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IN-DEPTH GUIDE TO
THE PERSONAL INCOME TAX (IRPEF)
BY BIC
SARDEGNA SPA
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GUIDE TO THE PERSONAL INCOME TAX
LIST OF CONTENTS
INTRODUCTION ...................................................................................................................................................... 3
REQUIREMENTS..................................................................................................................................................... 3
THE COMPANIES SUBJECT TO IRPEF TAXATION .......................................................................................... 3
THE PROGRESSIVE RATE OF TAXATION ......................................................................................................... 3
THE TAX BASE CALCULATION AND ITS RATES ............................................................................................. 4
THE CONCEPTS OF DEDUCTIBILITY AND DEDUCTION ................................................................................ 5
THE TAX PAYMENTS: THE IRPEF FULL SETTLEMENT .................................................................................. 6
THE IRPEF DOWN PAYMENT ............................................................................................................................... 7
THE COMPULSORY TAX RETURN STATEMENT .............................................................................................. 7
THE SECTOR STUDIES (STUDI DI SETTORE)................................................................................................... 8
PAYING WITH A F24 FORM .................................................................................................................................. 9
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GUIDE TO THE PERSONAL INCOME TAX
INTRODUCTION
This guide is designed to explain the main features of the Personal Income Tax (IRPEF).
REQUIREMENTS
IRPEF is a direct tax applied to personal income. The legal basis of this tax is
Presidential Decree 917/1986, the full text of which is available at the following link:
http://www3.unisi.it/ammin/uff-ragi/Fisco/DPR917-86.htm .
Since it is an income tax, IRPEF also affects corporate income. IRPEF also applies to
corporate activities if the company is:

a sole proprietorship;

an ordinary partnership;

a non-stock corporation;

a limited liability company managed according to the so-called transparency
scheme1.
For further information on the transparency scheme applied to limited liability companies,
please refer to Article 116 the Italian Presidential Decree 917/1986, available at the
following link: http://www3.unisi.it/ammin/uff-ragi/Fisco/DPR917-86.htm.
THE COMPANIES SUBJECT TO IRPEF TAXATION
IRPEF taxation also applies to your company. Considering the requirements above, any
company selling goods or services, carrying out agricultural or entrepreneurial
activities on the Italian territory are subject to it.
Also self-employed professionals are required to pay IRPEF tax. This guide, however, will
not deal with this specific case, since it belongs to a different business category.
THE PROGRESSIVE RATE OF TAXATION
One of the most interesting IRPEF-related topics is the progressive rate principle. IRPEF
indeed is a progressive tax, meaning that the tax rate increases as the income
increases. This way, low incomes will be taxed at a lesser rate than higher incomes.
The Italian tax system provides for a progressive taxation based on two elements:

an income class-type categorization (tax brackets);

different and increasing tax rates.
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The transparency scheme provides for a direct taxation not connected to the company, but it is divided among the
individual shareholders.
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GUIDE TO THE PERSONAL INCOME TAX
The next paragraph shows the tax brackets and rates set by law and currently in force.
THE TAX BASE CALCULATION AND ITS RATES
The calculation of the IRPEF tax takes into consideration the value of corporate income.
The corporate profit is the result of the difference between the revenues and the costs
born during the year. Such difference is the tax base that is to be taken into account for
tax calculation.
In order to provide a cleared explanation, assume that your company has achieved EUR
100,000 revenues and EUR 70,000 costs: the business income IRPEF applied to is equal
to EUR 30,000.
In addition, the costs must be deducted from the revenues not when they are paid, but
during the year they refer to, and they must be connected to the revenues they
contributed to generate. This means that the corporate income is obtained by applying the
so-called accrual principle2. The same applies to the revenues, which are calculated with
the same method.
Here's another example: suppose that in 2013, your company has earned EUR 150,000
and that the total costs amount to EUR 100,000. However, an EUR 20,000 share refers to
the year 2014. In this case, the taxable income of 2013 amounts to EUR 150,000 –
100,000 + 20,000 = EUR 70,000. The 2014 EUR 20,000 costs were not deducted from the
revenues.
Secondly, bear in mind that not all costs may be deducted similarly: for instance, the
costs born for the purchase of goods may be fully deducted, whereas the costs connected
to e.g. the use of a mobile phone, may be deducted only to a limited percentage. And so
on. Tax rules and regulations are very complex and it is important to fully understand possibly with the help of an expert - how they affect your tax management.
As mentioned above, for the purposes of calculating the IRPEF value for your company,
the corporate income is divided into tax brackets (or classes). Each bracket is associated
with a different IRPEF rate. In particular, the current rates are:

23% up to EUR 15,000;

27% from EUR 15,001 to 28,000;

38% from EUR 28,001 to 55,000;
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The other principle is generally applied to the calculation of the taxable income on a cash basis: in that case, the
costs are subtracted from the revenues or from the remunerations or the year when the payment is made.
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GUIDE TO THE PERSONAL INCOME TAX

41% from EUR 55,001 to 75,000;

43% over EUR 75,000.
The tax base is first divided into brackets and then multiplied by the rates: the result is
the gross IRPEF tax value.
For instance, consider a taxable income equal to EUR 30,000. Here is the result of the
IRPEF calculation:



for EUR 15,000 with a 23% rate = EUR 3,450
for EUR 12,999 (28,000 – 15,001) with a 27% rate = EUR 3,510
for EUR 1,999 (30,000 – 28,001) with a 38% rate = EUR 760
the gross IRPEF value is thus calculated EUR 3,450 + 3,510 + 760 = EUR 7,720.
However, in order to understand how much a company is required to pay, it will be
necessary to subtract the following items from the gross value:
 applicable deductions and withholdings;
 tax credits and tax down payments already born.
If the resulting amount is negative, the company may claim an IRPEF credit from the
State. If the amount is positive, the figure corresponds to the IRPEF amount to be paid
within the terms required.
Suppose that, for the year 2013, a company reaches an IRPEF gross total value of EUR
1,000. The relevant withholdings amount to EUR 400 and the tax deductions amount to
EUR 300. In this case your IRPEF debt is EUR 300. Or, let's assume that the IRPEF gross
value is equal to EUR 2,000. The company can claim credits for EUR 1,400 and advance
payments for EUR 800. The balance is EUR 2,000 – 1,400 – 800 = - 200: the amount is
negative and it indicates an IRPEF credit for your business.
If necessary, you may calculate the IRPEF your company has to pay by visiting the
Calculate your IRPEF application.
THE CONCEPTS OF DEDUCTIBILITY AND DEDUCTION
In order to understand how IRPEF works, two fundamental concepts must be clarified:
deductibility and deduction.
The deductibility is a corporate right that consists of the subtraction of the costs
connected to a business activity from the total revenues of its sales. Therefore, the costs
contribute to decrease the corporate tax base.
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GUIDE TO THE PERSONAL INCOME TAX
The term pertinence refers to a strict correlation between the expenses born and the
revenues deriving from business activities. If such correlation is missing, the company has
no right to the deductibility of costs.
In order to understand how the deductibility of costs applies to the IRPEF tax base, let us
assume the following: your company operates in the clothes sector and, in 2014, it
generated EUR 300,000 revenues. During the year, the purchase of shoes amounted to
EUR 180,000. These costs are pertinent and are therefore deductible. The IRPEF taxable
income will therefore be EUR 300,000 – 180,000 = 120,000. This value - indicating the
corporate income - will be multiplied by the tax rates for each bracket, as shown above.
The concept of deduction is slightly different from that of deductibility, because charges
and expenses do not reduce the tax base, but they do lower the general gross IRPEF
value.
The deductible expenses are grouped into several categories, but they mostly refer to the
personal expenses born by the entrepreneur, for which the law provides a specific IRPEF
deduction.
Suppose that the application of IRPEF rates generates an EUR 30,000 gross tax value.
During the year, the entrepreneur bore deductible expenses (eg., interest for the mortgage
payment) amounting to EUR 3,000. In this case, the IRPEF net value will be EUR 30,000 –
3,000 = 27,000.
THE TAX PAYMENTS: THE IRPEF FULL SETTLEMENT
The IRPEF tax payment is divided into two stages: a down payment and a full
settlement.
As a general rule, IRPEF is paid with the following procedure: all IRPEF taxable
companies are required to pay the full IRPEF settlement by the 16th day of June of the
following year of reference. If such day is a non-working day, the deadline is postponed
to the following working day.
For instance, a company that has to pay its 2013 income tax, will be required to pay it by
June 16th, 2014.
Remember that the full amount may be broken down into instalments. In addition, every
year the Inland Revenue may decide to grant an extension or an adjournment of
payment deadlines. Therefore, it is advisable to read the website of the Inland Revenue to
check annual deadlines.
The site is available at: http://www.agenziaentrate.gov.it/wps/portal/entrate/home .
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GUIDE TO THE PERSONAL INCOME TAX
THE IRPEF DOWN PAYMENT
In addition to the full settlement, a company is also required to provide for an IRPEF down
payment. The amount to be paid is equal to 99% of the IRPEF paid for the previous
budgetary year. Such amount may also be calculated by means of an anticipatory
method.
For example, if the IRPEF tax due for the year 2014 is EUR 1,000, the down payment to
be paid during the 2015 budgetary year will amount to EUR 990.
Please note that this percentage may vary from year to year, according to Inland Revenue
annual provisions.
Also, note that companies may divide the down payment into two instalments, 40% and
60% respectively.
In general, the IRPEF down payment must be paid in:
-
a 40% down payment first instalment (that may be divided into further
instalments): to be paid by June 16th of each year of reference;
-
a 60% down payment second instalment: to be paid by November 30th of each
year of reference.
Also in this case, should the deadlines be non-working days, they are postponed to the
following working day.
As already mentioned for the full settlement section, also these deadlines may change
from year to year. Therefore, in addition to visiting the website of the Inland Revenue at
the following link http://www.agenziaentrate.gov.it/wps/portal/entrate/home , seek the
assistance of an expert to properly plan tax payments.
THE COMPULSORY TAX RETURN STATEMENT
The tax return statement is a tax document that includes, among other things, the
corporate income value the company is required to pay.
This tax document must be filled in as part of the so-called "Unico" form and forwarded to
the Inland Revenue within its annual deadline. It is a rather complex fulfilment because
the tax return is divided into different tables and sections involving various tax aspects of
your business: its drafting often requires the assistance of an expert professional.
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GUIDE TO THE PERSONAL INCOME TAX
Except in specific cases3, the deadline for filling in and forwarding the tax return forms is,
in principle, September 30th of the following year of reference.
For instance, the 2014 tax return must be submitted by September 30th, 2015.
Further information on the tax return statement is available on the website of the Inland
Revenue: http://www.agenziaentrate.gov.it/wps/portal/entrate/home.
THE SECTOR STUDIES (STUDI DI SETTORE)
Sector studies are questionnaires prepared to collect information on how business
activities are carried our.
According to a number of statistical analyses, sector studies are designed to outline an
assessment on a company. In particular, the assessment describes the following
parameters:

congruity: it means that the value of the revenues published by a company is
assessed according to the expected value provided by these studies;

consistency: it means that the behaviour of a company is verified according to
specific economic indicators (the incidence of certain costs, added value, etc.).
Suppose, for example, that the value of your company's revenues is EUR 100,000 for the
year 2014. If the sector studies show that the average value of the expected revenues for
a company that has the profile as yours, ranges between EUR 95,000 and 110,000, your
company is "congruous". Also on the basis of these data, the Inland Revenue makes
certain reflections that may also lead to inspections and investigations. For further
information on these issues, please refer to the Assessment and Collection section.
Again, for the proper drafting of the studies it is advisable to be assisted by an expert.
What you need to keep in mind is that the sector studies are entered as attachments to
the tax return statement, inside the "Unico" form.
Whenever provided, their filling in and submission are required by law and must comply
with the deadlines set for the submission of tax return documentation.
For further information on this topic, please refer to the official website of the Inland
Revenue, at the following link: http://www.agenziaentrate.gov.it/wps/portal/entrate/home.
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The deadline is the same for any tax paying company whose budgetary year is the same as the calendar year. In
general, the tax return statement must be forwarded no later than nine months after the end of the year of reference,
if forwarded electronically.
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GUIDE TO THE PERSONAL INCOME TAX
PAYING WITH A F24 FORM
Several taxes may be paid by means of a standard form divided into tables and
sections, commonly known as F24 form.
The F24 form includes different sections, depending on the nature of the tax to be paid:

The Inland Revenue

The National Institute of Social Insurance;

The Regional Authorities;

IMU and other local taxes;

Other insurance and social security institutions.
The form must include:

the details of your business (tax code, tax residence, company name, etc.);

the year and the period reference;

the tax code (a 4-digit number indicating the tax);

the amount to be paid to the tax authorities;

possible tax credits available;

the date of the payment;

possible breaking down into instalments.
For instance, if June 16th, 2014 is the deadline to provide for the payment of the 2014
IRPEF full settlement and the amount is EUR 1,000, the company is required to enter the
following data in the form:
Section Inland Revenue - Duty Code: 4001 - Year: 2014
Amount to be paid: EUR 1,000
Date: 16 June 2014
For further information on the drafting of the F24 form and the details of each of its
sections, please visit the Inland Revenue website, at the following link:
http://www.agenziaentrate.gov.it/wps/portal/entrate/home.
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