Fundamentals of IRES, Italy’s corporate income tax

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Tax

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  1. 导言
  2. What is IRES?
  3. Who pays IRES?
    1. How to calculate IRES
  4. How and when to pay IRES: IRES tax codes
  5. Differences between IRES and IRAP
    1. What is IRAP?
    2. The differences between IRES and IRAP

In Italy, businesses have a particularly high tax burden. As of 2019, it was estimated at 59.1% of commercial profits: the highest in Europe after France. The taxes that businesses are required to pay are divided into direct taxes—which directly affect the taxpayer’s income when it is produced—and indirect taxes, which indirectly affect wealth when it is spent (for example, value-added tax, or VAT). The Italian corporate income tax, known as IRES, is a direct tax. In this article, you will learn what IRES is, who is subject to it, and how Stripe can help you ensure tax compliance.

What’s in this article?

  • What is IRES?
  • Who pays IRES?
  • How and when to pay IRES: IRES tax codes
  • Differences between IRES and IRAP

What is IRES?

IRES is Italy’s corporate income tax adopted in 2004, replacing the so-called IRPEG corporate income tax in force up to that time. The new tax was introduced with the aim of modernizing Italy’s capital and business tax regime based on the prevailing model used in European Union countries. The IRES rate was lowered by Italy’s 2016 Stability Law, from 27.5% to 24%.

Despite the Budget Law that came into force on January 1, 2024, introducing a number of changes, the 24% IRES rate has also been confirmed for 2024. Following the transposition of Directive (EU) 2022/2523, which adheres to the common international approach known as the “global minimum tax,” the 2024 Budget Law introduced a national minimum tax for businesses that belong to multinational or national groups and operate in Italy under a low taxation regime. The aim of the global minimum tax is to ensure fair competition among businesses around the world, preventing reductions in tax rates and promoting more efficient investment decisions.

IRES is regulated in Section II of Italian Presidential Decree 917/1986 of the Consolidated Income Tax Act (TUIR).

Who pays IRES?

The following categories of companies are subject to IRES:

  • Joint stock companies (S.p.A.)
  • Partnerships limited by shares (S.A.p.A. or S.A.A.)
  • Limited liability companies (S.r.l. and S.r.l.s.)
  • Cooperatives
  • European companies
  • Mutual insurance companies
  • European cooperatives
  • Trusts with tax residency in Italy whose exclusive or main object is to carry out commercial activities
  • Trusts fiscally resident in Italy that do not carry out a commercial activity
  • Companies and entities of any type, including incorporated or unincorporated trusts that do not have tax residency in Italy

Registered companies with a registered office in Italy are obliged to pay IRES on all income. Companies with a registered office outside of Italy pay IRES only on income earned within Italy.

IRES therefore does not apply to partnerships and other entities are also excluded, including state bodies; associations; bodies managing collective state property; provinces; and regions.

How to calculate IRES

The 24% IRES rate is applied to the taxable base of business income. The IRES taxable base (namely as established by Article 75 of the TUIR) of “total net income” is determined differently depending on the type of company.

  • Resident companies and commercial entities
    Resident companies and commercial entities determine their income according to the provisions contained in Section II, Chapter II of the TUIR (Articles 81 to 142). The business income for this category is determined based on the profit or loss recorded in the income statement. When drafting a tax return, the necessary increases or decreases required by the TUIR—for example, any eventual deductibles—must be applied to the profit (or loss).

  • Resident noncommercial entities
    Noncommercial entities determine their income according to the provisions contained in Section II, Chapter III of the TUIR (Articles 143 to 150). The rules for calculating total income are similar to those for natural persons. The land, capital, business, and other income recorded during the tax period are added up—wherever they are produced and whatever their destination—with the exception of those that are tax-exempt and those subject to withholding tax at source or substitute tax. The taxable base of the overall income is therefore determined by adding the individual income categories, net of any losses deriving from the business activity carried out.

  • Nonresident companies and commercial entities
    The total income of nonresident companies and commercial entities is made up exclusively of income produced in Italy and is regulated in Section II, Chapter IV of the TUIR. To calculate the taxable base, a distinction is made between the following cases:

    • Permanent establishments of nonresident entities in Italy: In this case, companies should follow the IRES provisions specific to resident commercial companies.
    • Businesses and commercial entities without a permanent establishment in Italy: Taxable according to land, capital, and other income rules.
    • Noncommercial entities: Taxable according to land, capital, and other income rules, or those pertaining to business income (if they carry out commercial activities through a permanent establishment in Italy).

How and when to pay IRES: IRES tax codes

Once the taxable income has been calculated, the tax is paid according to the set deadlines. As far as tax filing is concerned, companies use an F24 form, indicating the specific tax codes, which change depending on the payment to be made.

Different payment deadlines apply, depending on the number of payments:

  • The deadline for the balance and for payment in a single installment is June 30.
  • The deadlines for paying in more than one installment are June 30 and November 30.

The main tax codes to use are:

  • 2001: first installment (pursuant to Article 72 of Italian Presidential Decree 917/86 as amended by Italian Legislative Decree 344/03 - resolution no. 76/e of 05/27/04)
  • 2002: second installment or single payment (pursuant to Article 72 of Italian Presidential Decree 917/86 as amended by Italian Legislative Decree 344/03 - resolution no. 76/e of 05/27/04)
  • 2003: balance (pursuant to Article 72 of Italian Presidential Decree 917/86 as amended by Italian Legislative Decree 344/03 - resolution no. 76/e of 05/27/04)

A long list of IRES tax codes for specific cases is available on the Italian Revenue Agency website.

Differences between IRES and IRAP

What is IRAP?

IRAP is the Italian regional tax on productive activities, established with Italian Legislative Decree 446 of December 15, 1997. Its purpose is to provide the Italian regions with an autonomous source of financing and promoting local economic and social development.

Businesses required to pay IRAP are those that comply with the following assumption: the regular exercise of an autonomously organized activity aimed at the production or exchange of goods or the provision of services in the regional territory.

For tax year 2024, the standard IRAP rate is equal to 3.9%. However, not all regions apply the same rate, as every region is entitled to adjust the rate—up to a maximum of 0.92%—also depending on the business sectors or the taxpayer categories.

The differences between IRES and IRAP

There are some differences between IRES and IRAP, including the types of business activities subject to the tax and how the tax base is determined. Here are the key differences between them:

  • Entities required to pay IRAP
    Unlike IRES, IRAP is also payable by partnerships—not only by joint-stock companies. Generally speaking, the subjects required to pay IRAP are associated professional firms, partnerships, joint-stock companies, commercial entities in general, and third sector organizations. Article 1, paragraph 8 of the 2022 Budget Law (Law no. 234/2021) abolished the IRAP obligation for the following categories: natural persons carrying out commercial activities, arts and professions, as indicated in letters b) and c) of Article 3, paragraph 1 of the same Legislative Decree no. 446/1997. For additional information, you can consult the dedicated page on the Italian Revenue Agency website.

  • Taxable base
    The IRES taxable base is calculated on taxable income, which takes into account all company revenues and costs, including amortization/depreciation, losses, and any eventual tax deductions. However, the IRAP taxable base is based on the value of net production (the difference between the value and costs of production) resulting from the business activities carried out in the region. Many consider it to be an unfair tax, as it is completely disconnected from the principle of taxable capacity. The aim of the Delegated Law on tax reform, implemented with Law no. 111 of August 9, 2023, is to gradually replace IRAP.

  • Procedure for filing taxes
    IRES is paid using an F24 form, while IRAP is filed using a specific IRAP form.

  • Beneficiary body
    IRES is a national tax, the revenue of which goes to the central state coffers. IRAP, on the other hand, is a regional tax. The revenue is therefore allocated to the Regions and Autonomous Provinces.

Keeping up with the ever-changing landscape of tax regulations can be a challenge for your business. To meet this need, automated features such as Stripe Tax are available, which generates detailed reports to help you file tax returns. The feature can work either without code in just a few clicks, or with just a single line of code. Start now with Stripe to learn more about how Stripe can help you simplify tax compliance.

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