Understanding Italy's Tax Framework in 2025: Key Policies and Updates

Italy's tax system remains a multi-tiered structure operating at national, regional, and municipal levels. As of 2025, the country maintains a comprehensive approach to taxation, balancing direct and indirect levies while introducing targeted incentives for economic development—particularly in underdeveloped regions. This overview provides an updated look at Italy’s core tax regulations, rate structures, and special economic initiatives designed to support both domestic and international businesses.

Main Taxes and Applicable Rates

The Italian tax regime categorizes levies into two broad types: direct taxes, which are imposed on income and wealth, and indirect taxes, such as value-added charges applied during transactions. Below is a breakdown of key components.

Direct Taxes

• Personal Income Tax (IRPEF): Residents in Italy are taxed on their worldwide income, whereas non-residents pay tax only on income sourced within Italy. The personal income tax follows a progressive scale ranging from 23% to 43%. These base rates do not include additional regional and municipal surcharges, which vary by location. For example, Lazio Region applies a supplementary rate between 1.73% and 3.33%. Local authorities may adopt either flat or progressive models for these附加 taxes, making it essential for taxpayers to verify obligations based on residence.
• Corporate Income Tax (IRES): Italian resident companies are subject to a flat 24% tax on global profits. Non-resident entities without a permanent establishment are generally subject to withholding tax on Italian-sourced income. Under the Italy-China double taxation treaty, reduced withholding rates of 10% apply to dividends, interest, and royalties. Entities with a permanent presence in Italy are taxed on all income linked to that presence—at the same 24% rate as local firms.
• Regional Tax on Productive Activities (IRAP): This locally administered tax targets business productivity within a given region, typically assessed at around 3.9%. It applies to both individuals and corporations engaged in commercial operations. Foreign companies with a permanent establishment in Italy must also contribute; those without such a setup are exempt.

Indirect Taxes

• Value-Added Tax (IVA): Aligned with EU standards, Italy’s standard VAT rate stands at 22%. Reduced rates of 10% and 4% apply to specific goods and services—such as food, public transportation, and certain medical supplies—supporting affordability and sector-specific growth. Businesses act as intermediaries, collecting VAT from consumers and reclaiming input tax on eligible purchases, ensuring the final burden falls on end users.
• Registration Tax: Payable when executing certain contracts in Italy, especially those involving real estate or business transfers. For first-time homebuyers, the registration fee is set at 2% of the transaction value, plus fixed land registry and mortgage taxes of €200 each. The exact charge depends on the nature of the agreement and the status of the parties involved.
• Inheritance and Gift Tax: Levied on property transfers due to death or gifting, this tax ranges from 4% to 8%. Transfers to spouses or direct descendants are fully exempt if the recipient holds the asset—or continues operating the business—for at least five years post-transfer. Additional duties apply to real estate: a 1% land registration tax and a 2% mortgage tax.

Local-Level Taxes

Since 2014, the Unified Municipal Tax (IUC) has consolidated three local levies: IMU (real estate tax), TASI (urban maintenance tax), and TARI (waste management tax). Property owners—residents and non-residents alike—are required to pay annually. The taxable base is calculated using cadastral income values multiplied by statutory coefficients. While the base rate is 0.76%, municipalities can adjust this by ±0.3%, leading to variation across cities.

Digital Services Tax (DST)

Introduced in January 2020 and still active in 2025, Italy’s Digital Services Tax targets large digital platforms generating significant revenue domestically. Companies qualify if they meet both criteria: annual global revenue exceeding €750 million and Italian digital service revenues above €5.5 million. Taxable activities include online advertising, multi-sided digital marketplaces facilitating user interaction, and monetization of user data. The DST is levied at 3% on gross revenue (excluding VAT and other indirect taxes). Notably, internal group transactions—where services are provided to entities under common control—are excluded from taxation.

Special Economic Zones and Regional Incentives

Overview of Special Zones

• Free Trade Zones: Locations like the Free Port of Trieste and the Venice Free Trade Zone offer duty-free treatment for imported goods, serving as strategic hubs for logistics and export-oriented enterprises.
• Industrial Clusters: Predominantly located in northeastern Italy, these industrial parks foster innovation through geographic concentration of manufacturing and tech firms, often supported by R&D grants and streamlined regulatory processes.
• Special Economic Areas: Regions such as Campania and Calabria have been designated for revitalization efforts, offering tax credits and investment allowances to attract capital and create jobs.

Support Measures for Southern Italy

To reduce regional disparities, the Italian government continues to implement financial incentives in southern provinces. These include subsidized lending programs, wage subsidies for new hires, and co-financing for infrastructure projects. The goal is to stimulate long-term economic transformation in areas historically affected by lower productivity and higher unemployment.

For multinational employers navigating cross-border compliance, understanding these layered tax obligations is critical. Partnering with experienced global employment solutions providers can streamline payroll administration, ensure accurate reporting, and mitigate risk. SailGlobal offers tailored HR and tax advisory services for companies expanding into Italy, helping foreign organizations stay compliant while focusing on growth.