The two taxes on profit
An Italian company pays IRES, the corporate income tax, at a standard rate of 24%, and IRAP, the regional production tax, at a standard rate of 3.9%. Together that is a headline burden of about 27.9%.
The two are not computed on the same base. IRES starts from the profit shown in the statutory financial statements, adjusted by tax rules. IRAP is charged on the net value of production in each region, a base that excludes most financial items: interest expense is not deductible, and while the cost of permanent employees is fully deductible, fixed-term labour is only partly relieved. Regions may vary the 3.9% rate by up to 0.92%, and banks, financial intermediaries and insurance companies face higher rates.
For fiscal year 2025 only, a reduced 24%-to-20% IRES rate (the so-called IRES premiale) was available to companies retaining and reinvesting profits under strict conditions. It has not been extended in the same form, so do not build a 2026 forecast on it.
Getting profit out: the withholding tax on dividends
This is the number that decides most cross-border structures. Dividends paid by an Italian company to a non-resident are subject to a domestic withholding tax of 26%. Four routes reduce it:
- EU Parent-Subsidiary Directive — 0%. Available where the parent is an EU-resident company subject to corporate tax, holding at least 10% of the Italian company for at least twelve months, and is the beneficial owner of the dividend.
- Reduced EU/EEA rate — 1.2%. Applies where the beneficial owner is a company resident and subject to corporate tax in an EU or EEA state that allows adequate exchange of information with Italy. Conditions on the size and the holding period of the participation apply, and they have been amended repeatedly in recent budget laws — verify the position shareholder by shareholder at the time of distribution rather than assuming last year's rule.
- Double tax treaty — typically 5% to 15%. Italy has a wide treaty network; the applicable cap depends on the treaty and often on the size of the holding.
- Partial refund — up to 11/26 of the tax withheld. A non-resident recipient who can evidence that the same dividends were definitively taxed abroad can claim back up to 11/26 of the Italian withholding. It is slow, but real.
Beneficial ownership is the pressure point in audits: a holding company with no substance in its country of residence is the standard target. Treaty and directive relief is granted to the beneficial owner, not to the entity named on the payment instruction.
VAT
The standard VAT rate is 22%, with reduced rates of 10%, 5% and 4% for specific supplies. An Italian company registers for VAT at incorporation and files periodic VAT settlements plus an annual VAT return. If you trade with other EU countries you must also be listed in VIES before issuing or receiving intra-EU supplies without VAT. See codice fiscale and VAT for non-residents for the cases where you need a VAT position in Italy without incorporating at all.
Where founders lose money without noticing
- Permanent establishment. Running the Italian activity through a foreign company with staff or a dependent agent in Italy can create a taxable presence, with retroactive assessment. Incorporating an SRL is often the cheaper answer.
- Intercompany charges. Management fees, royalties and interest paid to the foreign parent are the first thing an auditor tests. They need transfer pricing support proportionate to their size.
- Shell company rules. A company with assets but negligible revenue can fall under the non-operating company regime, which imputes a minimum taxable income and applies an IRES surcharge. Property-holding vehicles are the usual casualties.
- Directors' compensation. How a non-resident director is remunerated changes the treatment in both countries and interacts with the applicable treaty; deciding it after the fact is expensive.
If a founder relocates to Italy
Personal tax then enters the picture, and Italy has genuinely competitive regimes for inbound individuals — the impatriate regime for workers moving their tax residence to Italy, and a flat tax on foreign income for new residents and for pensioners settling in small southern municipalities. Each has qualifying conditions, caps and minimum residence commitments that changed in recent years, so treat the headline percentages you find online as a starting point for a check, not as a conclusion. We run that check as part of the setup.