Introduction and Background
The 2025 Italian Budget Law (L. 30 December 2024, n. 207) marks a pivotal step in Italy’s fiscal and economic strategy for the years ahead. Framed against a backdrop of global economic challenges and the need to foster sustainable growth, the law encompasses a range of measures aimed at simplifying the tax system, incentivizing innovation, supporting environmental sustainability, and ensuring social equity. By addressing structural inefficiencies and introducing targeted incentives, this legislation seeks to strengthen Italy’s fiscal resilience while aligning with broader European Union priorities.
This report delves into the key provisions of the Budget Law, explaining the changes introduced and contextualizing them with a comparison to the prior framework.
Key Amendments to Income Tax (IRPEF) Revised Tax Brackets
Revised Tax Brackets
Previously, the IRPEF system consisted of four brackets with tax rates of 23%, 27%, 38%, and 43%. The new law simplifies this structure by reducing the brackets to three:
• 23% for income up to €28,000.
• 35% for income between €28,001 and €50,000.
• 43% for income exceeding €50,000.
This reform reduces complexity while offering relief to middle-income earners, whose marginal rates now fall to 35% compared to the previous 38%. High-income taxpayers see no significant change, maintaining the 43% rate.
Enhanced Deductions for Employment Income
Previously, deductions for employment income were modest and often insufficient for lower income groups. Under the new framework:
• Deductions are significantly increased for incomes under €15,000.
• Fixed allowances are introduced, granting €1,000 for incomes up to €32,000 and progressively
reducing to zero at €40,000.
Employers will implement these changes automatically, simplifying compliance for employees.
Family Tax Relief
Under the earlier system, deductions for dependents were broader, including children regardless of age and family members residing abroad. The new measures:
• Restrict deductions for dependent children to those under 30 years old, unless a disability is certified.
• Limit deductions for family members abroad to residents of EU/EEA countries.
These adjustments ensure that relief is targeted more effectively while addressing compliance challenges.
Corporate Tax Reforms
What is IRES?
IRES, or Imposta sul Reddito delle Società, is Italy’s corporate income tax applied at a standard
rate of 24%. The Budget Law introduces significant incentives for businesses to foster
innovation and sustainable growth.
Adjustments to Taxable Bases
Historically, financial intermediaries could fully deduct certain expenses within the applicable
tax period. The revised law defers these deductions to subsequent periods, temporarily
increasing taxable bases for affected entities. Group taxation rules now also limit the
immediate use of carried-forward losses and ACE (Aid for Economic Growth) surpluses.
Incentives for Technological Investments
Previously, companies were taxed uniformly at the standard IRES rate. The new law incentivizes
modernization by reducing the IRES rate by 4% for companies that:
• Retain at least 80% of profits.
• Reinvest 30% of those profits in advanced technology assets.
This measure promotes technological advancement while linking benefits to tangible economic
contributions, such as increased workforce levels.
Digital Services and Crypto-Asset Taxation
Digital Services Tax (DST)
The DST, initially limited to narrowly defined digital enterprises, now applies to:
• Companies with global revenues exceeding €750 million.
• Revenues derived from digital services within Italy.
This aligns Italy’s tax policies with broader EU efforts to address the practices of digital giants.
Crypto-Asset Gains
Previously, cryptocurrency gains were taxed at 26%, with exemptions for gains under €2,000
annually. The new law introduces significant changes:
• The tax rate increases to 33%, effective January 2026.
• The exemption threshold is eliminated.
• Taxpayers may reassess the value of their crypto-assets as of January 2025, paying an
18% substitute tax on unrealized gains to establish a new tax base.
Compared to other jurisdictions:
• UK: Crypto gains are taxed as capital gains at rates of 10% or 20%, depending on total
income.
• US: Long-term crypto gains are taxed at 0%, 15%, or 20%, based on income levels,
while short-term gains are taxed as ordinary income at rates up to 37%.
Italy’s approach, with its higher rate, seeks to enhance compliance and increase revenue from this burgeoning sector.
VAT and Indirect Tax Adjustments
Training Services
Previously, ambiguity in VAT rules for training services led to inconsistent applications. The new
law explicitly subjects these services to VAT, providing clarity and standardization.
Reverse Charge Mechanism
Historically, reverse charge mechanisms were limited to specific high-risk sectors. The new
provisions extend this system to logistics and transport contracts, shifting VAT payment
responsibility to service recipients, pending EU approval.
E-DAS Documentation
E-DAS (digital accompanying document) requirements were previously applied selectively to
commercial energy product transfers. The updated rules mandate e-DAS use for all such
transfers within Italy, ensuring improved compliance and traceability.
Real Estate and Environmental Measures
Tax Deductions for Building Renovations
Previously, deductions for building renovations and energy efficiency upgrades were set at 36%,
with no differentiation for primary residences. The new law:
• Reduces deductions to 30% for most cases but retains 36% for primary residences.
• Extends incentives for seismic upgrades and energy-efficient appliances.
Employment and Social Measures
Fringe Benefits
Earlier, fringe benefit exemptions were capped at lower thresholds. The updated rules:
• Increase the exemption to €2,000 for employees with dependent children.
• Raise the exemption to €1,000 for other employees.
Eligible benefits now include housing, utilities, and educational expenses, enhancing employee
welfare.
Productivity Bonuses
Previously, productivity bonuses were taxed at a 10% substitute rate. The new law reduces this
rate to 5% for bonuses issued between 2025 and 2027, incentivizing performance-linked pay
structures.
Special Economic Zones (ZES)
Tax Credits
Earlier tax credits for ZES investments were limited to specific periods. The new law extends
these credits for investments completed by November 2025 and streamlines administrative
processes for faster approvals.
Implementation and Compliance
Life Insurance Tax
Previously, stamp duty on life insurance communications lacked formal structure. The new
rules formalize the duty at €2 per thousand, with phased payments easing the transition for
existing policies.
Modernization of Tax Compliance
Earlier systems for fiscal reporting and electronic payments were fragmented. The updated
framework mandates integrated systems, improving data accuracy and reducing evasion.
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