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Italy's 2017 Budget, including its business tax cuts, received parliamentary approval on December 7, becoming the final act of Premier Matteo Renzi's Government before his resignation following the adverse referendum result.
The Budget's approval protects 2017's programmed fall in the Italian corporate tax rate from 27.5 percent to 24 percent. It is also confirmed that all business taxation can be taxed at this same rate next year.
For small businesses, including sole traders and artisans, who are currently taxed under individual income tax (IRPEF – with a maximum rate of 43 percent), the Budget introduces a new 24 percent "tax on business profits" (IRI). It will be at the option of those business owners who have previously chosen to be taxed under the existing 15 percent fixed rate tax regime whether to move to IRI.
The extension into 2017 is also confirmed of the current "super" depreciation allowance of 140 percent, which is currently available for purchases of machinery and equipment. A further "hyper" depreciation allowance of 250 percent is introduced for investments in digital technology.
In addition, the present 25 percent tax credit that is available in respect of a company's additional research and development expenditure is increased to 50 percent, and the maximum tax credit rises from EUR5m (USD5.3m) to EUR20m per company.
The tax deduction for investors in start-ups is increased from 19 percent to 30 percent for investments per contributor of up to EUR1m (previously EUR500,000), while the limits governing the 10 percent flat rate of income tax available for an employee performing work that benefits a company's productivity are also to rise.
The Budget introduces a 50 percent tax deduction for spending on anti-seismic measures to support the reconstruction of areas being affected by the recent earthquakes in central Italy. For properties located in the areas considered most at risk, the tax deduction is usable over an extended period – from January 1, 2017, to December 31, 2021.
The maximum amount of deductible anti-seismic spending on a property over any one year is EUR96,000, and the deduction can be used in five equal annual installments. The tax deduction can rise up to 80 percent if the work affords better anti-seismic protection, or 85 percent for spending on a condominium.
The 50 percent tax credit for expenses incurred in restructuring buildings is extended for a further year to end-2017, and is also available for work on condominiums and hotels. The 65 percent tax credit for energy-saving spending on properties is also renewed.
Finally, the Budget has allocated sufficient funds to ensure that the value-added tax (VAT) safeguard clause, which has been a feature of recent Italian budgets, will not be triggered next year. The clause provided that Italy would hike its 10 and 22 percent VAT rates by up to three percent in 2017 if it missed this year's fiscal targets. However, a safeguard clause is included in the new Budget, and VAT rate rises remain a threat for 2018 and 2019.
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