Corporation tax – comparative analysis
The Republic of Italy
Resident companies, irrespective of the country in which they made profits, and non-resident companies that make profits in the Republic of Italy (only for profits made in the Republic of Italy) are liable to pay national corporation tax (IRES – Imposta sul Reddito delle Società) and regional tax on production activities (IRAP – Imposta Regionale sulle Attività Produttive).
Corporation taxpayers (IRES) are companies, such as capital companies, trusts, mutual companies, etc. Taxpayers are also economic entities (public and private entities other than companies and trusts) whose main purpose is to carry on an economic activity.
The taxable profit of a resident company or a branch office of a foreign company in Italy is a business income that consists of the net income generated in a certain financial period. Business income comprises all income generated by a company, e.g. trade income, passive income (dividends, interest), capital gains.
The national corporation tax rate (IRES) is currently 24%.
Financial intermediaries and banks are subject to corporation tax (IRES) at a rate of 27.5%.
Certain loss-making companies are called non-operating companies (“società non-operative” or “società di comodo”). Due to the frequent use of companies to take advantage of the legal and tax relief they provide, rather than to carry on business activities, a special tax regime has been introduced for such companies. If they do not pass the “test of operability”, they are subject to payment of IRES at the rate of 34.5% on the estimated corporate profit.
Residents’ capital gains are usually treated as ordinary corporate profit and are taxed at the IRES rate of 24%. Capital gains from the sale of shares / units may be up to 95% exempt from corporate tax by meeting legal requirements. Capital gains that non-resident companies make through the sale of shares / units are usually taxed at a 26% corporate tax rate.
Regional tax on production activities (IRAP) is the revenue of the region in which production activities are performed.
IRAP taxpayers are those who regularly engage independently in the active production of products or in the provision of services in the region, for example, persons subject to IRES payments, public and private non-profit institutions and public administration, self-employed, etc
For non-residents, IRAP only applies when activities are carried out for at least three months through a permanent establishment.
The standard rate is 3.9%, but higher rates apply, for example, to banks and financial institutions (4.65%) and insurance companies (5.90%). Regional authorities have the right to increase or decrease rates within the limits of 0.92%.
The Republic of Croatia
A resident company of the Republic of Croatia, irrespective of the country in which it made a profit, and a non-resident company branch office (only for profit made abroad) are liable to pay corporation tax in the Republic of Croatia. The taxpayer is also another legal and natural person resident in the Republic of Croatia, who carries out economic activities independently, permanently and for the purpose of earning profit, income or other economic assessable benefits.
The taxpayer of corporation tax may also be a natural person under the conditions determined by law.
The tax base is the profit that is determined by accounting regulations as the difference between income and expenses prescribed by law. Company revenues are, for example, income from operating and financial activities, income from the sale of fixed assets, extraordinary and other revenue.
The income tax rate (according to the regulations in force since January 2020) is:
- 12% if the income for the tax period is up to HRK 7,500,000.00, or
- 18% if in the tax period the realized income is equal to or more than 7.500.000,01 kunas.
Withholding tax is a tax that taxes income earned by a non-resident in the Republic of Croatia and the taxpayer is the payer. The withholding tax base is the gross amount of compensation paid by a domestic payer to a nonresident foreign recipient. The withholding tax rate is 15% and for dividends and profit shares subject to withholding tax at the rate of 12%.
Withholding tax is payable on interest, dividends, profit shares and copyrights and other intellectual property rights payable to non-resident persons that are not natural persons, and to market research, tax and business consulting and auditing services, paid to foreign persons.
In the Republic of Croatia there is no regional income tax or regional tax on production activities.