globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload | ||||||||
31 January 2025 Italian 2025 Budget Law tax measures — a summary
On 31 December 2024, the Italian Budget Law for 2025 (Law n. 207 of 30 December 2024, referred to here simply as the Budget Law) was published in the Official Gazette. The Budget Law is effective as of 1 January 2025. Nonresident entities (without an Italian permanent establishment) may avail themselves of (i) a step-up regime for Italian land and participations held as of 1 January of the relevant fiscal year (FY) upon the payment of an 18% substitute tax rate and (ii) an 18% substitute tax on capital gains arising from crypto-asset transactions. (The Budget Law increases the capital gain tax rate in relation to crypto-asset transactions from 26% to 33% as of 1 January 2026.) An alternative 20% corporate income tax rate is available for FY 2025 if companies set aside 80% of FY 2024 earnings and invest in selected business assets while also hiring new permanent employees. Amendments are introduced to the Industry 4.0 (re digitization and smart manufacturing) and Industry 5.0 (re energy efficiency and sustainability in the production process) tax credits. A compulsory carryforward mechanism is introduced for banking and insurance entities in relation to the deferred deductions of (i) provisions and losses on customer loans, (ii) tax amortization quotas of goodwill and other intangible assets that have resulted in the recognition of Deferred Tax Assets (DTAs), and (iii) tax amortization quotas of the income components derived from expected credit losses under International Financial Reporting Standard (IFRS) 9. Under the new provisions, the use of tax losses and the Notional Interest Deduction (ACE) benefit for FY 2025 is capped at 54% of the incremental income that results from the carryforward of the above-mentioned deferred deductions. Indirect tax changes in the Budget Law include a revision of the digital services tax (DST) regime by repealing one of the qualifying revenue thresholds. Changes were also made to the value added tax (VAT) reverse-charge mechanism in the case of qualifying supplies to logistic operators. The Budget Law's key changes for individual income taxation include the revision of tax rate brackets, a restructuring of the tax deduction system, and some new specific tax and social security provisions for employees. For individuals not engaged in business activities — as well as partnerships and noncommercial entities — the Budget Law introduces, as a permanent measure, a step-up regime for Italian land and participations held as of 1 January of the relevant FY upon the payment of an 18% substitute tax rate. The capital gains tax rate in relation to crypto-asset transactions is increased from 26% to 33% as of 1 January 2026. An 18% substitute tax is introduced to step-up the tax basis of crypto assets. The Budget Law introduces, as a permanent measure, the election for the step-up in value of participations (both listed and unlisted) and land (both agricultural and buildable) held by nonresidents as of 1 January of each year through the payment of an 18% substitute tax. This substitute tax is levied on the value of the participation or land as of 1 January of each year, which must be certified by a sworn appraisal prepared by 30 November of the step-up year for land and unlisted participations. For listed participations, the fair market value may be adopted. The substitute tax may either be paid in full by 30 November of the step-up year or through three annual installments beginning 30 November of the step-up year (with the second and third installments subject to an annual 3% interest surcharge). The current 26% substitute tax for capital gains deriving from the disposal of crypto assets that are taxable in Italy2 is increased to 33% for gains realized as of 1 January 2026. Other significant changes related to the taxation of crypto assets include the elimination of the preexisting income exemption threshold of €2,000 and the reintroduction of a transitional step-up regime under which the crypto assets' fair market value as of 1 January 2025 can be recognized for tax purposes subject to the payment of an 18% substitute tax. As detailed in a prior Alert,3 the Budget Law introduces a 20% Corporate Income Tax (CIT) rate levied, under certain conditions, as an alternative to the standard 24% CIT (Imposta sul Reddito delle Società or IRES) only for FY 2025 (Mini-IRES). Prerequisites to applying the Mini-IRES include setting aside at least 80% of FY 2024 earnings to a special equity reserve for at least two years and investing a certain amount (the higher of 30% of the 2024 retained earnings or 24% of 2023 overall earnings) in new tangible or intangible assets qualifying under the Italian Industry 4.0 and 5.0 industrial policies by October 2026 for calendar-year companies. Taxpayers must also increase certain levels of employment. Recapture mechanisms apply if distributions are made out of the 2024 retained earnings within two years or if the invested assets are dismissed within five years. Implementing measures will be issued by the Ministry of Economy and Finance to coordinate the Mini-IRES provision with other provisions of the Italian CIT system, as well as to better specify the functioning of the recapture mechanisms. Under current rules, businesses operating in Italy through 2023 may deduct, for CIT purposes, 120% of labor costs for new hires in 2024 (with an increase to 130% for certain employment categories). This extra deduction is granted if: (i) the number of full-time employees in 2024 is higher than the average for 2023, and (ii) the total number of employees (including temporary staff) at the end of 2024 is higher than the 2023 average. The eligible cost for the increased tax deduction (20% or 30% depending on the case) is the lower of the cost for the new hires or the increase in the labor costs based on the profit and loss statement. The Budget Law extends the applicability of this extra deduction for new permanent hires through 2025, 2026 and 2027. Based on the Industry 4.0 policy, Italian businesses meeting specific requirements may benefit from tax credits for investments in new high-tech tangible and intangible assets. These credits are granted at varying rates (generally ranging between 5% and 50%) based on the amount and nature of the assets, the timing of the purchase, the date the relevant purchase order is accepted and the moment of the actual payment. The Budget Law establishes that the 4.0 tax credit for intangible assets is limited to investments made by 31 December 2024, with an extension to 30 June 2025, provided the seller accepts the purchase orders by 31 December 2024 and at least 20% of their price is paid by the same date. The Budget Law also introduces a maximum spending cap of €2.2b for investments in tangible assets made from 1 January 2025 to 31 December 2025, with an extension to 30 June 2026, provided the seller accepts the purchase orders by 31 December 2025 and at least 20% of their price is paid by the same date. For the purpose of complying with the spending cap, Italian businesses must submit a communication to the Ministry of Enterprises and Made in Italy regarding the amount of expenses incurred and the corresponding tax credit accrued, based on a specific form published by the Ministry itself. Based on the Industry 5.0 policy, qualified Italian businesses are eligible to benefit from a tax credit for investments made in 2024 and 2025 in new qualifying tangible and intangible assets used in manufacturing facilities situated in Italy. These investments must be part of projects that achieve energy savings of at least 3% for facilities or 5% for production processes. The Budget Law amends the regulations for the Industry 5.0 tax credit by expanding the scope of eligible beneficiaries and raising the percentage of the investment cost that can be deducted.
Compulsory carryforward mechanism of deferred deductions and limitation in use of tax losses and excess of Notional Interest Deduction Among the taxpayers subject to corporate tax in Italy, banking and insurance entities are mainly affected by the deferred deduction relevant for CIT and local tax (Imposta regionale sulle attivita' produttive or IRAP) purposes of:
Also, banking and insurance entities have a temporary limitation in use of tax losses and Notional Interest Deduction (NID or ACE) surpluses which are capped to 54% of the CIT incremental income.
Banking and insurance entities subject to the deferred deduction mechanism described above may offset tax losses and ACE surpluses against the CIT incremental income stemming from the application of the same deferred deduction mechanism up to 54% of such CIT incremental income. This limitation also applies to the determination of the CIT taxable income of entities that elected for the tax consolidation regime. As a consequence of the legislative changes under analysis, Article 1(19) of the Budget Law provides in redetermining advance payments for FY 2025 and the following four FYs (i.e., for corporations that follow the calendar year, FYs from 2025 to 2029) two points must be considered: (i) the postponement of the mentioned deductions; and (ii) the limitations in use of tax losses and ACE surpluses. Moreover, in relation to IRES and IRAP advance payments for FYs ongoing on 31 December 2025 and 31 December 2026, Article 1(20) of the Budget Law would limit the use of tax credits to offset the surplus amounts of advance payments generated from the application of the mentioned rules. Under previous rules, for companies adopting the International Accounting Standards (IAS) and the IFRS, the tax treatment of the expenses related to stock-option plans was aligned with the accounting treatment, meaning that they were deductible on an accrual basis over the vesting period. An amendment introduced by the Budget Law makes such expenses deductible only at the time the stock options are assigned to the employees. The new provisions apply to stock-option plan expenses that will be booked for the first time in the financial statements for the FY ongoing on 31 December 2025 and onward. Before the law change, the Digital Service Tax (DST), which is ordinarily levied at 3% rate, was due by companies engaged in digital services that realized in the last calendar year (i) more than €750m in global revenue (even at group level) and (ii) more than €5.5m in revenue derived from digital services in Italy. The new provisions eliminate the threshold under point (ii), such that any companies engaged in digital services generating revenues in Italy are subject to DST therein, provided that the sole threshold described under (i) is met. Also, under the new provisions, an advance payment equal to 30% of the DST due shall be performed by 30 November of each calendar year, while the balance payment is due by 16 May of the following calendar year.
The reverse charge does not apply when the customer is a public administration or temporary work company. Further, the reverse charge rule may enter into force only when the European Union (EU) Authorities give their approval (in the past, approval was denied but the authorization was requested more in general and not solely for the logistic sector). For the interim period, i.e., until the authorization is granted, the customer may opt to pay the VAT due on the supply of service in the name of and on behalf of the supplier, which remains jointly liable for the VAT liability. The invoice remains due by the supplier and the VAT needs to be paid by the customer via the F24 unified payment form with no possibility of offsetting with VAT or other tax credits. The option has a three-year validity and is communicated by the customer to the Tax Authorities via a specific form, which will be made available by Tax Authorities. The supply of training courses rendered to temporary work agencies (duly authorized by Italian Ministry) and financed via a bi-lateral fund created for this specific purpose are subject to Italian VAT. Customs Authorities (in addition to Italian Tax Authorities and Tax Police) utilize data included in the XML files of e-invoices to perform checks on supplies of goods that are subject to excise-duties and other local consumption taxes. The hardware or software used by stores to accept e-payments (credit/debit cards, etc.) are constantly connected with the tool (e.g., cash-machine) used for the registration and recording of shop sales; consequently. Italian Tax Authorities will be able to more easily match the data of payments with the data of sale revenues. Moreover, new penalties are provided for taxpayers who generate irregularities in their VAT obligations concerning shop sales data and payment data transmission. The supply of services concerning disposal of waste carried out via disposal in landfill or via incineration without efficient energy saving is now subject to the ordinary VAT rate of 22% (and no longer of 10%). Table A, part III attached to Presidential Decree n. 633/1972 regarding reduced VAT rate has been adjusted to exclude such provision of services. The supply of mountain sport services performed by mountain guide operators, who are enrolled in special professional register, is subject to 5% reduced VAT rate. Before the law change, a 2% stamp duty on communications related to life insurance contracts was payable upon the reimbursement or redemption of the life insurance policy. Under the new provisions, effective from 1 January 2025, a 0.2% stamp duty on communications related to life insurance contracts becomes due on an annual basis and the relevant payment is executed by the insurance companies. Under the transitional rules, for life insurance contracts in force as of 1 January 2025, the amount corresponding to the total stamp duty due (calculated for each year up to 2024) is to be paid in installments as follows: (i) 50% by 30 June 2025; (ii) 20% by 30 June 2026; (iii) 20% by 30 June 2027; and (iv) the remaining 10% by 30 June 2028. The Budget Law confirms the same tax rates applicable for personal income tax with respect to FY 2024. Also, for FY 2025, the personal income tax is determined by applying three rates to the total income, net of deductible expenses, as follows:
As of 2025, individuals with total income exceeding €75,000 will be eligible for a maximum amount of income tax deduction (i.e., €14,000 for those with an income up to €100,000 and maximum of €8,000 for those exceeding an income of €100,000) with a potential increase depending on the number of children or in case of children with disabilities. As of 2025, employees with a total income not exceeding €20,000 will receive a nontaxable bonus calculated by applying a percentage on their total income. On the other hand, employees with a total income exceeding €20,000 will benefit from a prorated deduction based on working days. For agreements signed from 1 January 2025, the determination of the employment income underlying the granting (for mixed-use purposes) of motor vehicles, motorcycles, and mopeds must be calculated based on different percentages of the cost per kilometer (10% for electric vehicles, 20% for hybrid or plug-in vehicles, and 50% for others). The cost per kilometer, conventionally determined by the Automobile Club of Italy (ACI), assumes a conventional mileage of 15,000 kilometers. Pending the entry into force of the protocol to an agreement between Italy and Switzerland, frontier workers may carry out up to 25% of their employment activity remotely from their state of residence without losing the status of frontier worker. In addition, the Budget Law allows Italian resident employees working abroad to keep being taxed based on the so-called Notional Remuneration method also in the event of returning to Italy once a week. The Budget Law introduces further changes regarding employment income through various provisions. In brief:
The current 26% substitute tax for capital gains deriving from the disposal of crypto assets is increased to 33% for gains realized as of 1 January 2026. Other significant changes related to the taxation of crypto assets include the elimination of the preexisting income exemption threshold of €2,000 and the reintroduction of a transitional step-up regime under which the crypto assets' fair market value as of 1 January 2025 can be recognized for tax purposes subject to the payment of an 18% substitute tax.
Document ID: 2025-0366 | ||||||||
