Permanent staff
The deduction of the total cost of permanent employees is the most significant, and has sharply reduced the weight of the tax for businesses with stable staff.
Companies · Taxes
IRAP, the Italian regional tax on business
IRAP is charged on the value of production, not on profit: you can make a loss and still have to pay it. Since individuals were excluded, it has remained a tax on companies, but the question of autonomous organisation has left many people with credits to recover.
01 · The basis
What the IRAP regional tax is and what it applies to
IRAP is the regional tax on productive activities. It applies to the habitual exercise of an autonomously organised activity aimed at producing or exchanging goods and services.
The difference from income taxes is substantial: the taxable base is the net value of production, meaning revenue less costs, excluding certain non-deductible items: first of all, labour costs in their original form, and interest expense.
- It applies to the value of production, not to profit: you can have to pay it even when making a loss.
- The standard rate is set by law, but the Regions can vary it within limits.
- It has different rates for some categories, such as banks, insurers and public bodies.
- It is paid with the F24 (the Italian tax payment form), with a balance and advance payments on the same dates as income taxes.
- The IRAP return is separate: it is not part of the Redditi (income tax) return.
Individuals carrying on commercial activities, arts and professions have been excluded from IRAP. Partnerships, companies, other entities and professional associations are still liable. It is the change that did most to simplify the position of sole proprietors and self-employed professionals.
02 · Who is liable
Who is liable to pay IRAP
Since individuals were excluded, the group of taxpayers has shrunk but remains broad.
- A family business follows the rules for the owner's sole proprietorship.
- Partnerships remain liable even when the partners are individuals.
- A professional association is liable; the individual professional who belongs to it is not.
- Non-commercial entities use the payroll method for their institutional activity.
- Taxpayers under the flat-rate scheme are excluded as such.
| Taxpayer | IRAP due? |
|---|---|
| Sole proprietorship | No, excluded |
| Professional working as an individual | No, excluded |
| Società semplice, SNC, SAS (partnerships) | Yes |
| SRL, SPA, cooperative | Yes |
| Professional association and professional company | Yes |
| Non-commercial entities | Yes, with criteria of their own for institutional activity |
| Taxpayer under the flat-rate scheme | No, excluded by the scheme |
03 · The taxable base
How the value of production is worked out
The starting point is the income statement, with different rules depending on the taxpayer.
The accounts method
For companies: you start from the value of production and production cost items in the statutory income statement, with specific exclusions.
The tax method
For partnerships and businesses keeping simplified accounts, with the option of choosing the accounts method.
Excluded items
Staff costs in their basic form, interest expense, write-downs and provisions are in principle non-deductible.
Deductions
A series of deductions reduces the base: the most significant is the one for the cost of permanent employees.
Why you pay even when making a loss
The mechanism, in one line.
- The taxable base starts not from profit but from the value of production
- Labour costs and interest expense do not reduce the base as they would for income tax
- A loss-making business with many employees can have a positive value of production
- The deductions for permanent staff soften this effect a great deal
04 · What reduces the base
The main deductions
This is where the savings are concentrated, and where most mistakes in applying the rules are made.
Insurance contributions
INAIL (workplace accident insurance) contributions are deductible.
Apprentices and disabled workers
The full cost of apprentices, disabled workers and staff on training and work contracts is deductible.
Flat-rate deduction
Available to smaller taxpayers, decreasing as the taxable base grows.
Increases in employment
Deductions linked to hiring new staff, under the measures in force.
Research and development
Costs for staff working in research and development have a dedicated deduction.
05 · The deadlines
How and when IRAP is paid
The deadlines follow those for income taxes, and the balance and advance mechanism is the same.
- The balance for the previous year and the first advance are paid together, on the ordinary due date.
- The second advance falls later in the year, at the set percentage.
- Advances are worked out on the historical method or the forecast method; with the second there is a risk of penalties if you pay too little.
- Payment is made with the F24 using separate tax codes, with the receiving Region stated on the form.
- The balance and first advance can be paid in instalments, with the interest provided.
- The IRAP return is separate and is filed within the set deadlines.
Businesses operating in more than one Region must split the taxable base among the Regions concerned, according to the pay of the staff employed in each. It is an obligation that businesses with offices or sites outside their main Region often miss.
06 · Past years
IRAP paid but not owed
Before individuals were excluded, the question of autonomous organisation generated a huge volume of litigation. Many professionals paid tax that was not owed.
- The requirement was autonomous organisation: without it, the tax was not owed even before the exclusion.
- The indicators considered were the absence of employees, of business assets beyond the bare minimum, and of other people's work on more than an occasional basis.
- A refund is requested with a formal claim within the time limit running from the payment.
- If the tax authority stays silent beyond a set period, this counts as a refusal, which can be challenged.
- You need to document the actual structure of the activity in the years concerned: return sections, asset registers, absence of staff.
- It is worth checking the position of anyone who, as a professional or small sole trader, paid IRAP in the years that are still open.
The time limit for a refund claim runs from the payment: every year that passes closes another one. If you have never checked your position, it makes sense to do so now, because recovery only covers the years still within the time limit.
Frequently asked
The questions that keep coming up
I have a sole proprietorship. Do I have to pay IRAP?
No. Individuals carrying on commercial activities, arts and professions have been excluded from the tax, so sole proprietorships and individual professionals no longer pay it.
Partnerships and companies remain liable, even very small ones, as do professional associations.
My SNC is making a loss. Do I still have to pay it?
Probably yes. The IRAP taxable base is not profit but the net value of production, which does not treat labour costs and interest expense in the same way.
The deductions for permanent staff reduce this effect a great deal, but a loss-making business can still have a positive value of production and tax to pay.
I paid IRAP for years as a professional. Can I get it back?
If you worked without autonomous organisation (no employees, no regular collaborators, business assets limited to what was essential), the tax was not owed even then.
A refund is requested with a claim within the time limit running from the payment, so only for the years still within that limit. You need to document the actual structure of the activity in those years.
How is IRAP split between Regions?
The taxable base is split in proportion to the pay of the staff employed in each Region, when the business operates in more than one through a permanent establishment.
Each Region can have a different rate, so the split affects the actual tax. It is an obligation that businesses with sites or branch offices often miss.
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If you paid it without owing it, you can still ask for a refund
Professionals with no autonomous organisation paid IRAP for years. Within the time limits, it can be recovered.