Milan proposes an attractive tax regime – interplay with existing Italian tax rules and some key points

Milan, Italy panorama. View from Milan Cathedral. Royal Palace of Milan

Global Tax Alert

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In the international competition for investors and multinationals, Italy has emerged as a contender. Now the Metropolitan City of Milan has upped the ante, seeking to provide its own incentives to attract more investments into the city.

The new proposals, working together with attractive rules that are already in place at the national level, are intended to make Italy in general, and Milan in particular, an attractive location for multinational groups seeking to relocate their head offices and holding companies.

Proposal for Milan: top points

The Metropolitan City of Milan has proposed measures that aim to attract new investments and encouraging companies to establish themselves in the city. Atto Camera 4456 (first signatory Maurizio Bernardo, president of the Finance Committee in the Italian Chamber of Deputies) introduces a set of new tax provisions to promote "growth of the national economy through the enhancement of investments and the establishment of enterprises in the Metropolitan City of Milan."

Companies moving to Italy and establishing their headquarters in the Milan metropolitan area would benefit from:

  • Reduction of regional tax on productive activities (IRAP) ‒ provided that beneficiaries hire at least 50 workers under permanent employment contracts
  • Tax reduction at the level of employees with reference to some fringe benefits (children's school, household, insurance, journeys from and to the country of origin)
  • A favorable interest restriction rule providing deductions for net interest expenses up to the higher amount of (i) 30 percent of the earnings before interest, taxes, depreciation and amortisation (EBITDA) or(ii) €3 million (in accordance with the EU Directive 2016/1164 of 12 July 2016)
  • Tax benefits for new real estate investments (registration, mortgage and property taxes applicable at fixed amount, provided that the investment includes the hiring of personnel)
  • Withholding tax lowered to 1.2 percent on dividends paid to companies resident in non-EU countries exchanging tax information with Italy (this is an extension of the regime already applicable to EU countries)
  • Free access to cooperative compliance regime and to advance tax ruling on new investments.

Interplay with existing rules

These proposed rules for Milan work in conjunction with other existing national rules that have been put in place to make Italy a competitive location. While these measures do not represent a comprehensive tax reform that would significantly reduce the effective tax rate of multinational groups, with their goal of making Italy a taxpayer-friendly environment, they do signify a reversal.

The recently introduced provisions on legal certainty and stability of tax rules are of great significance, because such considerations are often as important for multinational groups as are low tax rates. More specifically, the cooperative compliance regime provides an opportunity for multinational groups to cooperate and "agree" with the tax authorities on applicable tax treatment, thus reducing their tax risks. The introduction of an international ruling system makes it possible to obtain preliminary opinions from the financial authority on a wide range of international tax matters, including transfer pricing and questions relating to permanent establishments.

Nationally, Italy has already put in place additional taxpayer-friendly measures with respect to corporations, such as the patent box regime (providing tax benefits for certain income from intangible property), allowance for corporate equity (incentives for equity injections in the share capital of corporations), "hyper" and "super"-depreciation (iperammortamento and superammortamento) for qualifying research and development expenditure, the reduction of the overall corporate tax rate to 24 percent, and regulations concerning innovative startups and IRI (corporate tax rate on individual business income). These measures work together to attract multinationals to Italy.

Finally, an additional set of provisions has been introduced to attract highly valuable "human capital"(including self-employed professionals) to Italy. These measures recognize that a large number of Italian enterprises are open to hire such new arrivals and that such individuals moving to Italy bring expertise and know-how which are needed by Italian companies, entities and cultural institutions. Three main streams of measures have been set forth to enhance Italian economic, scientific and technological development: (a) incentives for individuals moving their fiscal residence to Italy (eg, "new residents"; special visa for investors; the highly qualified workers' regime); (b) favorable measures for corporate welfare (that provide benefits both for corporations and employees); and (c) tax treatment of carried interest (to be considered in some cases as capital income).

These rules are expected to be generally compatible with EU law, including the EU state aid rules.

Find out more about these new development by contacting the authors.

Click here for a related article in Il Sole 24, Italy's leading daily business newspaper.