Italy is the 8th largest economy in the world and is particularly innovation-oriented as the government spends over 25 bill. EUR annually on research and development (R&D) initiatives, which makes the country the 4th among the top investors in R&D in Europe. Crypto companies may also claim financial support of this kind, including a variety of other tax reliefs.
The Revenue Agency is responsible for ensuring tax compliance in Italy. The agency’s responsibilities include the collection of tax revenues, the provision of services and assistance to taxpayers, and the assessment and inspections aimed at countering tax evasion. However, Italy still hasn’t introduced a crypto-specific taxation framework, and general taxation rules apply.
Tax residents are taxed on the income sourced in Italy and abroad, and non-resident companies are taxed only on the income sourced in Italy. A company is deemed a tax resident of Italy if its registered office, place of effective management, or main business activities are in Italy for the greater part of the financial year. A foreign company that holds a controlling participation in an Italian company, and is controlled by an Italian resident or managed by Italian residents representing the majority of its board of directors is also considered to have its place of effective management in Italy.
To create a fair and attractive business environment, Italy has signed over 90 international agreements on the elimination of double taxation of income and capital. If the applied domestic taxation is higher than the conventional basis, non-resident taxpayers are entitled to claim a refund of all or part of taxes paid and not due according to conventional provisions. The agreements regulate the taxation of each category of income, and the claims can be done for dividends, interest, royalties, and other income.
Tax incentives are available in such forms as capital grants, soft loans, and tax credits. Their accessibility varies depending on the type of incentive. If certain conditions are met, some tax incentives in Italy are made available automatically. Others need to be applied for or negotiated.
To attract foreign direct investment, the Italian government offers a variety of tax reliefs, including employment tax credits, specifically for the employment of women and younger individuals, also tax reductions on income sourced from particular intangible assets, and reduced taxes for energy efficiency. The enormous support for R&D translates into 25% of tax credits for private investments in R&D which increase to 50% for projects conducted within universities or research institutions, and 15% for investments in machinery and capital goods. The benefits can differ in certain regions, such as the South of Italy, where there is more public support.
Corporate Income Tax and Regional Production Tax
In Italy, there are two corporation taxes – the Corporate Income Tax (IRES) at a 24% rate, and the Regional Production Tax (IRAP) at a 3.9% rate. Annual tax returns for both of them must be filed electronically within 11 months following the end of the financial year. The advance payments of the corporate taxes are made twice. The first instalment is 40% of the amount of the taxes which has to be paid in the previous year. The second instalment is 60% of the previous year’s tax. A company generally must make these advance payments by the end of the 6th month and by the end of the 11th month of the financial year.
In regard to the application of corporate taxes to crypto activities, the Revenue Agency has provided the following interpretation:
- The profits sourced from cryptocurrency trading must be included in the company’s financial statements as they’re subject to the Corporate Income Tax and the Regional Production Tax
- Any tax loss may be offset against gains realised in the same financial year, and if the tax losses exceed gains, they can be carried forward in subsequent years, subject to a limit of 80% of the related income
- Cryptocurrencies received from mining should be subject to the Corporate Income Tax on their market value upon receipt
- The issuance of Initial Coin Offerings (ICOs) in the form of utility tokens doesn’t constitute a taxable event
- The Corporate Income Tax will be due on the income sourced from the supply of products or services related to utility tokens
- There is no specific tax treatment for security tokens
It’s important to note that in Italy, the EU legal framework regulating the treatment of cryptoassets is also applicable. If you wish to learn more about the EU-wide regulations impacting the Italian taxation system, please contact our team and we’ll share detailed advice and actionable insights.
The application and rates of the Withholding Tax vary depending on several factors. Dividends paid to a resident individual generally are subject to a 26% Withholding Tax. Dividends, interest, and royalties paid by a resident company to a non-resident individual or a company with no permanent establishment in Italy are generally subject to a final outbound Withholding Tax at a 26% rate.
The tax amount can be reduced, or eliminated under relevant international double taxation agreement provisions or under the relevant EU directives if the non-resident company is a resident of another EU country. A domestic final Withholding Tax of 1.2% is levied on dividends distributed to shareholders that are companies resident of an EU or EEA country.
Capital Gains Tax
In December 2022, the Italian Senate authorised new tax rules for crypto gains. From 2023, whenever a person has gains exceeding 2,000 EUR, a 26% tax applies. A capital gain or loss is a result of a cryptoasset disposal or change of its ownership. A variety of transactions may be considered disposal when a capital gain or loss must be calculated.
The instances include the following:
- Selling cryptoassets for fiat currency
- Trading one cryptocurrency for another cryptocurrency or such cryptoassets as stablecoins or NFTs
- Using cryptocurrencies to pay for products or services
The Italian standard VAT rate is 22%. It’s levied on products and services provided in Italy, as well as on imports. In certain cases, intra-community acquisitions are also subject to VAT. For certain crypto-related activities VAT liability arises, however, the Revenue Agency follows the decision of the Court of Justice of the European Union (CJEU) which a few years ago ruled out that the services of a crypto exchange are exempt from VAT on the basis of the currency exemption.
The Revenue Agency has also clarified that ICOs are subject to the same VAT treatment applicable to vouchers, which means that the issuance of tokens under an ICO isn’t taxable for VAT purposes. The VAT is applied upon the utilisation of the token.
Furthermore, it’s important to note that in 2022 the European Commission’s VAT Committee reviewed VAT liabilities arising from cryptoassets, including payment, security, and utility tokens. Such activities as mining, forging, airdrop, and token modifications remain out of the scope of VAT. When it comes to taxing crypto wallets, they fall within the scope of VAT when crypto wallet services are provided for a fee. The supply of products or services paid for in cryptocurrencies is treated in the same way as a supply paid for in fiat money.
Social Security Contributions
The rules for paying Social Security Contributions mainly depend on the employment relationship, and crypto companies should particularly take rules for staff and executives into account. The contributions are jointly paid by employers and employees. Italian employers are obligated to register with the Italian Social Security Administration in order to be able to pay the contributions.
The total social security rate is around 40% of the employee’s gross salary, where an employer pays 30%, and the employee has to pay 10%. While 33% of the total rate is paid into the National Pension Scheme, the remainder mostly goes to the unemployment fund, maternity fund, social mobility fund, sickness fund (not applicable to executives), and temporary unemployment compensation fund (not applicable to executives).
The New Global Tax Transparency Framework
Italian crypto business owners should also carefully examine the international scene of taxation, since Italy is obligated to adhere to a variety of constantly-changing international regulations. The Organization for Economic Cooperation and Development (OECD) has recently introduced a new international tax transparency framework, entitled Crypto-Asset Reporting Framework (CARF), the aim of which is to raise crypto taxation and tax reporting standards by introducing automatic tax reporting and taxpayer information sharing between international authorities.
The CARF standards will be applicable to companies and individuals that provide services pertaining to crypto-to-crypto, crypto-to-fiat-money, and fiat-money-to-crypto exchange transactions for or on behalf of customers, and cryptocurrency transfers (including retail payment transactions). Therefore, all Italian crypto business owners should prepare to duly report tax-related information to the Revenue Agency, which is authorised to exchange the information on crypto transactions and taxpayers with foreign tax authorities.
If you wish to do a deep dive into the Italian taxation system and have your specific crypto project examined thoroughly, our team of dedicated and quality-focused legal consultants here at Regulated United Europe (RUE) will be delighted to provide you with tailored, value-added support. In addition to helping you structure your taxes in accordance with applicable legislation, we also offer crypto company formation, crypto licensing, and financial accounting services. Contact us now to book a personalised consultation.
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