IRAP is a regional tax that needs to be paid in addition to corporate tax (IRES) or personal income tax (IRPEF) by most taxpayers that do business.
All companies and partnerships have to pay it, individuals (sole proprietors) who perform commercial activities have to pay it, while professionals have to pay it only if they perform their activity in an “organized” way.
Defining what “organized” means in this case is not always easy, but there are some indicators that should be taken into consideration, such as if they have employees, the value of assets used and the organization of the office. So case by case need to be analysed in order to determine if the tax is due or not.
The tax base of IRAP in Italy differs from other taxes, as some costs are not deductible, namely HR costs and interest on loans.
As a reasonable starting point when doing business in Italy, support from Italian general tax service experts is advised for a smoother take off; do not forget you will also be dealing with regulat VAT, for which you need to register first (see VAT registration).
Exceptions to IRAP Italy
There are though specific exceptions, especially as far as HR costs; for example, costs for new employees can be deductible, as well as some contribution costs and insurance costs. So, depending on each situation, an accurate analysis and calculation need to be carried out.
The tax rate differs for each region. The regular tax rate is 3.9% at the moment and each region may vary by up to 0.92%. Moreover each region can decide to vary the rate for specific activities. If a company operates in more than one region, the tax base needs to be divided between the regions, depending on where the revenues are produced.
In cases where there is no actual profit derived from the activity, such as for not-for-profit association, IRAP may be due, depending on the situation. In these cases the tax base will be the cost of personnel or part of it.
Finally a portion of Italian IRAP paid the previous year can be deductible from income tax (IRPEF or IRES) the following year.