in Italy. Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on Italian-source income, subject to applicable tax treaties.

IRES — Corporate Income Tax (24%)

IRES is levied on the taxable income (reddito imponibile) of resident companies, which is derived from the company's financial statement profit (utile civilistico) adjusted for tax provisions. The standard IRES rate is a flat 24% for all companies, regardless of size or sector. Certain entities benefit from reduced rates (e.g., cooperative societies at 27.5% or lower, depending on the level of mutual activity).

ACE Allowance (Aiuto alla Crescita Economica): Italy provides an allowance for corporate equity (ACE) that reduces the IRES tax base by a notional return on new equity capital. The ACE rate for 2026 is approximately 2.5% to 3% (adjusted annually). For example, if a company raises €500,000 in new equity (share capital increases or retained earnings), the ACE deduction equals that amount multiplied by the ACE rate. The deduction is capped at a maximum of the company's taxable income (cannot create a tax loss), though unused ACE can be carried forward. The ACE regime encourages equity financing over debt financing.

Tax Deductions: Business expenses are generally deductible if they are incurred for the business (inerenza) and properly documented. Key deductible items include: cost of goods sold, employee costs (including INPS contributions), depreciation of tangible assets (rates: 9% for machinery, 12% for equipment, 6.5% for industrial buildings — double declining balance method available), amortisation of intangible assets (goodwill over 18 years, patents over 5-10 years), interest expense (limited to 30% of EBITDA — ROL regime), IT and software costs, professional fees, rent, and utility costs. Non-deductible items include: dividends received (unless re-invested), IMU property tax on primary operational assets (deductible for IRAP but not IRES), fines and penalties (unless specifically provided for), and representation expenses (generally 66.7% deductible within limits).

Dividend and Capital Gains Taxation: Dividends received by an Italian company from a participation of at least 5% (or 10% in some cases) are 95% exempt from IRES under the participation exemption regime (PEX). Capital gains on qualified shareholdings (held for at least 12 months, booked as fixed assets) are also 95% exempt. Non-qualifying dividends and short-term capital gains are fully taxable.

IRAP — Regional Production Tax (3.9%)

IRAP is a regional tax on the net production value (valore della produzione netta) of businesses, professional activities, and public entities. It is calculated differently from IRES and is deductible for IRES purposes (but not for IRAP itself).

IRAP Tax Base: The IRAP tax base is calculated as: gross revenue from sales and services + change in inventory +/- other operating income and charges − raw material costs − cost of services − third-party asset costs − depreciation (excluding goodwill) − other operating costs (excluding personnel costs and financial costs). Importantly, personnel costs (salaries, wages, social contributions) are NOT deductible for IRAP purposes. This makes IRAP a tax on the value generated by the business including labour costs.

IRAP Rates: The standard rate is 3.9%, but each Italian region may increase or decrease the rate by up to 1.3 percentage points. Some regions also apply sector-specific adjustments. Banks and financial institutions pay a higher rate of 4.65%. Insurance companies pay 5.9%. Public entities and non-profits may pay reduced rates or be exempt. The combined IRES + IRAP effective rate for a typical company in Lazio (IRAP 4.82%) is approximately 29-30%.

IRAP Deductibility for IRES: IRAP paid is deductible for IRES purposes, reducing the overall tax burden. The deduction is allowed in the tax year in which the IRAP is paid (or accrued under certain accounting methods).

Tax Consolidation and CFC Rules

National Tax Consolidation (Consolidato Fiscale Nazionale): Italian groups may elect for tax consolidation, where the taxable income of all resident group companies is aggregated at the parent company level. This allows losses of one group company to offset profits of another. The election is binding for 3 years and covers all Italian resident companies in which the parent holds more than 50% of the shares. Each company must have a 12-month financial year ending on the same date as the parent. The parent company files a single consolidated IRES return and pays IRES on behalf of the group.

CFC Rules (Controlled Foreign Companies): Italy has CFC rules targeting controlled foreign entities resident in low-tax jurisdictions (defined as countries with a nominal tax rate lower than 50% of the Italian rate — i.e., below approximately 12%). If an Italian company controls a foreign company in such a jurisdiction, the foreign company's income may be attributed to the Italian company proportionally unless the Italian company can demonstrate that the foreign entity carries on a substantive economic activity and that the controlling purpose is not tax avoidance. This rule also applies to CFCs in non-blacklisted jurisdictions if they meet certain conditions (passive income > 50% of total income).

Thin Capitalisation Rules: Italy's thin capitalisation rules limit interest deductibility. Net interest expense (the excess of interest payable over interest receivable) is deductible up to 30% of EBITDA (ROL — Reddito Operativo Lordo, essentially EBITDA for tax purposes). Disallowed interest may be carried forward indefinitely but is subject to the same limitation in future years. Excess EBITDA capacity (where actual interest expense is below the 30% threshold) can also be carried forward for 5 years. These rules apply to all companies, regardless of the level of related-party debt.

Filing Requirements and Deadlines

Corporate tax must be declared and paid as follows:

Annual Filing (Modello Redditi SC/SP): Companies file the Modello Redditi SC (for S.p.A., S.r.l., and other capital companies) or Modello Redditi SP (for partnerships) annually. The deadline is 30 November of the year following the tax year (e.g., for the 2025 tax year, the return is due by 30 November 2026). The return is submitted electronically through the Agenzia delle Entrate portal.

Payment Deadlines: Corporate tax is paid in two instalments: Advance payment (acconto) — 40% by 30 June, 60% by 30 November of the tax year (for the current year's estimated liability, based on the previous year's tax); Balance payment (saldo) — any remaining amount due by 30 June of the following year. Payments are made using the F24 form. If the advance payments exceed the actual tax liability, the excess is refunded or carried forward.

Transfer Pricing: Italy has formal transfer pricing documentation requirements. Related-party transactions between Italian and foreign group companies must be at arm's length. Italian companies must prepare a Master File and Country-by-Country Report if they meet the relevant thresholds (consolidated group revenue of €750 million+ for CbCR). Documentation must be prepared and submitted with the annual tax return or upon request from the tax authorities. Failure to maintain adequate documentation may result in penalties (100-200% of the additional tax assessed).

FAQs

What is the best legal form for a company in Italy?

The most common forms are S.r.l. (Società a Responsabilità Limitata — limited liability company) and S.p.A. (Società per Azioni — joint-stock company). The S.r.l. is the most common for SMEs due to its flexibility, lower minimum capital requirement (€1 for S.r.l. SEME — simplified with a single member, or €10,000 for standard S.r.l.), and simpler governance. The S.p.A. requires a minimum capital of €50,000 and is more suitable for larger enterprises. Foreign companies may also operate through a branch (stabile organizzazione) in Italy, which is treated as a permanent establishment and taxed on Italian-source income at the same IRES + IRAP rates. Non-resident companies with no Italian PE are subject to withholding tax on Italian-source income.

Are dividends from subsidiaries taxable?

Dividends received by an Italian company from a subsidiary are 95% exempt from IRES under the participation exemption (PEX) regime, provided the subsidiary is not resident in a blacklisted jurisdiction. The parent must hold at least 5% (for listed companies) or 10% (for unlisted) of the subsidiary's capital, and the holding must have been held for at least 12 months. Dividends from EU/EEA subsidiaries generally qualify for the exemption automatically. No withholding tax applies on dividends paid between Italian resident companies (except for certain distributions from cooperative societies).

What is the tax treatment of capital gains?

Capital gains on the sale of qualified shareholdings (PEX — partecipazioni qualificate) held for at least 12 months and booked as fixed assets are 95% exempt from IRES. Non-qualifying shareholdings and financial assets held for trading (immobilizzazioni finanziarie) are fully taxable. Capital gains on the sale of other business assets are generally included in taxable income. Italy offers rollover relief for capital gains on business assets if the proceeds are reinvested in qualifying replacement assets within 2 years. Capital gains on real estate held by companies are fully taxable, except for properties held as fixed assets for more than 5 years (where the gain may be partially exempt).

Disclaimer

This guide is for informational purposes only and does not constitute tax advice. Italian corporate tax law is complex and subject to frequent change. Consult a qualified commercialista or tax advisor for advice specific to your situation. Rates and thresholds for 2026 are based on legislation enacted by June 2026.