Italy’s budget 2017, approved by Prime Minister Matteo Renzi’s government October 15, would lower Italy’s corporate tax rate and add provisions favourable to business. The next step is for the law to be considered by the Italian parliament. After that, it will be sent to the European Commission for review.
The main tax measures include the following:
- Italy’s corporate tax rate will be decreased to 24 percent from its current level of 27.5 percent.
- A new tax on entrepreneurial income (imposta sul reddito imprenditoriale, IRI), will replace both corporate income tax (imposta sul reddito di impresa, IRES) and the individual income tax (imposta sul reddito delle persone fisiche, IRPEF) for income derived from business activities such as sole proprietorships, artisans, and self-employment. The IRI’s top rate is 24 percent, as compared to the traditional personal income tax, which has a top rate of up 43 percent.
The currently available “super” depreciation allowance of 140 percent for purchases of machinery and equipment, slated to end-2016, will be extended into 2017. Moreover, a “hyper” depreciation allowance on investments in digital technology of 250 percent will be introduced in 2017.
The tax credit available a company’s research and development expenditure will be increased from 25 percent to 50 percent, and the maximum tax credit will rise from € 5 million to € 20 million per company.
The tax credit of 50 percent for expenses incurred in renovating buildings is to be extended for a further year to the end-2016, and will also be available for or work on condominiums and hotels, at an annual cost of € 3 billion.
Moreover, the 65 percent tax credit for energy-saving spending on properties will be renewed for 2017.
The government is planning to reopen the voluntary disclosure program (VDP), and expects to glean, at least, a further € 2.6 billion from that source. The VDP, which closed on November 30 last year, provided € 4 billion in additional tax revenue. Under the program, participants must agree to pay all outstanding taxes when declaring their assets, but are subject to much-reduced administrative and criminal penalties. Renzi stressed that the terms of the VDP are “a long way from being comparable to a tax amnesty.”
The 10 percent and 22 percent value-added tax rates will not be increased. However, if the government misses its fiscal targets, Italy will hike its standard and reduced VAT rates by up to 3 percent. This potential tax hike remains a threat for 2018 and 2019.
Finally, Renzi again confirmed that the promised IRPEF cuts for those in lower and middle incomes are included in the government’s budget framework for 2018.
The text of the draft decree giving effect to the 2017 budget will be presented to Parliament shortly. It will be subject to the usual approval procedures. Budgets have emerged with significant changes from this process in past years.
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
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