IRAP (Regional Tax on Productive Activities) is a tax introduced in 1998 by Legislative Decree 446/1997, which applies to anyone carrying out an independently organised activity to produce goods or services.
From 2022, IRAP is no longer payable by sole traders and self-employed professionals.
Taxpayers
The tax is payable by limited companies, commercial entities, partnerships and public administrations. Third Sector Entities (ETS) are in theory subject to the tax, but many regions and provinces have introduced concessions or even exemptions.
Taxable base
The taxable base, i.e. the amount on which the tax is levied, is calculated differently depending on the taxpayer (company, professional) and the accounting and tax regime applied (e.g. ordinary accounting, simplified accounting).
A table is provided that summarises the various methods of calculating the taxable base.
Financial intermediaries that adopt a financial reporting framework different from that required for most companies determine their IRAP taxable base according to a specific criterion.
| Item |
Sign |
Financial-statement method (Art. 5) |
Tax method
(Art. 5-bis) |
Cash Basis
(Art. 8) |
Remuneration method |
| Type of taxpayer |
|
Companies and commercial entities |
Partnerships and de facto partnerships |
Professionals and professional associations |
Non-commercial entities and public bodies |
| Revenue to be considered (A) |
+ |
Section A of the financial statements |
Revenue, compensation and grants |
Fees collected during the year |
Income is irrelevant
The taxable base is the sum of:
Employee salaries
Income assimilated to employment income
Coordinated and continuous collaborations (Co.Co.Co.)
Fees for occasional self-employment work |
| Costs to be considered (B) |
- |
Section B of the financial statements, excluding
B9 (personnel)
B10 (write-downs)
B12 (provisions for risks)
B13 (other provisions) |
Costs for goods and services, depreciation/amortisation, rental fees and leasing fees, to the extent relevant for tax purposes
Changes in inventories (only for taxpayers using ordinary accounting) |
Production costs, depreciation/amortisation, fees paid to third parties during the year |
Irrelevant |
| Other non-deductible costs |
- |
credit losses
implicit interest in leasing
IMU
fees for co.co.co. directors |
credit losses
implicit interest in leasing
IMU
fees for co.co.co. directors |
credit losses
implicit interest in leasing
IMU
fees for co.co.co. directors |
Irrelevant |
| Deductible personnel costs |
- |
The costs of personnel employed under permanent contracts, expenses for apprentices, disabled workers, research and development staff and, only in certain residual cases, part of the cost of fixed-term employees are deductible. |
The costs of personnel employed under permanent contracts, expenses for apprentices, disabled workers, research and development staff and, only in certain cases, part of the cost of fixed-term employees are deductible. |
The costs of personnel employed under permanent contracts, expenses for apprentices, disabled workers, research and development staff and, only in certain cases, part of the cost of fixed-term employees are deductible. |
The costs of personnel employed under permanent contracts, expenses for apprentices, disabled workers, research and development staff and, only in certain cases, part of the cost of fixed-term employees are deductible. |
| Other deductions |
- |
flat-rate deductions for smaller taxpayers |
flat-rate deductions for smaller taxpayers |
flat-rate deductions for smaller taxpayers |
irrelevant |
Option for the accounting method
Partnerships that maintain ordinary accounts have the option to calculate IRAP using the same method as that provided for limited companies. By choosing this option, certain expenses that would otherwise be non-deductible or partially deductible under the tax method become deductible (e.g. entertainment expenses, car expenses, telephone expenses, miscellaneous operating costs). The presence of capital gains or losses on business assets or property may also be a factor to consider when assessing the merits of this option: under the tax method, such gains are not taxable, whereas they are taxable under the balance sheet method.
Tax Rates
As this is a regional tax, the Regions and the Autonomous Provinces of Trento and Bolzano may amend the rates or provide for exemptions through their own regulations.
In this regard, it is essential to check annually whether any changes or concessions are in place at local level.
The standard national rate is 3.9%.
There are specific rules under which the following apply:
- reductions (e.g. for non-commercial entities, new businesses, disadvantaged areas, to encourage or reward stable employment, etc.)
- increases for certain activities such as banks and financial intermediaries, insurance companies, concessionaires, energy sector companies, etc.
Deadlines and Return
The IRAP return must be submitted electronically each year.
Payment follows the same deadlines as income taxes (such as IRES or IRPEF).
What happens if my business operates in more than one region?
If the business is carried out in more than one region, the taxable base must be apportioned among the regions concerned. Generally, the apportionment is made in proportion to the amount of wages paid to staff employed in each region.