Decreto-Legge n. 66/2014 (published in the official gazette n. 95 (24 April 2014)) has been approved by the Italian government and is pending ratification by the Parliament within a 60-day period (therefore, amendments could be made during the parliamentary process). Under Italy’s legislative system, the law is currently deemed to be effective and only needs confirmation; however, if not confirmed in 60 days, the law does not have any effect as originally intended.
Reduced rates of IRAP
Article 2 of Law Decree n. 66/2014 reduces by approximately 10% the rate of the IRAP so that the standard rate would be 3.5%—reduced from the current rate of 3.9%.
The rates of IRAP vary depending upon the type of business. For example, if finalized, the rate of IRAP for banks and financial institutions would be 4.2% (reduced from 4.65%) and for insurance companies would be 5.3% (reduced from 5.9%).
The new IRAP rate applies to the tax income in due course (i.e., FY 2014) and is not considered in determining advance or estimated payments of income tax.
Each Italian region has the authority to vary the standard rate of IRAP by up to 0.92%.
IRAP is levied on the book value of revenue, less certain costs, derived in each of the Italian regions. The following costs are not allowed for IRAP purposes:
- Losses on shareholding investments
- Salaries and wages and related social contributions
- Interest expenses
- Extraordinary costs
The amount of IRAP liability available for a deduction against corporate income tax is limited to the portion of the tax paid on disallowed salaries and wages and up to 10% of interest expenses.
For more information, contact a tax professional with the KPMG member firm in Italy:
+39 045 811 4111
Giorgio Dal Corso
+39 045 811 4111